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Item 2. Management’s Discussion and Analysis

2022-05-13 compared with 2021-11-15 · 699 added, 299 removed, 1 unchanged (100% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,”

“Power & Digital Infrastructure Acquisition Corp.,” “Power & Digital,” “our,”

“us” or “we” refer to Power & Digital Infrastructure Acquisition Corp.

The following discussion and

analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited

condensed consolidated financial statements and the notes thereto contained elsewhere in this report.

Certain information contained

in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking

This Quarterly Report on Form 10-Q includes

forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange

We have based these forward-looking statements on our current expectations and projections about future events.

These forward-looking

statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of

activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements

expressed or implied by such forward-looking statements.

In some cases, you can identify forward-looking statements by terminology such

as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,”

“believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions.

statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as

all other statements other than statements of historical fact included in this Form 10-Q.

Factors that might cause or contribute to such

a discrepancy include, but are not limited to, those described in our other SEC filings.

We are a blank check company incorporated in

Delaware on December 29, 2020.

We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase,

reorganization or similar business combination with one or more businesses (the “Business Combination”).

We are an emerging

growth company and, as such, we are subject to all of the risks associated with emerging growth companies.

Our sponsor is XPDI Sponsor

LLC, a Delaware limited liability company (the “Sponsor”).

The registration statement for our Initial Public

Offering was declared effective on February 9, 2021.

On February 12, 2021, we consummated its Initial Public Offering of 34,500,000 units

(the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”),

including the exercise of the underwriters’ option to purchase 4,500,000 additional Units (the “Over-Allotment Units”),

at $10.00 per Unit, generating gross proceeds of $345.0 million, and incurring offering costs of approximately $19.2 million, of which

approximately $12.1 million in deferred underwriting commissions.

Simultaneously with the closing of the Initial

Public Offering, we consummated the private placement (“Private Placement”) of 6,266,667 warrants (each, a “Private

Placement Warrant” and collectively, the “Private Placement Warrants”), at a price of $1.50 per Private Placement Warrant,

to the Sponsor and to certain qualified institutional buyers or institutional accredited investors, including certain funds and accounts

managed by subsidiaries of BlackRock, Inc.

(the “Anchor Investors”), generating proceeds of $9.4 million.

Upon the closing of the Initial Public Offering

and the Private Placement, $345.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds

of the Private Placement was placed in a trust account (“Trust Account”) located in the United States with Continental Stock

Transfer & Trust Company acting as trustee, and will be invested only in U.S.

“government securities,” within the meaning

of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of

185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act, which

invest only in direct U.S.

government treasury obligations, as determined by us, until the earlier of:

(i) the completion of a Business

Combination and (ii) the distribution of the Trust Account as described below.

management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale

of Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating

a Business Combination.

There is no assurance that we will be able to complete a Business Combination successfully.

We complete one or

more initial Business Combinations having an aggregate fair market value of at least 80% of the net assets held in the Trust Account

(as defined below) (excluding the deferred underwriting commissions and taxes payable by us on the income earned on the trust account)

at the time of the agreement to enter into the initial Business Combination.

However, we only intend to complete a Business Combination

if the post-transaction company owns or acquires 50% or more of the issued and outstanding voting securities of the target or otherwise

acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment

we are unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering, or February 12, 2023,

(the “Combination Period”) and our stockholders have not amended the Certificate of Incorporation to extend such Combination

Period, we will (1) cease all operations except for the purpose of winding up;

(2) as promptly as reasonably possible but not more than

10 business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit

in the Trust Account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net

of taxes payable by us), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish

Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any);

as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and our board of

directors, liquidate and dissolve, subject in each case to our obligations under Delaware law to provide for claims of creditors and

the requirements of other applicable law.

Business Combination

July 20, 2021, we entered into an Agreement and Plan of Merger and Reorganization (the “Agreement”), with XPDI Merger Sub

Inc., a wholly owned subsidiary of the Company (“First Merger Sub”), XPDI Merger Sub 2, LLC, a wholly owned subsidiary of

the Company (“Second Merger Sub” and, together with First Merger Sub, the “Merger Subs” and, together with the

Company, the “XPDI Parties”), and Core Scientific Holding Co.

(“Core Scientific”).

