Q1 2022 Core Scientific Inc Earnings Call
At quarter end, we operated a total of $16 two <unk> and our five data centers and by the end of April 17, extra hash across our self mining and hosting businesses.
As of April 30, we held 9618 bitcoins more significantly we now hold more than 10000 self mind bitcoins on our balance sheet no. Other public U S company is achieved that milestone we have a world class team.
To provide a summary of our first quarter financial performance I'm pleased to introduce our CFO Denise Sterling, we recently promoted Denise to CFO and she is already had a tremendous positive impact on our organization Denise brings in valuable experience to us from senior leadership roles held over her more than 20 years.
At visa after Denise his comments I will return to discuss a few additional subjects at the conclusion of my remarks, we will take your questions over to you Denise.
I am honored to join you today and look forward to meeting our shareholders and the analysts who cover core scientific.
I'll start with a high level overview of our first quarter financial summarized on slide six in the quarter, we generated revenue of $192 5 million, an increase of 255% over first quarter 2021.
We recorded a net loss in the quarter of $466 2 million importantly, this loss was driven primarily by three items two noncash mark to market adjustment on the accounting rules require us to revalue private securities, we issued as well as digital assets, we produce at a different level than they are.
General value and stock based compensation, we highlight these effects on slide seven.
The first adjustment is a 386 million dollar increase in the value of our private market convertible notes. We issued in 2021. This increase creates a noncash reduction in our net income and as suggested requires us to re measure the value each quarter the <unk>.
<unk> adjustment is a $54 million reduction in the value of our digital assets, which correspondingly increases our quarterly expenses accounting standards require us to record an impairment each quarter when they value our digital assets declined.
This represents a decline in our value added are priced from the price that we had originally mined each asset.
Unfortunately, these rules do not permit us to Mark these digital assets up when their values rise.
And last stock based compensation in the quarter totaled $25 8 million and these represent employee stock options that previously were issued and have now begun to Tibet.
Excluding these and a few other nonoperating items adjusted EBITDA for the quarter was $93 million, an increase of 644% over the prior year.
Operationally, we continue to expand our total hash rate from 13 five <unk> at the end of 2021 to $16 two extra cash at the end of March and further to 17 extra cash in April .
Revenue by segment highlighted on slide eight of our earnings presentation is as follows.
Digital asset mining revenue of $133 million or 69% of total revenue posting revenue of $33 2 million or 17%.
In equipment sales of $26 3 million or 14% of revenue.
The increase in digital asset revenue in the quarter was driven by an increase in our self mining hash rate from 0.4 <unk> at the end of the first quarter of 2021 to eight three <unk> at the end of the first quarter of 2022.
The increase in cash rate resulted from our investments in data centers as well as new miners.
Hosting revenue increased by 162% year over year as a result of contract renewals for existing customers.
And new customers filling available hosting capacity as we brought it online.
The 18% year over year decline in equipment sales is consistent with our expectations for 2022 and our previous guidance.
As a reminder, self mining and hosting revenue will represent an increasing share of our revenue going forward.
Cost of revenue of $122 5 million increased by $82 8 million from the first quarter of 2021. This increase was primarily attributable to two factors. The first was because we continue to expand our mining fleet.
Depreciation expense associated with the larger fleet increased and second as the self mining and hosting fleet has increased also the consumption of data is also increase the consumption of electricity. Additionally, we previously indicated our average cost of electricity has risen by approximately 15% to 20% over prior.
Our assumptions for 2022.
We expect our all in average price per kilowatt hour across our entire fleet. This year to be in the neighborhood of about four to four five cents.
Turning to operating expenses first quarter research and development expenses totaled $3 3 million an increase of approximately 176% over the first quarter 2021, driven by higher stock based compensation and an increase in project related professional fees.
Sales and marketing and general and administrative expenses totaled $41 6 million a nine fold increase over 2021, the increase was largely driven by higher stock based compensation and increased marketing activity as we slowly began to ramp up again with the emergence from COVID-19.
Note that we now allocate stock based compensation to each category as opposed to recording at all in G&A expense.
