Core Scientific, Inc./tx Q1 FY2024 earnings call

Key Points from Adam Sullivan - Core Scientific is a market leader in bitcoin mining infrastructure with 745 MW operational and contracts for 1.2 GW. First quarter results included earning 2,825 bitcoin, total revenue $179 million (up 49% YOY), gross margin 43%, operating margin 31%, net income $211 million, adjusted EBITDA $88 million (up 118% YOY). - Discussed strategic priorities including building owned infrastructure, expanding hashrate via fleet refresh, and leveraging infrastructure for HPC hosting. Mentioned Texas projects, S21 miner deployment, and progress with CoreWeave on HPC. ### Key Points from Denise Sterling - Detailed financials: total revenue $179.3 million, digital asset mining revenue $150 million, hosting revenue $29.3 million. - Gross margins: digital asset mining 46% in Q1 2024 vs. 26% in Q1 2023; hosting 32% in Q1 2024 vs. 28% in Q1 2023. - Balance sheet: cash and equivalents $98 million, total debt $608 million (down $390 million from year-end 2023). - CapEx plans: expansion at Denton data center, incremental CapEx for Austin HPC data center.

For the first quarter of Fiscal Year 2024, Core Scientific had total revenue of $179.3 million. The Digital Asset Mining segment contributed $150 million in revenue, with a cost of revenue of $81.6 million, resulting in a gross margin of 46%. In the prior year's first quarter, Digital Asset Mining revenue was $98 million, cost of revenue $72.7 million, and gross margin 26%. The Hosting segment generated $29.3 million in revenue in Q1 2024, with a cost of revenue of $20.1 million, giving a gross margin of 32%. In Q1 2023, Hosting revenue was $22.6 million, cost of revenue $16.2 million, and gross margin 28%.

Forward-Looking Statements - Expect power costs in 2024 to be between $0.045 and $0.047 per kilowatt hour. - Plan to increase self-mining fleet efficiency through ongoing miner refresh. - Anticipate hosting mining mix to decline as self-mining expands. - Aim to complete Texas projects, purchase remaining miners for refresh and hashrate expansion, and continue discussions with customers for HPC hosting.

Risks - Market volatility in bitcoin pricing which could impact mining revenue. - Intensified competition in the mining industry leading to lower margins. - Potential increases in U.S. power prices affecting profitability. - Execution risks in transitioning infrastructure to HPC hosting, including delays or challenges in client negotiations and CapEx management.

Q: On the HPC front, with the 500 megawatts of potential infrastructure capacity, I was curious like what kind of customers are you currently having conversations with, whether they be hyperscalers, data center operators, start-ups?

A: Of course, Joe. I would say our target base right now is mainly around our goal to have prepaid revenue as part of this contract, so them -- having the client pay for the CapEx. That definitely narrows the scope of potential clients, but that definitely puts it in the range of large tech companies that are looking at the development of their AI segments. So that's really our focus right now is mainly around large tech companies with a focus on AI, where the demands are for application-specific infrastructure.

Q: Lucas Pipes asked about why M&A hasn't occurred yet in the industry, referencing valuation arbitrage between bitcoin miners and data center companies.

A: Yes. No, it's a great question. I think Morgan Stanley put out a very good report related to the opportunity that bitcoin miners actually have today given the fact that just on electrical equipment alone, it's at least 36 months lead time for traditional data center. So just having access to the power is a significant advantage and it's actually a much higher value to traditional data centers and really the valuations that we're seeing bitcoin mining infrastructure traded today. I wouldn't rule that out, traditional data centers are definitely trying to find ways to bring power online more quickly. What we're seeing across a number of reports is that data center capacity is going to double over the course of the next 6 years. So I think that's something that we're still in the early stages. I would imagine that companies throughout the industry are having those types of conversations. From our perspective, we're focused on executing this because we believe we can drive a significant amount of short-term and long-term value for our shareholders.

Q: Kevin Dede asked about operational insights regarding hash price trending down and maximizing fleet performance.

A: Thanks, Kevin. I think it comes down to really 2 items. And the first is comes down to operations. Prior to halving, we actually moved our machines based on their efficiency amongst our sites based on their power contracts, really to prepare for a time period that could be much worse than what we're seeing today in terms of the $0.05 hash price level. The second part is our in-house software development team has developed a significant amount of firmware around the ability to adjust machines on a minute-by-minute basis amongst different types of firmware settings. And really, what that does is it allows us to change our efficiency of our machine fleet and it allows us to do that based on power prices at each of our sites as well as prevailing hash price metrics. And so for us, that provides a significant advantage over our peers who have outsourced much of that capability set, whereas we've been able to integrate really all 3 parts of the software stack, the energy management, the fleet management and the firmware, all into a single software stack that allows us to provide a significant amount of control greater than our peer set today.