The Agreement and the transactions

contemplated thereby (collectively, the “Proposed Business Combination”) were unanimously approved by the boards of directors

of each of XPDI and Core Scientific.

to the Agreement, we will acquire Core Scientific through a series of transactions, including (x) the merger of First Merger Sub with

and into Core Scientific (the “First Merger”), with Core Scientific surviving the First Merger as a wholly owned subsidiary

of the Company, and (y) the merger of Core Scientific with and into Second Merger Sub (the “Second Merger” and, together

with the First Merger, the “Mergers”), with Second Merger Sub surviving the Second Merger as a wholly owned subsidiary of

As a result of the Mergers, among other things, each outstanding share of common stock of Core Scientific (“Core Scientific

Common Stock”) will be cancelled in exchange for the right to receive a number of shares of Class A common stock of the Company

in an amount that is approximately equal to the quotient obtained by dividing (a) an amount equal to (x) $4.0 billion, divided by (y)

the number of shares of Core Scientific Common Stock on a fully-diluted basis, by (b) $10.00.

with its entry into the Agreement, we also entered into a Sponsor Agreement (the “Sponsor Agreement”), by and among the Company,

the Sponsor, the other holders of the Company’s Class B common stock, (and, such holders, together with the Sponsor, the “Class

B Holders”), and Core Scientific, whereby, among other things, (a) the Class B Holders agreed to vote their shares of Class A Common

Stock and Class B Common Stock in favor of approving the Agreement and the Proposed Business Combination, (b) the Class B Holders agreed

to waive any adjustment to the conversion ratio set forth in the Company’s organizational documents or any other anti-dilution

or similar protection with respect to the shares of Class B Common Stock and (c) the Class B Holders agreed to be bound by certain transfer

restrictions with respect to their shares of Class A Common Stock and Class B Common Stock prior to the Closing.

Additionally,

pursuant to the terms of the Sponsor Agreement, 20% of the shares of Class B Common Stock held by the Class B Holders (the “SPAC

Vesting Shares”) will be unvested at the Closing and will vest (and shall not be subject to forfeiture) upon the date on which

the volume-weighted average price of the Class A Common Stock is greater than $12.50 per share (as adjusted for stock splits, stock dividends,

reorganizations, recapitalizations and the like) for any 20 trading days within any 30 consecutive trading day period within five years

of the Closing (the “Vesting Period”).

Any SPAC Vesting Shares that have not vested by the end of the Vesting Period will

be deemed to be transferred by the forfeiting holder to the Company without any consideration and shall be cancelled by the Company and

cease to exist.

with its entry into the Agreement, we entered into a Company Support Agreement (the “Support Agreement”), by and among the

Company, Core Scientific and certain stockholders of Core Scientific (the “Core Scientific Stockholders”).

Under the Support

Agreement, the Core Scientific Stockholders have agreed to vote or cause to be voted or to execute and deliver a written consent with

respect to the Core Scientific equity securities held by the Core Scientific Stockholders adopting the Agreement and approving the Proposed

Business Combination.

The Core Scientific equity securities that are owned by the Core Scientific Stockholders and subject to the Support

Agreement represent more than a majority of the outstanding voting power of Core Scientific shares (on a fully-diluted, as-converted

and Going Concern

As of September 30, 2021, we had approximately $1.6

million in its operating bank account and working capital deficit of approximately $1.9 million.

liquidity needs to date have been satisfied through a payment of $25,000 from the Sponsor to cover for certain offering costs in exchange

for issuance of the Founder Shares (as defined below), the loan under a promissory note with our Sponsor of approximately $90,000, and

the net proceeds from the consummation of the Private Placement not held in the Trust Account.

We fully repaid the promissory note on

February 15, 2021.

In addition, in order to finance transaction costs in connection with an Initial Business Combination, our officers,

directors and initial stockholders may, but are not obligated to, provide us Working Capital Loan.

As of September 30, 2021, there were

no amounts outstanding under any Working Capital Loans.

the consummation of a Business Combination, we will be using the funds not held in the Trust Account for identifying and evaluating prospective

acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target

business to acquire, and structuring, negotiating and consummating the Business Combination.

We will need to raise additional capital

through loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties.

Our officers, directors

and Sponsor may, but are not obligated to, loan us funds from time to time or at any time, in whatever amount they deem reasonable in

their sole discretion, to meet our working capital needs.

Accordingly, we may not be able to obtain additional financing.

If we are unable

to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily

be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.

cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.

These conditions

raise substantial doubt about the Company’s ability to continue as a going concern until the earlier of the consummation of the

Business Combination or the date the Company is required to liquidate, February 12, 2023.

These financial statements do not include any

adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the

Company be unable to continue as a going concern.

continues to evaluate the impact of the COVID-19 pandemic, and the emergence of new variant strains of COVID-19, on the industry and

has concluded that while it is reasonably possible that the virus could have a negative effect on our financial position, results of

our operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

of Operations

entire activity since inception up to September 30, 2021 was in preparation for our formation, the Initial Public Offering and, subsequent

to the Initial Public Offering, identifying a target company for a Business Combination.

