CEO Joel Block on McNallie Money_

I actually started in the trad-fi world. I spent just under 10 years at the bank formerly known as Credit Suisse on the trading floor in the fixed income space. I spent most of my time in the interest rate derivatives and we'll come back to that in a minute because it's kind of gone full circle as the name of the game recently as companies are making the AI and HPC transformation is Credit and the capital stack. I spent about 10 years after that doing various entrepreneurial pursuits, did some investing, did some advising and operated at companies in a bunch of different industries. I got into Bitcoin mining in early 2021. I made a private investment in a small Bitcoin mining startup called US Bitcoin. I went on later that summer, early fall of 2021 to go partner with Asher, Genoot and Mike Ho at the time and teamed up with them was CFO of US Bitcoin for about two and a half years and I led the merger with Hut 8. My former friends and colleagues are running Hut 8 today as that's kind of made a pretty big transformation. I took about a year and a half off to kind of reset which I think at certain points in people's careers is important to kind of get the bearing straight, spend some time with the family and last summer I had an ability to come back into a small Bitcoin miner called Cathedra Bitcoin. We were already listed on the TSXV. I ran that for several months and then we started to explore some growth in different capital opportunities and so that led us to a merger with Sphere 3D, the NASDAQ listed Bitcoin miner. That closed earlier this year in June 1st of 2026 and fast forward to about six weeks ago we did a full rebrand and a rename to DarkHorse Technologies. So all the assets, the power and land portfolio is operating under DarkHorse Technologies now. The ticker is DRK and it's all under one umbrella.

There was a lot of symbolism in it. I think there was a couple pieces you know the horse that comes out of the back of the pack and maybe starts leading. Also I think one that maybe takes a slightly different approach and a different direction than the others as you think through maybe some people are zigging and we may be zagging and I think that's well suited to the model that we're rolling out which is smaller sites potentially better suited for inference plays and kind of quicker deployment opportunities.

Certainly so we've got four sites right now operating online about 50 megawatts of power and capacity that we're currently utilizing all four sites are in the TVA the Tennessee Valley Authority power market primarily in southern Kentucky and Tennessee as well the the sites today are being used for bitcoin mining we we're not doing self-mining we've transitioned to a hosted model for third parties. Bitdeer is one of our large clients and customers in our sites right now and so that model is to kind of bridge the gap as we work on this transformation and kind of move into the AI/HPC and we've got flexibility in those agreements so that when we have to start doing site work that may impact where the bitcoin mining is and we start bringing kind of the modular pods or prefab options to do the AI/HPC we'll be able to kind of turn off and transition those sites over.

We recently announced in the third quarter a new 50 megawatt power agreement the interesting thing about that opportunity is it's in the same community where we're currently operating a 15 megawatt data center so it's a community we know well it's a local utility where we've been working with for a number of years and they've been working hand in hand with us and it's been a really nice partnership with them the opportunity there is we're going to be building a new substation for the community it's going to be a 65 megawatt substation we'll get access to 50 megawatts of that power and then 15 megawatts will be able to be used for local businesses expansion on residential and the local needs that they have.

Yeah I think it starts with taking a proactive approach and not kind of hiding behind things and letting this misinformation kind of permeate throughout the region. We've been having a lot of town halls and active dialogue we've built a website specifically to answer questions and we gamified a little bit of it so that people of all ages and all backgrounds can kind of really understand the truths and the myths behind this. I think one of the things that we've been very clear on pointing out is at a local level we have not gone in and asked for tax abatements or rebates in these local cities and so as you think through personal property tax both real and tangible personal property there's going to be significant tax revenue generated for these local communities to be able to invest in their school system and their emergency systems in the government and those pieces there and so I think that's been really important. I think the other thing is you know in that town in particular we've had the head of that utility go on record and say the reason why your electricity rates have not risen over the last three years is because DarkHorse has been operating in our town. They've been a very good partner of ours and they acknowledge that we've been a very large rate payer as we've been running the Bitcoin mining and the hosted and so I think that's been a big opportunity to really get out there and explain you know the the truths behind this the good and what the benefit can be for the communities.

