Core Scientific, Inc./tx Q4 FY2021 earnings call

• Company Overview: Core Scientific is a financial technology company focused on developing and managing blockchain infrastructure, mining digital assets, hosting miners for customers, and developing blockchain technology-based financial products. It mined over 5,700 bitcoins in 2021 and held over 7,000 bitcoins as of the end of February 2022.
• Financial Results: 2021 generated revenue of $544.5 million, net income of $47.3 million, and adjusted EBITDA of $238.9 million. Total hash rate grew from less than 3 exa hash to 13.5 exa hash by the end of 2021.
• Business Segments: Equipment sales, digital asset mining, and hosting are the main segments, with equipment sales being initially significant but expected to be less so in the future, while self-mining and hosting will increase in revenue share.
• Infrastructure: Owns five data centers with additional centers in development, located in opportunity zones near non or low-carbon emitting power sources. Geographically dispersed to mitigate risk.
• Software: Developed a proprietary software management system called Minder to monitor and manage miners, enabling high miner uptime and the ability to curtail power consumption to support the grid.
• Sustainability: Achieves net carbon neutral status by purchasing renewable energy certificates. Believes in supporting local utilities and having a net carbon neutral operation.
• Future Products: A team of over 30 blockchain and financial technology experts is developing innovative products at the intersection of blockchain finance and AI, though its financial impact is not yet material.

In 2021, Core Scientific's revenue was $544.5 million. Segment performance: Equipment sales were $248.2 million, representing 46% of revenue; digital asset mining was $216.9 million, accounting for 40% of revenue; hosting was $79.3 million, making up 14% of revenue. The increase in equipment sales revenue was due to higher demand for more efficient mining equipment. Digital asset self-mining revenue rose because of an increase in self-mining hash rate from less than 1.5 exa hash at the end of 2020 to 6.6 exa hash in 2021. Hosting revenue increased due to new customer hosting contracts for miners deployed during the year.

• Year-end total hash rate is anticipated to be 40 to 42 exa hashes, split roughly evenly between self-mining and hosting.
• Approximately 30% of 2022 infrastructure development is expected to be completed by the end of the second quarter, with the remaining 70% to be completed in the latter part of the year.
• Continued growth will require additional capital, and the company is mindful of the dilutive impact of additional equity while exploring various funding options.

• Energy cost fluctuations: Energy costs have been increasing, and while there are agreements to limit costs, there is an expectation of a roughly 15% range increase.
• Supply chain issues: Growth in hash capacity is not linear due to challenges in equipment delivery and infrastructure build-out, leading to excess rigs in the market.
• Regulatory uncertainties: The digital assets ecosystem is evolving, and while the administration is developing a policy framework, regulatory changes could impact the business.

Q: Where do you stand today on cost of power? And what’s the outlook in general terms for next year, given what’s happening to natural gas prices?

A: Mike Levitt stated that energy costs have been going up, they have agreements to limit energy costs but expect a roughly 15% range increase.

Q: What are the options if you don’t want to issue equity?

A: Michael Trzupek mentioned they will explore the debt markets, traditional debt markets, and bitcoin-related financing alternatives, and have been attracting traditional asset back lenders for hardware buys.

Q: Any guidance on how hash rate progresses over the next few quarters?

A: Mike Levitt said approximately 30% of 2022 infrastructure development is expected to be completed by the end of the second quarter, with the remaining 70% in the latter part of the year.

Q: Update on new builds in North Carolina and Texas?

A: Mike Levitt said newest builds are in Texas, with facilities in Denton up and running, and other developments in Texas expected to be running this year.

Q: Update on broader digital assets ecosystem diversification?

A: Mike Levitt said they are participating more actively in staking and keeping activities for other protocols, but it's still early.

Q: How is hosting fees translating due to shortages?

A: Michael Trzupek said they are thinking creatively, considering higher hosting fees and exploring creative arrangements like hash rate or profitability sharing with customers.

Q: M&A opportunities over the next 12 months?

A: Michael Trzupek said it will depend on capital flows; with some companies in need of capital, there may be accretive M&A opportunities if capital flows are more discriminating.