Core Scientific, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 8, 2024. Core Scientific operates seven U.S. data centers, with Bitcoin self-mining and third-party hosting as its two segments. The company emerged from Chapter 11 on January 23, 2024. The quarter’s comparison with Q1 2023 is affected by the restructuring and the issuance of new equity and debt.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $179.3 million | $120.7 million |
| Gross profit / margin | $77.6 million / 43% | $31.8 million / 26% |
| Operating income | $55.2 million | $7.6 million |
| Net income (loss) | $210.7 million | $(0.4) million |
| Adjusted EBITDA | $88.0 million | $40.3 million |
| Cash provided by operations | $22.2 million | $19.9 million |
- Mining revenue was $150.0 million, up 53%; hosting revenue from customers was $29.3 million, up 55%. Mining represented 84% of total revenue.
- Mining gross margin rose to 46% from 26%; hosting gross margin increased to 32% from 28%.
- Bitcoin price was a major revenue driver: the reported quarterly average was $53,579, up 134% year over year. Self-mined Bitcoin fell 34% to 2,825 as global network hash rate increased approximately 73%, despite Core’s self-mining hash rate rising 20% to 19.3 EH/s.
- Cash and cash equivalents were $98.1 million; restricted cash was $16.2 million. Net working capital was $5.2 million. Operating cash flow less $31.9 million of capital expenditures was negative $9.8 million; financing provided $54.4 million.
- Notes payable, net, totaled $579.9 million. The company also reported $327.5 million of warrant liabilities, $44.6 million of contingent value rights liabilities, and $73.8 million of operating lease liabilities. Total liabilities were $1.13 billion, exceeding assets of $814.0 million; stockholders’ deficit was $318.5 million.
Material changes and unusual items
- Revenue increased 49% year over year; gross profit increased 144%. Higher Bitcoin prices and a larger self-mining fleet contributed, while the number of Bitcoin mined declined. Higher depreciation, proceeds-sharing costs, payroll and power costs partly offset revenue growth.
- Net income includes substantial restructuring and fair-value effects, and should not be read as a measure of recurring operating earnings. Reorganization items produced a net gain of $111.4 million, principally from settling allowed claims at emergence. Fair-value changes in warrants and contingent value rights produced a $60.1 million gain. These gains were partly offset by $14.1 million of net interest expense. Adjusted EBITDA, a non-GAAP measure, was $88.0 million.
- The Plan canceled pre-emergence equity and reorganized debt and creditor claims through new shares, warrants, contingent value rights and debt. The company issued $150 million of secured notes due 2028 and $260 million of secured convertible notes due 2029, and entered an $80 million exit credit facility. It had drawn $20 million of the facility by quarter-end, leaving $20 million of delayed-draw capacity.
- Operating cash flow was positive, but investing outflows rose substantially as property and equipment purchases reached $31.9 million, versus $1.5 million a year earlier.
Outlook, risks and contingencies
- Management stated that cash, expected operating cash flows and available exit-facility capacity were sufficient to fund operations and debt service for at least 12 months from issuance of the statements. This is management’s assessment, not financial guidance.
- Bitcoin’s April 19, 2024 halving reduced the block reward from 6.25 to 3.125 BTC. Management warned it could reduce mining revenue; the effect may depend on Bitcoin prices, network hash rate and difficulty. The filing provides no numerical forward guidance.
- The business is exposed to Bitcoin price volatility, increasing mining competition and network difficulty, electricity costs and availability, equipment costs, customer concentration, and evolving digital-asset regulation. A 10% change in Bitcoin’s price, with other factors held constant, was estimated to change quarterly net income by approximately $15 million.
- One customer accounted for 84% of total revenue in Q1 2024, and the top three hosting customers accounted for approximately 86% of hosting-segment revenue.
- Disclosure controls and procedures were reported ineffective at the reasonable-assurance level because of material weaknesses involving IT program-change controls, user access and segregation of duties, and timely recording of transactions under GAAP. Remediation was ongoing and testing of design and operating effectiveness was not complete.
- Pending matters include shareholder, employment and hosting-contract claims. The company stated it could not reasonably estimate possible losses beyond recorded amounts in certain matters. A shareholder complaint was dismissed without prejudice on April 22, 2024; other claims remained pending or subject to proceedings described in the filing.
- The company was required by debt agreements to sell Bitcoin it mined within ten days of receipt and reported no Bitcoin holdings at March 31, 2024.
Key facts for investors to verify
- Whether post-halving Bitcoin production, prices, network difficulty and power costs support mining margins.
- Progress on miner deployment and the timing and economics of the CoreWeave GPU hosting facility, expected to become operational in Q2 2024.
- Cash generation, capital spending, debt service and compliance with exit-facility liquidity and leverage covenants.
- The potential dilution and cash or share settlement effects of convertible notes, warrants, contingent value rights and the management incentive plan.
- Remediation and independent testing of the disclosed material weaknesses in financial reporting controls.