Non operating expenses, including the convertible note valuation mentioned earlier.
Also interest expense loss on debt from extinguishment and other nonoperating expenses net totaled $397 1 million, an increase of $394 9 million from 2021.
Our net loss for the quarter was $466 2 million as compared to net income of $6 8 million in the prior year again. This loss was primarily driven by noncash valuation adjustments to our convertible notes and digital assets held as well as stock based compensation.
First quarter 2022, adjusted EBITDA was 93.0 million an increase of $80 5 million from 2021.
Loss per fully diluted share was $1 five $2 and adjusted and adjusted earnings per fully diluted share was <unk> 31.
Now, let's look at the balance sheet and cash flow.
As of March 31, 2022, we held 8497 bitcoins with a carrying value of $307 2 million net of accounting valuation adjustments.
Total cash cash equivalents and restricted cash was $110 4 million at the end of the first quarter.
Cash used in operating activities and investing activities totaled $3 6 million and $269 $1 million, respectively, and cash provided by financing activities was $251 5 million.
As of the end of our first quarter 2022, we had outstanding agreements to purchase digital asset mining equipment totaling approximately $391 million of which $256 2 million was paid as deposits for equipment to be scheduled to be delivered in 2022.
This left a balance of $134 8 million for miners to be delivered in 2022.
Now I will hand, the call back to Mike.
Thank you Denise.
We're very pleased with our first quarter operating results and we remain well positioned for significant growth through the remainder of the year.
I'd like to touch on some of the externalities with which we are dealing in how they impact our 2022 plan.
Conflict in Europe, and the war's impact on energy and agriculture markets global inflation interest rate increases and a resurgence of COVID-19 in a number of countries present, uncertainties for every business, including ours.
We anticipate continued supply chain inefficiencies and tight credit markets.
These factors have weighed on the price of bitcoin factor into investor perceptions and impact public equity valuation, both our cost of capital and its availability has been impacted.
While we cannot control these uncertainties or perceptions. We believe we are well positioned for continued growth and to take advantage of new opportunities that may come our way.
In this type of environment, having hosting revenue payable in.
Owning our infrastructure producing more digital assets than any other public company in North America and building our digital asset holdings provide us with a strong foundation for continued growth and to create value for our shareholders.
I am often asked whether or not we will sell our self mind good points as I mentioned in my comments earlier, we strongly believe in the future of bitcoin and its role in the global financial system.
We will continue to do everything in our power to maintain a stable strong financial position and continue to invest in our growth. We currently hold over 10000 self my big points that said, we have sold digital assets. This year and we expect that will continue to be the case.
Our strong operational and financial Foundation gives us the confidence to continue building our capacity at a time, where smaller companies may find it increasingly difficult to do so.
We are also collaborating with our industry partners to educate legislators and decision makers in Washington D C and state capitals about our industry's positive impacts as an industry. We are leading the movement to work with power providers in their development and provision of carbon free energy. It is important to note that bitcoin mining data centers do not create electricity.
Or a mid carbon they consume energy from local grids.
Those grids distributed electricity created by a variety of power generation methods. The large predictable baseload provided by data centers, such as ours provide stability and flexibility to grid operators and supports the business case for more carbon free power projects, whether from hydro wind solar geothermal.
Geothermal.
Yes.
We and our peers are also creating well paying jobs in an industry that will help shape, our future many of them in areas, where economic development has been sorely lacking for years. The social aspect of ESG is too frequently overlooked with that background I'd like to discuss our outlook for 2022 highlighted on slide 12.
We remain very comfortable with our ability to internally fund our growth to approximately one gigawatt, we still have one two to one four gigawatts in sight, but additional development will only be undertaken when capital is available on compelling terms, whether from the markets or through pre funding by our.
Our customers, we continue to expect approximately 30% of our incremental 2020 data center development and minor deployments to be completed by the end of the second quarter and we expect a roughly even split of hosting versus self mining mix for the year.
Now an update to our visibility analysis illustrated on slide 13.
