Good afternoon, ladies and gentlemen, and welcome to Core Scientific’s First Quarter Fiscal Year 2022 Earnings Call. This is Steven Gitlin, Senior Vice President of Investor Relations for Core Scientific. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after management’s remarks. As a reminder, this conference is being recorded for replay purposes. Before we begin, please note that on this call certain information presented contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include without limitation, any statement that may predict forecast, indicate or imply future results, performance or achievements, and may contain words such as believe, anticipate, expect, estimates, intend, project, plan, or words or phrases with similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties, including but not limited to, economic, competitive, governmental and technological factors outside of our control that may cause our business strategy or actual results to differ materially from the forward-looking statements. For further information on these risks, we encourage you to review the risk factors discussed in Core Scientific’s periodic reports on Form 10-K and Form 10-Q filed with the SEC, and Form 8-K filed today with the SEC, along with the associated earnings release and the safe harbor statement contained therein. This afternoon, we also filed a slide presentation with our earnings release, and posted the presentation on our website at corescientific.com in the Events & Presentations section. The content of this conference call contains time-sensitive information that is accurately only as of today, May 12, 2022. The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call. Joining me today from Core Scientific are Chief Executive Officer, Mr. Mike Levitt; and Chief Financial Officer, Mr. Denise Sterling. We will now begin with remarks from Mike Levitt. Mike?

Thank you, Steve. On behalf of our nearly 300 employees who work in our corporate headquarters and data centers around the country, welcome to today's first quarter 2022 earnings conference call. Before we review first quarter results, I'd like to comment briefly on current market conditions. Our founders and many of our colleagues have been immersed in the digital asset space for a decade or more. We've experienced cycles of volatility in our industry before. And we believe that we are still in the early phase of digital asset adoption. Current financial market conditions do not impact our view of the long-term opportunity or our focus on execution. However, market conditions are slowing the flow and limiting the availability of outside capital required to fund our industry. We cannot control the price of Bitcoin or other digital assets or the sentiment of the equity markets, but we can control our execution, our focus and our ability to create value over the long-term for our shareholders. Core Scientific remains a leading operator of digital asset data centers in North America. We self-mined 3,202 Bitcoins in the first quarter as illustrated on slide 5 of our earnings presentation, representing more than the second and third largest miners combined. Last week, we announced that we also mined 1,121 Bitcoins in April for an average of 37.4 Bitcoins a day, again, more than any other public miner. At quarter end, we operated a total of 16.2 exahash in our five data centers. And by the end of April, 17 exahash across our self-mining and hosting businesses. As of April 30, we held 9,618 Bitcoins. More significantly, we now hold more than 10,000 self-mined Bitcoins on our balance sheet. No other public US company has 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 has already had a tremendous positive impact on our organization. Denise brings invaluable experience to us from senior leadership roles held over her more than 20 years at Visa. After Denise's comments, I will return to discuss a few additional subjects.

Thank you, Mike. I'm 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 financials summarized on slide 6. In the quarter, we generated revenue of $192.5 million, an increase of 255% over first quarter 2021. We reported a net loss in the quarter of $466.2 million. Importantly, this loss was driven primarily by three items: two non-cash mark-to-market adjustments, as accounting rules require us to revalue private securities we issued as well as digital assets we produce at a different level than their original value and stock-based compensation. We highlight these effects on slide 7. The first adjustment is a $386 million increase in the value of our private market convertible notes we issued in 2021. This increase creates a non-cash reduction in our net income. And as suggested, requires us to re-measure the value each quarter. The second 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 impairment each quarter when the value of our digital assets declines. This represents a decline in our value 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. Lastly, stock-based compensation in the quarter totaled $25.8 million, representing employee stock options that were previously issued and have now begun to vest. Excluding these and a few other non-operating items, adjusted EBITDA for the quarter was $93 million, an increase of 644% over the prior year. Operationally, we continue to expand our total cash rate from 13.5 exahash at the end of 2021 to 16.2 exahash at the end of March, and further, to exahash in April. Revenue by segment, highlighted on slide 8 of our earnings presentation is as follows: Digital asset mining revenue of $133 million or 69% of total revenue, hosting revenue of $33.2 million or 17%, and 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 exahash at the end of the first quarter of 2021 to 8.3 exahash 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 that we continue to expand our mining fleet, causing depreciation expenses associated with the larger fleet to increase; and second, as the self-mining and hosting fleet has increased, so has the consumption of electricity. Additionally, we previously indicated that our average cost of electricity has risen by approximately 15% to 20% over prior 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 $0.04 to $0.045. Turning to operating expenses, first quarter research and development expenses totaled $3.3 million, an increase of approximately 176% compared to the first quarter of 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. Note that we now allocate stock-based compensation to each category, as opposed to recording it all in G&A expense. Non-operating expenses, including the convertible note valuation mentioned earlier, also interest expenses, loss on debt extinguishment and other non-operating expenses net total $397.1 million, an increase of $394.9 million from 2021. The net loss for the quarter was $466.2 million, compared to net income of $6.8 million in the prior year. Again, this loss was primarily driven by non-cash valuation adjustments to our convertible notes and digital assets held, as well as stock-based compensation. First quarter 2022 adjusted EBITDA was $93 million, an increase of $80.5 million from 2021. Loss per fully diluted share was $1.52, and adjusted earnings per fully diluted share was $0.31. Now, let's look at the balance sheet and cash flow. As of March 31, 2022, we held 8,497 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 scheduled to be delivered in 2022. This left a balance of $134.8 million for miners to be delivered in 2022.

