Adam Sullivan Transcript
Clint Betts
Adam, thank you so much for coming on the show. It means a lot. You've been through a lot this year, which I want to talk about. But first, just tell us about how you became the CEO.
Adam Sullivan
Sure. I think it would be helpful too if we give a little bit of background of Core Scientific as well-
Clint Betts
Sure.
Adam Sullivan
... because it leads into how I came to this role. Core Scientific, we're the largest Bitcoin miner in North America for the past three years. We also host equipment for other customers in our data centers. We design, develop, and operate digital infrastructure for compute that does not require the traditional data center space. So, unlike traditional data centers, which require a lot of extra equipment, technology, and considerable other high-expense items to manage the environmental conditions, we don't need those extra capabilities and costs. And so, from our perspective, we really focus our growth on that segment of the industry. Now, how I came to this role is interesting. So I've been an investment bank for the greater part of my career, most recently running what was the most active crypto investment banking team on Wall Street.
We actually founded the team back in 2017. I came from a hedge fund and moved into the investment banking space, which we can talk about, but a big focus of our practice was Bitcoin miners. We had worked with many of them since their foundings since many of them were in their infancy. We worked on a range of initiatives, but our main focus was really on broad corporate strategy, M&A, and capital raising. It was really interesting being able to work through all these challenges and opportunities with each of these companies, which really gave me a unique view on this industry. And how I came to Core Scientific was I actually helped take them public back in 2022, so I was intimately familiar with the company, intimately familiar with its management team, and so really it was a natural fit as they were looking for president back in 2023. So, I joined Core as President in April 2023 and became the CEO in August of last year.
Clint Betts
And what was the process of taking them public back then? You're in an interesting industry, with blockchain and cryptocurrencies, and that being what everybody should be doing maybe two or three years ago to maybe having a little bit of attain on it now, which I'd love to talk to you about a little bit later. But what was the process like taking it public? And what was it like being public that first time?
Adam Sullivan
Yeah, so we started helping take them public back in 2021. The company initially came public via SPAC. That SPAC was actually owned by our company, XMS Capital Partners, as well as a sister private equity firm as well. And so we were not only involved on the capital side in helping them raise capital, but we were also the advisor on the banking side, so helping craft the narrative for public markets. And it was really interesting. Obviously, it was back in the heyday of SPACs back in 2021 when this process began. And it was a crypto-focus company, which was a double-edged sword, and definitely something that was both a big focus in the public markets at the time but also was really a hot topic amongst regulators. And so we went through a pretty arduous process, an arduous review process, but it was a really exciting time in the industry. I was not part of the company once they became public. I was just an outside advisor to them, but we were public for about 11 months, and the company entered into a Chapter 11 process in December of 2023.
Clint Betts
What was the conditions that led to that? Was it just like the crypto winter basically?
Adam Sullivan
Yeah. You take a company that had been going through such aggressive growth for five to six years, really focused on infrastructure growth. We built the largest infrastructure footprint for Bitcoin mining in North America, something that we still hold today, that lead. And so we entered 2022, the expectation to mine a certain number of Bitcoin, and we were holding a significant amount of Bitcoin on the balance sheet. So, we had over $600 million in Bitcoin on the balance sheet. And as Bitcoin started to fall, that not only hurt our income statement but also hurt our balance sheet and our treasury. And so we saw Bitcoin prices start to fall by the summer of 2023. We began selling Bitcoin, but a lot of the damage had already been done. On the income statement side, margins began to become compressed, and then we got hit by the war in Ukraine spiking natural gas prices.
And so we had lower margins, our treasury was coming down because Bitcoin was falling, and we were significantly levered. So we had about 1.1 billion or just over a billion dollars in debt. And so it became a leveraged free cashflow compression situation where we just didn't have the free cash flow to support our debt load.
Clint Betts
And since that time, you've gone through this restructuring process. What has that been like?
Adam Sullivan
It was a really great cleansing process for us as a company. Very few companies that have grown as aggressively as Core did have the opportunity to take a year and say, how do we improve our business as a whole? So we took that year, and we really focused on a few things. The first was improving the efficiency at a facility level. So we've had the opportunity to actually improve our efficiency, something that you can see in our results when you compare us to other large-scale miners. The other part is we went through an entire reorganization process internally. It was a really healthy part because we had gone through so many different steps of growth as a company and so many different opportunities that we had pursued, and so we had the opportunity to really refocus each of our teams and reorganize the business. And the last part was we were able to clean up our balance sheet.