We ended 2021 with $13 five operating extra cash we now expect to finish 2022 operating 30 to 32 extra extra cash in the absence of adding on those additional two to 400 megawatts through availability of capital.
And or pre fundings from our customers.
That leaves us with $17 five new <unk> at the midpoint of the range to bring online in 2022.
We added $2 seven new <unk> in the first quarter and another eight extra cash in April for a total of $3 five X axis.
As of March 31, 2022, we had contracts in place for self miners and hosted miners representing 14 ex ash in other words, we have clear visibility for 100% of our 22 2022 operating objectives of a gig.
And demand for our hosting capacity remains very very strong to.
To summarize despite a very challenging environment, we are sufficiently capitalized to achieve our 2022 objectives and we have the ability to exceed those objectives should it makes sense to do so.
Thank you to our incredible employees our outstanding customers.
And our valued shareholders for your confidence in our team we will now take your questions.
Thank you Mike we will now begin the question and answer session, which you have a question. Please press star and then one on your Touchtone phone.
If you wish to be removed from the queue press the pound or hash key.
If you are using a speakerphone you may need to pick up your handset first before pressing the numbers.
Once again to ask a question. Please press star and then one on your Touchtone phone.
And our first question today comes from Chris <unk> with da Davidson Hi, Chris.
Okay.
Alright, Thanks, Steve afternoon, Mike Thanks for the update I appreciated all the color.
I guess my first question would be I think last quarter. The message was that even though you had some pretty robust growth projections for 2022. It was it was mostly funded I think the number was like 80% or 83% of it that is.
As the reduction to 30% to 32 sort of consistent with that message last quarter that you were mostly funded and this is just a way of <unk>.
Adding a layer of conservatism given what's going on in the markets or is there something else at play.
I think it's very fair to say there is certainly an added layer of conservatism.
As we discussed the capital markets.
And formation of capital is challenging for many in our industry.
We continue to be very comfortable that we are funded as we sit here today to a gig and in that 30 extra cash plus range.
And we want to be mindful of the environment. We're in.
And make sure that frankly as always we're fully transparent with you all demand does continue to be very strong.
For our co location services.
We are engaged in any number of conversations today.
But that said, others with whom we do business also need to form capital.
And bring in capital.
If they don't then we don't need them as customers and so yes, I think it's very fair to say, it's both consistent with the discussion we've had all along.
As well as conservative from the point of view of we don't like to disappoint and we do like to be clear.
Did I did I sufficiently answer your question.
Yes, you did I think.
I really appreciate it.
Since you.
So we started this process.
Better to be conservative and you've done a great job that along the way and obviously the market conditions, we don't want to count on anything at this point.
Speaking of which I think I've heard that.
Financing is starting to tighten up in the last couple of weeks.
There is a chance or a very good chance that some miners won't be able to pay for equipment they've already got deposits on just given those dynamics and of course as an industry leader and for the most scaled player. In this space is there any opportunity to take advantage of some of the dislocation thats taking place in the market today.
We think there is.
Bob.
Is the short answer very clearly and we've spoken in the past on some of that some of the conferences at which I've spoken in perhaps on the calls.
I referred to.
An era of consolidation and cleansing.
And we may have come to it a little sooner than we thought.
We do think there are going to be opportunities for us too.
To take advantage of both of them highly accretive situations.
Whether we're talking about companies or assets.
Youre right and this is the point I guess, I was making a little bit or trying to make a little bit earlier.
Which is to say that.
We agree that we have what we have heard is that raising capital has become more difficult for many others.
In this market obviously at our current share price, we're not very interested in issuing our equity that's for darn sure.
And so yes, we're starting already to.
To be approach frankly.
With opportunities there is nothing to talk about today.
But it is the environment is moving very very fast.
Right. There are any number of folks that have commitments that we're dependent upon their being able to raise additional capital and theyre finding it challenging to raise that capital.
Yes.
Hopefully.
Get better.
We always thought this could be a chance to down the road, but nothing so hopefully temporary.
One last one from me if we went back to what I would say, we would love we would love for times to be better, but we've always felt very strongly that we wanted to be positioned to take advantage of compelling opportunities. So we're not going to.