Thank you, Denise. We are 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're dealing and how they impact our 2022 plan. The conflict in Europe and its impact on energy and agriculture markets, global inflation, interest rate increases and a resurgence of COVID 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 valuations. Both our cost of capital and its availability have 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 dollars, 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'm often asked whether or not we will sell our self-mined Bitcoins. 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 10,000 self-mined Bitcoins. That said, we have sold digital assets this year, and we expect that to continue. Our strong operational and financial foundation gives us the confidence to continue building our capacity at a time when 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's important to note that Bitcoin mining data centers do not create electricity or emit carbon. They consume energy from local grids. Those grids distribute electricity created by a variety of power generation methods. The large predictable baseload provided by data centers such as ours gives stability and flexibility to grid operators and supports the business case for more carbon-free power projects, whether from hydro, wind, solar, nuclear, or geothermal. 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 1 gigawatt. We still have 1.2 to 1.4 gigawatts in the site, but additional development will only be undertaken when and if capital is available on compelling terms, whether from the markets or through pre-funding by our customers. We continue to expect approximately 30% of our incremental 2022 data center development and miner 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 13.5% operating exahash. We now expect to finish 2022 operating 30 to 32 exahash in the absence of adding on those additional 200 to 400 megawatts through availability of capital and/or pre-fundings from our customers. That leaves us with 17.5 new exahash at the midpoint of the range to bring online in 2022. We added 2.7 new exahash in the first quarter and another 0.8 exahash in April for a total of 3.5 times exahash. As of March 31, 2022, we had contracts in place for self-miners and hosted miners representing 14 exahash. In other words, we have clear visibility for 100% of our 2022 operating objectives of 1 gig. And demand for our hosting capacity remains very, very strong. 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 make 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. And our first question today comes from Chris Brendler with D.A. Davidson. Hi, Chris.

Hi, thanks, Steve. Good afternoon, Mike. Thanks for the update. Appreciate 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 mostly funded. I think the number was like 80% or 83% of that. So is the reduction to 30% to 32% sort of consistent with that message last quarter that you were mostly funded? And is it just a way of 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 that there's 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 1 gig and in that 30 exahash plus range. And we want to be mindful of the environment we're in and make sure that, frankly, as always, we are fully transparent with you all. Demand does continue to be very strong for our colocation services. We are engaged in a 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 that we don't like to disappoint and we do like to be clear.

Yes, you did. I think I really appreciated that approach since you started this process. It's definitely better to be conservative and you've done a great job that along the way. And obviously, with market conditions, we don't want to count on anything at this point. Some of which I heard that equipment financing has started to tighten up in the last couple of weeks, and there's 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. Core as an industry leader and the most scaled player in the space, is there any opportunity for you to take advantage of some of the dislocation that's taking place in the market today?

We believe there are opportunities ahead. We've mentioned before about a phase of consolidation and restructuring, and it seems we might be experiencing it sooner than anticipated. There are likely to be valuable situations for us, whether related to companies or assets. We acknowledge that raising capital has become more difficult for many in the market. At our current share price, we are not interested in issuing equity. We are already receiving approaches for potential opportunities. While there's nothing concrete to discuss right now, the market is evolving rapidly. Many companies that relied on raising additional capital are finding it challenging to do so.

Yes. Hopefully, times improve. We always believed there could be an opportunity in the future, but nothing is set yet, so we hope this is just a temporary phase. One last question from me before I return to...

I would say, 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 regret seeing some compelling opportunities if they come along that meet our standards.

Yes, sounds good. Can you provide the cost per coin on an adjusted basis, excluding depreciation, for the first quarter? I haven't quite gotten there yet.

We haven't disclosed that number. Very good question. I wish there was a lawyer in the room with me right now to tell me if I could do that. I'll tell it in a different way. I can tell you that at these current levels, we remain very profitable in our self-mining as well as our colocation or hosting business. And so as we sit here today, despite the depressed levels of Bitcoin and the sell-off that we've experienced, we are still quite profitable on a per-coin basis.