So, in this industry, having a high leverage or having high leverage is hard. We're in a volatile business. And so we've lowered our debt load by about 400 million, and we've added a lot of optionality into our capital structure so that if we do perform well, we should be able to eliminate all of that debt over a period of time, which is something that we're really happy about because we believe that we're going to operate well going forward.
Clint Betts
How have you managed that? That sounds stressful, what you just described. How have you managed that over the past year? How have you led yourself? How have you led the team? How did you view that time period as a leader, as the leader of the company even? And how did you maintain optimistic outlooks and really rally the team around the vision of this thing?
Adam Sullivan
Yeah, at our core, we had very strong operations. That's something that we've really prided ourselves on throughout the course of our entire Chapter 11 process. For me, I came in as fresh blood. In April of 2023, we're about four months into our Chapter 11 process. Chapter 11 processes can really hurt a team unless they understand what's going on, they understand the vision for the company, and they understand where we're trying to go. So that started as a level setting from day one, which is, what are our goals? Let's set goals that are high enough where we know we have to work hard every single day for us to achieve them. That instills a sense of urgency in long-term goals that people don't always have, right? So it's like you can set these long-term goals of saying a year from now, we want to be at X. My perspective, you should set it at Z so that X is the worst case scenario where X... That's your fallback plan, is what you would normally reach for.
So it was really about setting a sense of urgency inside the company that we only have a certain amount of time before we're back on the playing field. Our re-emergence was essentially going from the summer NFL games that you play, or the fall games, or the games before the regular season starts, preseason, and then you're back on the playing field, right? And so it was, let's practice its game speed and put in the right processes so that when we finally get back on the playing field, we're ready to play at game speed. And we've done a number of initiatives internally, we can talk through them, but really just communicating, being transparent in what our goals are, not only to our employees but also to our investors who we were in regular conversations with, given the process that we were going through,
Clint Betts
You're obviously back, relisted. What was that process like?
Adam Sullivan
It was a long process to go through our Chapter 11 process, but the past few weeks have been really exciting for us as a business. We had the opportunity not only to relist on January 24th but then we had an opportunity to ring the closing bell on the NASDAQ on that Friday. Really unique opportunity for the team to celebrate a lot of hard work that went in through that process. A lot of late nights. Everyone from our data center employees to our executive leadership team we went through a lot throughout the course of chapter 11, and bringing the bell was one of those moments where it was... It was the closing of one chapter in the opening of the next. And so it was great for me, but I know how great it was for the rest of our team.
Clint Betts
That's incredible. I actually don't know this. Did you go through a SPAC again?
Adam Sullivan
No, we relisted, so we directly listed. So, we continued to trade on the OTC throughout the course of the Chapter 11 process. So, we went through a simple, uplifting process to get back onto the NASDAQ.
Clint Betts
Okay. Yeah, that makes sense. What does a typical day look like for you?
Adam Sullivan
I think you need to bifurcate the days between when we were in a reorganization process and where we are today. During a reorganization process, it looked a lot different. The time that you would normally spend on the reorganization process is time that you should be spending on the growth of the company. So I would say during the reorganization process, we were probably 40% focused on the bankruptcy, focused on the negotiation of our plan. About 40% of the time was really focused on rebuilding and reorganizing the company internally, and then 20% was really focused on our future go-forward strategy. That's bifurcated, though, between a company in crisis mode versus a company that is focused on growth in the future health of the business. We were really focused on making sure that we set that North Star and communicated that accordingly throughout the course of our Chapter 11 process. But as we've shifted back to a public company, now the focus for me is how we push our company beyond what our current business plan is.
I would say it's come down to a number of factors. And I would say one of the things that we're focused on most today is where do we take all of our assets. Where do we take all the infrastructure that we developed and really focus it on capturing the best business opportunities we have going forward? And so we have a really aligned team internally and with our investors. And so I think we're all really excited about where we can take this company.