We're not going to regret seeing some compelling opportunities if they come along that meet our standards.
Yes, Tom could last one can you.
This is possible.
Cost per coin.
On a sort of adjusted base, excluding depreciation where do you stand on that for the first quarter I haven't quite gotten there yet.
We havent disclosed.
That <unk>.
A number.
The very good question.
I wish there was a lawyer in the room with me right now to tell me.
If I could do.
Do that.
The.
I will tell it in a different way.
Can tell you that.
At these current levels, we remain very profitable.
On our and our self mining as well as our co location of our hosting business and.
And so as we sit here today, despite the depressed levels of bitcoin.
And the selloff that we've experienced we are still quite profitable one.
On a per coin basis.
Sure.
Okay. Thanks, so much.
Thank you Chris and our next question comes from Lucas pipes at B Riley Securities Good afternoon Lucas.
Good afternoon, everybody. Thanks, Thanks very much.
Hi.
I also wanted to dedicate my first question to <unk>.
Growth in kind of when I think back.
Last year, we saw a number of your peers you are not public at the time, but make announcements about.
Machine orders for the following year and my recollection is this was kind of has been industry norm to kind of.
Order machines 12 months or so out so in a market like today.
I'm sure. This is.
This is more challenging so I wonder kind of how do you approach that how do you talk to equipment suppliers for the.
Self mining side. Thank you very much sure. So ill point I'll point out a couple of things one you're right people made pronouncements last year et cetera. One thing I think you will recall as we beat every one of our pronouncements that we made in 2021, we didn't just meet them, we beat them and so as you know.
We're very focused on making sure that we do what we say we're going to do.
With regard to new equipment.
And again I think this is something that we have touched on in the past before sort of the current market environment. We said that we thought that there was going to be some period of.
Disruption in markets.
More volatility in our industry.
<unk>.
<unk>.
Have not placed an order for any new miners this year.
And that's why we've only got remaining.
All in a $130 million left to pay on miners to be delivered this year. We had a point of view that in fact, there would be perhaps difficult times for all of these companies that had put in big orders and that there might be an opportunity to pick up.
Units at better value in the future.
So other than the $130 million, we've got that is outstanding on 70000 or so.
Rigs that we've got coming this year.
That's that's it.
And so if in fact, we do see value.
Because of some compromised.
Orders, if you will.
We are in a position to take advantage of that.
But again, just we didn't we haven't put it in an order this year.
For a new unit.
Not that we're so prescient about everything but.
And as you know.
Christmas and I think it's a little bit unfortunate that chaos, but we were we were concerned about all of the capital that was coming into the space and what might occur. If in fact, there was a little bit of a hiccup.
Did I answer your question.
Okay.
Yeah No. That's that's helpful. Maybe so my impression is here.
Hugh.
You were conservative.
Well done on that and kind of from here on out you approach it opportunistically and not in a rush to sign new orders for 2023 delivery did it did I catch that right.
That's correct.
That's correct.
So when you guys look we have.
Another roughly.
When you think about roughly.
80% to 90000 miners to deploy.
Of which a.
A bit more than 10000 are on the ground now and on their way.
Two to us so another 70000 plus to be delivered right, which will take us to.
Well over I guess, its a 170000 machines.
All of which are of the very new generations.
Very high performing very efficient and as I said, we only have $130 million all in that includes shipping taxes the works.
It's actually only about $100 million for the miners that we owe so we're looking at deploying if you will.
Almost another.
90000 miners.
And all we got to pay for them is a bit over $100 million.
Which is a position we really like to be in.
And.
Whether or not we pursue additional minors.
Will depend on price availability terms et cetera.
We have to be very clear about our infrastructure, we have visibility as we always have had.
Into.
Up to two gigs plus of infrastructure, what we've simply decided is that we're going to make sure that we have capital locks.
When we take it above one gig alright, so all of the all of the preparation Thats gone on for our additional infrastructure all of the groundwork.