Okay. Thanks so much.

Thank you, Chris. And our next question comes from Lucas Pipes of B. Riley Securities. Good afternoon, Lucas.

Good afternoon, everybody. Thanks very much. I also want to dedicate my first question to growth. And when I think back to last year, we saw a number of your peers you were not public at the time, but make announcements about machine orders for the following year. And my recollection is, this has been the industry norm to kind of order machines 12 months or so out. So in a market like today, I'm sure this is more challenging. So I wondered 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 I'll point out a couple of things. One, you're right; people made pronouncements last year, etc. One thing I think you will recall is 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 a period of disruption in markets could be expected, more volatility in our industry. And we have not placed an order for any new miners this year. And that's why we've only got remaining all-in $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 70,000 or so rigs that we've got coming this year, that's it. And if, in fact, we do see value because of some compromised orders, we are in a position to take advantage of that. But again, just we didn't – we haven't put in an order this year for a new unit. Not that we're so prescient about everything, but as Chris is saying, it's a little bit unfortunate the chaos, but we were concerned about all of the capital that was coming into the space, and what might occur if there was a little bit of a hiccup. Did I answer your question, Lucas?

Yeah. No, that's helpful. Maybe – so my impression is you were conservative, and well done on that. And kind of from here on out, you approach it opportunistically, and you're not in a rush to sign new orders for 2022 delivered. Did I catch that right?

That's correct. That's correct. So Lucas, look, we have another roughly – when we think about roughly 80,000 to 90,000 miners to deploy, of which a bit more than 10,000 are on the ground now and on their way to us. So another 70,000 plus to be delivered, right, which will take us to well over, I guess, it's 170,000 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. Technically, it's actually only about $100 million for the miners that we own. So we're looking at deploying, if you will, almost another 90,000 miners, and all we have 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 miners will depend on price, availability, terms, etc. We have to be very clear about our infrastructure. We have visibility, as we always have had into up to 2 gigs plus of infrastructure. What we've simply decided is that we're going to make sure that we have capital locked when we take it above 1 gig, right? So all the preparation that's gone on for our additional infrastructure, all of the groundwork, all of the agreements, the permitting, all of that stuff has continued a pace, which gives us your right, tremendous optionality. Should we, in fact, whether it's our customers are willing to pre-pay 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 self-mining. And it just has to do with taking what we would characterize as an appropriately conservative approach to growth, making sure we have the money to do what we say we're going to do.

Very helpful. Thank you very much for that Mike. On my second topic I wanted to touch on the hosting market. Back in late March at the time, it appeared kind of hosting rates were increasing. And even with the turmoil today, I could imagine how folks who have miners on the ground could be desperate, right, to get their miners plugged in to generate revenue. So how would you frame up the puts and takes on the...

I would say there are two types of people. First, there are those with miners already on the ground who are eager to get them operational as soon as possible. Then there are those with significant deposits who may need financing to complete payments for their orders. However, securing financing in this market requires having a valid, binding colocation or hosting agreement with a reputable data center operator. The good news for us is that we believe we lead in this area. We've received inquiries from both groups: those with rigs on the ground and those trying to finalize payments for their ordered miners. They cannot obtain financing without assurance that their units have a home. This situation puts us in a favorable position, and we are carefully balancing our available capital with potential opportunities. We are actively discussing options with many interested parties and believe we can assist them, provided the terms align with our requirements. We will not take risks for additional capital needs, but if they can provide the necessary capital, we are open to discussions, and many of them can. They must meet our terms as well. As we've mentioned before, we have appropriately updated the historical colocation rates.

Mike, I really appreciate all the color and to you and the team at best of luck.

Thank you. We feel good.

Hi, everybody and good afternoon. Just a quick one from me. So, as the infrastructure build-out progresses and we move towards the 1-gigawatt of capacity and then into 2023, have we taken any consideration of immersion 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 benefits that can be gotten out of it. And I think it's very fair to say that, over the course of the next 12 months, we will be running some number of our rigs in immersion. But where we are running the rigs in immersion, 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 we can increase our return on investment. And that's what's driving it for us as opposed to because all of our facilities work well in a passive air environment. But that said, I give a talk the other day; I don't remember what it was. I likened it to the fact that solar is now a very, very affordable energy source, which years ago, it wasn't. Immersion, as it has evolved, is becoming 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 will turn it back to the queue.

Thank you, Tyler. And with that, as our last question, we thank you for your attention and for your interest in Core Scientific. An archived version of this call, all SEC filings and relevant company and industry news can be found on our website, corescientific.com. We wish you a good day, and we look forward to speaking with you again following next quarter's results.

Thank you, everybody.

Thank you.