Clint Betts
What might be useful... I'm not sure a lot of people watching this or listening to this may not completely understand what a blockchain computing data center does and how you mine. I assume you mine primarily Bitcoin, but are you mining other cryptocurrencies as well? I think it might just be useful to give a little primer on what a blockchain mining data center does.
Adam Sullivan
A Bitcoin mining facility is almost identical to a traditional data center, minus a number of different electrical components. So, what do we do at our core? Bitcoin miners solve blocks, so it's in the name blockchain. Every 10 minutes, a new block occurs on the Bitcoin network. Our job as miners is to solve that next block. We receive a fee for that. And so what we have in our facilities is a large number of machines that are all competing to solve the next block. They're competing not only against other machines in our facilities but also competing against machines that are located worldwide. So, at our core, we are a refining business that refines power into computing, and the focus of our facilities today is refining power into computing that's being applied to the Bitcoin network to help solve blocks and secure the Bitcoin blockchain.
Clint Betts
Obviously, the Bitcoin ETF coming out, and various things that are making... I think the crypto winter is over. You could correct me if I'm wrong there. What do you think the future of the cryptocurrencies is?
Adam Sullivan
I think we're seeing the early stages of it today. Fidelity announced that they're putting Bitcoin even into their conservative portfolio. In my perspective, Bitcoin represents the future for folks anywhere in the world to transact without the need for oversight of governments. We're seeing Bitcoin being used more heavily in third-world countries. I think that is a bigger bellwether for me than really any other metric. It represents, at its core, what Bitcoin was built for. It was built for people to be able to escape the modern financial system and build a new financial system that doesn't necessarily need the same oversight, the same third party that hasn't always been the trusted third party, whether that be governments, whether that be large financial institutions, and having something that is accessible to anyone in the world. My perspective, obviously it's a little biased because I've been in this industry since 2016. I fell in love with this industry the moment I entered into it, but Bitcoin represents the future for financial independence for a lot of people around the world.
Clint Betts
As you think about the future, in the middle of the crypto winner and Web3 not being as popular as it once was, the rise of AI became a big thing, and everybody became an AI company, right? How do you think about artificial intelligence, the future of artificial intelligence, and how it might affect your business?
Adam Sullivan
Let's say AI is probably going to affect us in two ways. As a digital infrastructure company, we're obviously excited about AI. It represents an opportunity in a form of high-value compute that is not required really that traditional data center space. And so it represents a big opportunity for us as a company, given our existing infrastructure footprint. But we've seen AI affect us in a number of different ways. We've been big on data collection inside of our own company, and so we've been able to utilize AI for optimizing the state of our machines based on a number of different variables that we collect, whether that be humidity, whether that be pressure, whether that be wind, temperature. All of these different variables, we're able to bring them together and optimize the state of our machines utilizing AI programming. And so that's been really useful for us, and we've seen the impact it's had in increasing our efficiency as a company.
So we are thinking about it from two different angles but agreed, it's definitely a growing part of the market, but it's an exciting new opportunity for a lot of companies, including ours, where we not only get to utilize the existing technology, but we also get to work on building the backbone of that technology as well.
Clint Betts
Who's a leader and an example of a leader that you admire and respect, particularly after going through what you just went through?
Adam Sullivan
I know it's going to be a hot-button item to choose, but I grew up in the era of Derek Jeter. Derek Jeter's best attribute was his character. One of the things that he always liked to talk about was he practiced like it was game speed. I actually said it earlier, but he always played really selflessly, not caring about personal stats, only wins and losses. And because of that, his teammates really looked up to him. So, I really liked leaders that share those qualities. I would say two others that come to mind that, I don't want to call them Derek Jeter-esque, but Teddy Roosevelt and Phil Knight both had the enthusiasm, both had the work ethic that were inspiring to everyone around them, and they all achieved incredible goals because they were able to inspire that team around them and really practice like it was game speed all the time and work hard every day.
And that was something that I felt like I tried to bring to Core Scientific last year. As we were going through some really difficult times as a company, it was let's start practicing like it's game speed. We're going to be public. There's a light at the end of the tunnel here. And so those are a few people that I would say come to mind when I think about great leaders.
Clint Betts
Would you say the practicing at game speed is like what defined your culture? Or how do you define your company's culture?