Yeah the third quarter was the first full quarter where we were operating as a combined company under DarkHorse. One of the major things that we did was shored up the balance sheet and made sure that we have plenty of liquidity and capital on there and so between about a five million dollar pipe round that we did in September that was led heavily by myself and a couple fellow directors to support kind of the stock and the investments and in addition to that we put some cash in the balance sheet by selling off a non-core site in Iowa. It was a smaller site and geographically it just didn't fit into the portfolio that we were looking to develop and expand and the third piece is we sold off a number of the self-mining Bitcoin machines that we had to put more cash in the balance sheet. So we ended the third quarter with a pretty strong cash position on the balance sheet and I think that was important as we make this kind of transformation and start fueling some of the growth capex on the pre-development stuff on the AI/HPC. So that was kind of a major item. The second thing that occurred was the new Bitdeer hosting agreement that we announced several months back. Those machines started to come online across our sites and as we sit here today now post third quarter all those machines are up and running and have been delivered from Bitdeer. So you'll see that kind of trickle through probably into the fourth quarter and a couple quarters on the future and again I'll remind everyone that we partnered with them but we built flexibility into those agreements and so that will not stop us from the pursuit and development of the AI/HPC. I would say those were the major impacts we had in addition to adding more power and power opportunities into the pipeline.

Yeah, no it has a feature of the profit share component into it. So we will maintain a little bit of Bitcoin potential upside if hash price continues to rise but at the same time it's more it's seen as a stabilizing effect to our current business and kind of the current cash flow margins while we work through the growth opportunities.

Yeah, I think the first thing that we've always looked at is we had the benefit of operating existing data centers in these local communities and so as we look at expansion, kind of speed to power is going to be the first thing. Are they power ready and is there already power there? And there's a number of opportunities in the area where we're operating that are being brought to us either by co-op utilities or potentially by private landowners or even some private Bitcoin miners that are looking to figure out how to monetize and transform. I think after that you want to make sure that they're in the right location. There is a lot of zoning in place already for light industrial, heavier industrial and commercial where we believe that a lot of these data centers should be operated and built and they really should not be closer to the residential areas or near the schoolyards and I think when you do that, if you go in that direction, you're starting off on the wrong foot immediately with the local town and trying to get the approvals. I think beyond that, we early on said we're going to end up doing a prefab or modular option. We wanted to mitigate some of the labor challenges that some of the hyperscalers are facing in these different locations and so our philosophy has been let's manufacture the pods or units or whatever the housing of the data room is going to be off-site and then assemble it on-site and I think there's a couple key distinctions with that. First, they're being built in a factory that is meant for these designs and there's already labor there with the companies that we'll be contracting with. The second is we'll still be using the local resources for skilled trades whether it's electrical, engineering and all the different subclasses of that and so we want to make sure that we are employing local and building jobs and opportunities where it makes sense but also not taxing or stretching and kind of labor concerns or shortages and so that's been a key component to this.

So the first 50 megawatts we have online today, they're already powered on and so we're actively pursuing tenant conversations and navigating the differences as the market's evolving and we would anticipate and are aiming to have those online in 2027. The second, the truck stop, the new 50 megawatt because we have to build the substation and partnership with the utility and the TVA approval, we're signaling that that would be a 2028 event most likely. There's some things that we may be able to do to kind of pull things forward in terms of a quarter or two but 2028 would be the time frame that we would target for that and then the next piece to this is people have been asking, well what should we anticipate for build type? Is that going to be a more traditional data center because it's slightly larger or not? We have not predetermined that necessarily and I think if anything, the willingness to move into the modular and prefab is becoming more and more kind of entrenched by both tenant types and suppliers. You see a large deal last week on a powered land deal that's just under a gigawatt down in Texas that's going to be built in the modular or prefab variety and so I think the key theme for us is flexibility and keeping our options open as we design that to match what a tenant may need.