All of the agreements the permitting all of that stuff has continue to pace, which gives us youre right tremendous optionality.
Should we in fact, whether it's our customers are willing to prepay sufficiently or capital is available at a reasonable price.
So we can take advantage of it.
Whether it's for third party co location or for additional sell for mining.
And it just has to do with taking what we would characterize as an appropriately conservative approach.
Two growth, making sure we have the money to do what we say we're going to do.
Very helpful.
Okay. Thank you very much for that Mike.
On my second topic I wanted to touch on.
Kind of hosting market.
Back in late March.
At the time it.
It appeared kind of hosting rates where.
We're increasing and even with the turmoil today I could imagine how folks who have minus on the ground are.
I mean could be desperate to get their miners passion.
Generate.
Revenue.
So.
How would you frame up the puts and takes on on the shore.
I would say, there's two types of folks.
Yes, no. Good question. There is there is folks that have.
<unk> on the ground.
That are not producing that they'd like to get them plugged in as soon as possible.
And then there are the folks that were referred to earlier who've got big deposits, but perhaps need financing to finish off payments for their orders.
Well, the only way you're going to get financed in this market is if you've got a.
A valid binding good go co location of our hosting agreement with a highly credible.
Data center operator.
And good news for US is we think we are the leader in that category.
And so we are in fact.
We have received inquiries from both folks that have what you can refer to as rigs on the ground.
As well as folks that are trying to finish off their payments for the miners they've ordered but they can't get financing unless they've got assurances that in fact those units have a home.
And so yes, it puts us in a pretty good position.
And that's why.
We were walking that fine line of making sure you know what it is we've got.
We've got the capital for but the possibility of what else we can do and so we're certainly in dialogue with all of many of those parties.
<unk> approached us.
And.
We think that we can probably help them out but they need that be helped on terms that are acceptable to us which is to say that we're not going at risk for a need for additional capital.
But if <unk> got the ability to put the capital we're happy to talk with them and many of them do.
And they need to meet our terms as well and as we have discussed in the past.
Absolutely.
Appropriate Lee and very fairly we've raised what worthy historical co.
Co location rates.
Okay.
Mike really appreciate.
All the color and to you and the team best of luck.
Thank you.
We feel good.
Once again to ask a question. Please press star and then one on your Touchtone phone.
And our next question comes from Tyler <unk> at <unk> <unk>.
Sure.
Hi, everybody. Good afternoon, just a quick one for me so as the infrastructure build out progresses, and we move towards the one gigawatt of capacity and then into 2023.
We've taken any consideration of emerging cooling and even the pricing dynamics that may be associated with that in terms of any future capacity build out of the data centers.
The short and long answer is yes and absolutely.
I think it's very fair to assume that.
As the cost and benefit of immersion has evolved we've been studying it all along we've been running some immersion in our facilities to make sure that we're very up on both the technologies and the evolving technologies as well as the benefit that can be.
<unk> gotten out of it.
And I think it's very fair to say that.
Yes over the course of and you're talking about out into 'twenty three over the course of the next 12 months I think it's very fair to assume that we will be running.
Some number of our rigs in immersion, but we're running where we are running the rigs in emerge and it doesn't have to do with climatic issues.
It really has to do with return issues.
We've done a lot of work assessing how it is frankly, we can just increase our return on investment.
And Thats whats driving it for us as opposed to because all of our facilities.
Work well.
In a passive air environment.
But that said.
I like that I gave a talk the other day I don't remember what it was like into the fact that solar is actually now.
A very very affordable energy source.
Whereas years ago. It wasn't immersion as it has evolved is becoming a a much.
Better return alternative.
And as such the answer is yes, you will see us running.
Some immersion over the course of the coming six to 12 months.
Okay, Great I appreciate it I'll turn it back to the queue.
Yes.
Thank you Tyler and with that is our last question. We thank you for your attention and for your interest in core scientific and archived version of this call all SEC filings and relevant company and industry news can be found on our website core scientific dot com.
Wish you good day, and we look forward to speaking with you again following next quarter's results.
Thank you everybody.
Yes.