Adam Sullivan
If we were going to define the company culture, I would probably do it via our corporate values. We went through a pretty extensive process interviewing people inside the team, people outside the team to really understand how people viewed us and how we view ourselves. We narrowed it down to about four corporate values that we feel like embody our culture. It takes a bit from, I would say, a military approach, but it also takes from a lean startup-style approach. And so the first two are, I would say, more on the military side, which is the first ones extreme ownership. It's act as owners of the business. Everyone's an owner, and everyone has to work in the best interest of not only our stakeholders but also ourselves and hold ourselves accountable to our actions. The second one's team first. Always operate with integrity and maintain the highest standards of maintaining the best team you possibly can.
And so those two, I would say, are really focal points that come from more of a military perspective. The next one is more on the technology side, which is innovate and simplify. Our business is relatively simple. When you look at its core, we transform power into high-value compute. Today, we do that for Bitcoin, and we're constantly looking at ways that we can improve that, but always thinking about ways that we can just make our business simpler. And oftentimes, that results in outcomes that lower the cost for us to operate our business. And the last one is transparency. We always seek to maximize transparency to all of our stakeholders, but transparency to your team in times of crisis have been probably the best thing that you could possibly do for a company. The more people are bought into what you're doing, and the more people understand what's going on, it really changes how people operate. And I think we've really seen a positive impact. We actually released these values last year, and we've seen a real positive impact just by communicating those and being transparent about what we expect of our team.
Clint Betts
How often do you think about just the current macroeconomic environment and state of the world? We're in an election year right now, at the beginning of it, obviously. A lot of chaos is predicted to come this year. How do you think about that? How often do you think about... Do you have any takes on even just the macroeconomic state of the world?
Adam Sullivan
Macroeconomics definitely affects our business. We saw it in 2022. A war in Ukraine can affect a mining company in North America. But you're absolutely right; probably more conflict, more uncertainty, and more volatility. The good news is we have a pretty strong economy in the US right now, but we're also in an election year. So there's gives and takes on both sides. I would've to imagine that there's going to be major interest rate decisions over the course of this year. The existing group does not want inflation metrics to really tick up prior to the election, but we're already running hotter than 2% inflation with interest rates potentially going down. They all group together to be potentially a net positive for Bitcoin, and obviously, that affects us as a company. And so things are lining up, at least in my view, to be a really interesting year. Because there is that much uncertainty, there's a lot of potential volatility on the horizon, but hopefully it's for the net benefit of us as a Bitcoin mining company.
Clint Betts
Adam, I want to be respectful of your time, and again, thank you so much for hopping on the show. We end every interview the exact same way and that is at ceo.com; we believe the chances one takes are just as important as the chances one gives. When you hear that, who gave you a chance to get you to where you are today?
Adam Sullivan
There's definitely a person that took a chance on me back in 2017. As you can imagine, telling someone that you want to launch an investment banking team focused on crypto in a traditional investment banking world, I think a lot of people would say, "What the heck are you doing?" But the group that I was part of for six years, XMS Capital, there were two partners. I remember sitting down at a lunch when I was pitching the idea to launch this team, and one of those individuals took a big chance on me and said, "You know what? I'm going to commit my time to helping you grow this practice." That was Ted Brombach. He understood the potential that this opportunity had, and he also understood that whoever was going to do this was about to spend a lot of time and a lot of heartache over the course of a few years to try to build this type of practice.
And he stuck with me through the course of 2018 when we went into a deep crypto winter and it felt like the industry was falling apart. But throughout that entire time, as we were trying to build the practice, he was always pushing me to find what we were trying to achieve here. And we built an incredible practice at XMS purely because we never left the seat of trying to work with companies, whether it was a downturn in the environment or whether we were in the roaring 2020 and 2020 ones of cryptos bull run. And so he really stuck by me, was a great mentor, still is an amazing mentor to me, and so I've always appreciated him spending the time to help my career develop.
Clint Betts
Adam, thank you so much. Congratulations, too, by the way. What an incredible example of leadership and building a company, and bringing it back, and restructuring it so that it's even stronger after going through that process. Congratulations on that.
Adam Sullivan
I appreciate that. It's been a long road for us, but we came out of it a much better company, and so we're excited about our growth potential in the future. So I appreciate having me on. This was great.
Clint Betts
Yeah. Thanks, my friend. Appreciate it.