Yeah I would say the the conversations have only picked up steam and the opportunities have kind of broadened there's much larger counterparties that are speaking to us today that were not six months ago. There's a number of counterparties in the the IG corporate rating standpoint that are talking and or potentially willing to provide some type of backstops or wrappers and so the universe for us has definitely expanded. I also think coming out of the election you know about a week ago there's created a bit of concern about the deliverable dates in different markets in different regions in terms of things are things going to get delayed. I think there's a lot of unknown right now and I think in a scenario where there's a lot of unknown people are chasing the sure thing and where that opportunity may lie and so we've had a number of calls post-election even in terms of hey have you signed a deal yet is your power available what that could look like. I think the other thing you look at some of the other deals in the market right now is you're starting to see hyperscalers and larger tenants look at different areas of supply chain and I think that was a factor in the large deal that Riot announced last week. It seemed like you know their tenant likely is going to be bringing a lot with them and so I think the market and the dynamic is definitely shifting and there's a willingness to kind of work almost in a partnership versus a one-sided you must deliver all and then the other side comes and takes it over.

I think there's one distinction in there we don't intend right now to own the GPUs we may as part of a contract provide operational services which we would outsource to a very qualified third party and that would likely be done on a pass-through basis so in terms of the co-location model absolutely that is our plan to build the powered shell whatever that form of that shell looks like bring power to those units work with the tenant to get the GPUs that they own installed and then we will figure out the operations some tenants are asking to operate themselves others are looking for you to come with that solution that is a solution that we have and we can deliver on a cost you know cost plus basis.

Yeah I mean I think this is the the creative problem that that myself and other leaders in this industry get to get the work to solve and there's another there's a number of kind of templates that could work and my guess is there's a lot more that will still evolve and develop and I think with that you mentioned one lever in particular which is kind of what is the deposits or prepays or pre-funding that a tenant is willing to do and and I think what you're seeing right now is it's different by tenant you may have some smaller Neoclouds or even mid-sized Neoclouds where they've got large equity funding maybe they were VC backed and they raise a lot of money in the private markets most of their money they're trying to deploy towards chips and GPU purchases and so they're balancing how much they need to pay on rents and leases versus deploying more equity down in the GPUs. You have more hyperscalers and maybe more IG credit who have a lot more cash in the balance sheet more liquidity access to more lines those are those are the groups that are willing to kind of work with you and often prepay more to secure that right to access the power and so there's an interesting dynamic there. The third thing I mentioned you're starting to see this across the industry is that there's a number of creative joint ventures and structures that can be evolved sometimes with the tenant sometimes with a third-party investor sometimes with like an infrastructure fund either on the credit or equity side and those are conversations that myself and my capital markets team are actively engaged with because there's kind of the circular component right you need a tenant you need a tenant that is financeable so you can deal with capital stack and then you need ourselves who's going to be building out and being able to develop the data center and you've got to get all three of these pieces to line up.

Yeah I think one thing that we've designed the portfolio is to preserve the flexibility and optionality what we've seen recently is many of the potential tenants or off-takers that we're speaking to are looking at this on a potential portfolio basis and they kind of get this distributed compute across a couple of sites and as we look to scale and grow with and develop our pipeline I can see that becoming a play. It's not that we are kind of married to that idea and we would look at potentially a single tenant or multi tenant as single site but right now at least in terms of the design and phase we've been going through all the pre-designed work on all sites about the same speed and fashion so we would have the ability to kind of deliver the 50 megawatts we have online. My guess is it will come in kind of stages maybe over across a period of months where five or ten megawatts comes online in month one then another 10 megawatts in month two and it will likely be specific to the the actual design build that we go with in terms of the the megawatts and critical IT that each pod or each module takes is likely what will get turned on in a sequencing fashion but we have not committed to saying that you know this specific site in this town in Kentucky will be our first site because most of the conversation we've been having have been more on a portfolio basis than on a single site basis.

