Core Scientific Full Year 2021 Results
Last week, Core Scientific released fiscal 2021 results, along with the company’s first annual report. Although the company was driving significant growth, the final numbers were no less stunning. According to CEO Mike Levitt, Core Scientific has set a record for most bitcoins mined in a year by a publicly traded US company.
You can find the slideshow here, the call here, a transcript of the call here, the press release here, and the annual report here. This constitutes the sources for this article, unless otherwise noted.
Core Scientific followed last week’s earnings release by announcing that it had mined 1,143 bitcoins in March and held 8,497 bitcoins by the end of the month. This equates to just under $400 million worth of bitcoins, using the price at the time of the announcement.
This is in addition to the $132 million in cash and restricted cash at the end of 2021. This does not include a Additional $201 million in proceeds from the company’s SPAC merger.
Rising bitcoin price added a tailwind to the results. However, equipment sales were the surprise in the details. Core Scientific has sold over $248 million worth of mining equipment.
Although we have been developing large-scale blockchain infrastructure for more than five years now, we believe that we are still in the early days of our industry’s development.
-CEO Mike Levitt, FY21 earnings call
Another surprise was R&D spending of nearly $7.7 million which exceeded sales and marketing spending by nearly 2x. Core Scientific hinted at ambitions far beyond just bitcoin mining, both on the call and in its annual report.
Moving on to cash flow, Core Scientific had negative operating cash flow of $56 million. One way to look at it would be to assume that Core Scientific spent $56 million to acquire 5,769 bitcoins worth $271 million at the time of writing. This is, of course, a gross simplification, as part of the operating expenses were related to accommodation and the capital expenses totaled $365 million.
Yet thinking about it this way captures the essence: at scale, the marginal cost of bitcoin mining is low, once you get past the capex hurdle. It is important to take this into account when we look to the future.
Expectations for FY2022
Look, if there continues to be an overabundance of gear on loading docks every day, that’s a hole in someone’s medallion. And so, it’s a balance between capital formation and cost, but on the returns side, mining and self-mining look pretty good going forward this year.
-CEO Mike Levitt, FY21 earnings call
A relevant observation is that the company has suggested that it will need to raise additional capital to fund continued growth. This is particularly interesting because it suggests that the company has no plans to sell the bitcoins it accumulates. In the Q&A, CEO Mike Levitt said the company is looking at debt markets, which means traditional asset-backed lenders are preparing for the business model. He also said the company would consider bitcoin-related funding alternatives.
Many investors have electricity costs in mind, which were also discussed in the Q&A. The company expects costs to rise in “the range, roughly speaking, in the area of plus or minus 15%, more or less.” That’s a lot less than some have speculated.
In terms of expansion and orientation, Core Scientific guided a hashrate of 40-42 EH/s with a power of 1,200-1,300 MW. Compare that to 457 MW and 13.5 PE/s at the end of the year.
With planned expansions of 300 MW in Texas and 500 MW in Oklahoma, we can infer that these forecasts are strictly based on current announcements and do not take into account the possibility of future expansion. Core Scientific could either strike new deals that broaden its plans, or hold steady and let profitability soar because marginal costs are low.
It should be noted that as of the end of fiscal 2021, the company had already contracted “84%” of its hardware purchase target for fiscal 2022, and expects “approximately 30% “Infrastructure development plans to be completed by” the end of the second quarter. The company says it expects equipment sales to be “less significant in the future” , as the company will place more emphasis on highly profitable self-hosting/self-operating.
In our opinion, Core Scientific’s stealthy rise to the top of the industry has earned it a significant discount to more well-known competitors. According to data provided by S&P, Riot Blockchain (RIOT) and Marathon Digital Holdings (MARA) are valued at $2.4 billion and $2.9 billion, respectively. Core Scientific is valued at $2.7 billion despite being arguably bigger than Riot and Marathon combined. Terawulf (WULF) is valued at $845 million despite having only recently started operations.
In addition to our self-mining and hosting businesses, we also have a team of 30 blockchain and financial technology experts who develop innovative products at the intersection of blockchain finance and AI. Although its financial impact is not yet significant, we engage in network services such as staking and custody to determine which innovative products and services can lead to the expansion of the blockchain ecosystem and new business opportunities.
– Mike Levitt, CEO of Core Scientific, FY21 earnings call
But it’s not just benchmarks that matter. As the largest bitcoin miner in North America, dwarfing the size of its competitors, we believe Core Scientific is poised to take industry leadership. Importantly, Core Scientific was previously led by Microsoft’s former COO, which attracted significant talent to the company. The current CEO is a Wall Street veteran, having served as vice chairman of Apollo Global Management and CEO of Kane Andersen Advisors.
In future articles, we’ll speculate on what the future of the industry might look like. There are a few clues buried in Core Scientific’s annual report.