I would speak broader than just Bitdeer specifically we're having many conversations with many parties both in the local industry of offering co-location AI/HPC and beyond. I think what's interesting and if you go back to kind of the Bitcoin mining days there was a lot of partnerships there was a lot of kind of cross working together oftentimes a competitor would be a tenant if they they had extra mining machines and they needed to be a resource and so there was always a lot of collaboration and I think that spirit has kind of moved move forward maybe it's added some different layers to it but we've been having a lot of conversations that that potentially could broaden from a partnership standpoint or joint venture standpoint.

Yeah I think you know at the federal level state level on the very local level in the early days post-election we have not seen any change and of anything we've seen increasing willingness I think people were kind of waiting for that date to pass and there was a lot of rhetoric and commentary going into it and I think you know people as they're running their elections and their campaigns across the country will be fairly outspoken and try and rally a base going into the election and then I think you know the next day people wake up and they say all right it's time to roll up our sleeves and figure out where we can get some middle ground. I do think that a lot of data centers will get built I do think that there will be an opening I do think that there's going to be some more structure around them and some more rules and to be fair I think many that will benefit and should benefit these local communities and so I think you're going to see that come about in the coming months in the next kind of two-year cycle where there will be a bit of the meeting of the minds and a lot of discussions that take place for the positive.

I think it's an important question I think the first thing we did is we were being honest with ourselves and we recognized that to build the tier three data center or anything above that level is a very different build type than the Bitcoin mining facilities that we had and other industries as well and so the first thing we did was we tapped into our networks we said who around us knows this as experts and we brought on a group of professionals that are data center veterans from everything from the build and design to the end state which is the operations after the centers are built so we have that now on our team. The second thing is we went to the broader market and said which professional services and which companies are really good at this so we brought on a very large engineering firm and specifically a group within the engineering firm that can design a platform of smaller modular data centers so they're very focused on making this scalable and repeatable so in our mind we're not just building for our first data center or second but we're already planning for the future and everything from pre-budgeting and design and permitting all the steps that were put in place on our existing sites today are things that we believe will be scalable and repeatable as we add more sites into our pipeline. We've made inroads for general contractors we've made inroads in terms of partnerships on supply chain and procurement and project management and so these are all the different resources that we've been recruiting and building in our team over the last six months kind of in anticipation of this transformation.

Yeah no I think it's a good question and I think you got to go back let's say to 2020 or 2021. It's interesting when you spoke to bankers, deal makers, different partners in that industry I think people were anticipating consolidation sooner than it happened and it probably created a market disruption which was kind of the crypto winter of 2022 and then out of that you had distressed companies you had some bankruptcies you had some assets changing hands but I remember talking even in early in late 2021 with a number of people both within companies and let's say from the investment banking side and thinking consolidation was coming very quickly. You know as I view the world right now we at DarkHorse have a first philosophy of own the power and land and that that is the core asset that we want to continue to develop and we'll do that organically and likely inorganically. Organically it's happened naturally with conversations with communities, with local co-op utilities. There's opportunities being brought to us because we've been a good community partner in these local markets and then we'll always be open to inorganic opportunities that are accretive to our shareholders and we'll look at that. So I think you know to sum that up I would anticipate consolidation. I think it's too early to tell people when and make a prediction on that and I think if you look back at prior cycles people were probably right but maybe got their timing slightly off and I think that's what's going to be an interesting dynamic that plays out.

Thank you guys now I appreciate the time today I would just sum it up that the third quarter and probably the next few quarters we're actively going through kind of this transformation all of our mind share and our wallet share is being invested toward these growth capex opportunities to fuel kind of getting the sites ready for the AI/HPC transformation. We made a lot of headway on the pre-development work, pre-construction work, local level engineering plans, site studies, permit packages and you know I would anticipate you seeing further updates on that and potentially moving towards the more engaged tenant discussions in the months to come. So I appreciate the time today and looking forward to chatting with you all again.