We will not be generating any operating revenues

until the closing and completion of our initial Business Combination.

the three months ended September 30, 2021, we had a net loss of approximately $18.7 million, which consisted of a non-operating loss

from changes in fair value of derivative warrant liabilities of approximately $16.2 million and operating losses of approximately $2.5

million, comprised of approximately $2.4 million of general and administrative expenses, $60,000 of related party general and administrative

expenses and approximately $50,000 of franchise tax expenses, partially offset by approximately $4,000 of income from investments held

in Trust Account.

the nine months ended September 30, 2021, we had a net loss of approximately $19.3 million, which consisted of a non-operating loss from

changes in fair value of derivative warrant liabilities of approximately $13.9 million and operating losses of approximately $4.4 million,

comprised of approximately $4.1 million of general and administrative expenses, $160,000 of related party general and administrative

expenses and approximately $148,000 of franchise tax expenses, partially offset by approximately $27,000 of income from investments held

in Trust Account.

Administrative

Services Agreement

on the effective date of the registration statement for the Initial Public Offering through the earlier of consummation of the initial

Business Combination and the Company’s liquidation, the Company agreed to pay affiliates of the Sponsor a total of $20,000 per

month for office space, administrative and support services.

We incurred approximately $60,000 and $160,000 in general and administrative

expenses - related party in the accompanying unaudited condensed consolidated statements of operations for the three and nine months

ended September 30, 2021, respectively, related to such services.

holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any

(and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the

Working Capital Loans and upon conversion of the Founder Shares), were entitled to registration rights pursuant to a registration rights

agreement signed upon the consummation of the Initial Public Offering.

These holders were entitled to certain demand and “piggyback”

registration rights.

However, the registration rights agreement provides that we will not be required to effect or permit any registration

or cause any registration statement to become effective until termination of the applicable lock-up period.

We will bear the expenses

incurred in connection with the filing of any such registration statements.

granted the underwriters a 45-day option from the date of the final prospectus relating to the Initial Public Offering to purchase up

to 4,500,000 additional Units to cover over-allotments, if any, at the Initial Public Offering price, less underwriting discounts and

On February 12, 2021, the underwriter fully exercised its option to purchase additional Units.

underwriters did not earn any upfront underwriting commission in connection with 2,760,000 Units, including the 2,405,700 Units sold

to the Anchor Investors.

Except for those Units, the underwriters were entitled to an underwriting discount of $0.20 per Unit sold in

the Initial Public Offering on 31,740,000 Units, or approximately $6.3 million, paid upon the closing of the Initial Public Offering.

An additional fee of $0.35 per Unit sold in the Initial Public Offering, or approximately $12.1 million in the aggregate, will be payable

to the underwriters for deferred underwriting commissions.

The deferred fee will become payable to the underwriters from the amounts

held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting

Accounting Policies

management’s discussion and analysis of our financial condition and results of operations is based on our financial statements,

which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation

of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues

and expenses and the disclosure of contingent assets and liabilities in our financial statements.

On an ongoing basis, we evaluate our

estimates and judgments, including those related to fair value of financial instruments and accrued expenses.

We base our estimates on

historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the

results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent

from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

The Company has identified

the following as its critical accounting policies:

Warrant Liabilities

do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

Management evaluates all of the

Company’s financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or

contain features that qualify as embedded derivatives, pursuant to Financial Accounting Standards Board’s (“FASB”)

Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”)

and FASB ASC Topic 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Stock” (“ASC 815”).

classification of derivative instruments, including whether such instruments should be classified as liabilities or as equity, is re-assessed

at the end of each reporting period.

warrants issued in the Initial Public Offering (“Public Warrants”) and the Private Placement Warrants are recognized as derivative

liabilities in accordance with ASC 815.

Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and

adjusts the instruments to fair value at each reporting period.

The liabilities are subject to re-measurement at each balance sheet date

until exercised, and any change in fair value is recognized in the Company’s statements of operations.

The initial estimated fair

value of the Public Warrants was measured using a Monte Carlo simulation.

The initial and subsequent fair value estimates of the Private

Placement Warrants is measured using a Black-Scholes option pricing model.

Beginning in April 2021, the estimated fair value of the Private

Placement Warrants is based on the listed price in an active market for such warrants.

A common shares subject to possible redemption

account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing

Liabilities from Equity.” Class A common stock subject to mandatory redemption (if any) is classified as liability instruments

and are measured at fair value.

Conditionally redeemable Class A common stock (including Class A common stock that features redemption

rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within

our control) are classified as temporary equity.

At all other times, Class A common stock is classified as stockholders’ equity.

Our Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to the occurrence

of uncertain future events.

Accordingly, 34,500,000 shares of Class A common stock subject to possible redemption is presented at

redemption value as temporary equity, outside of the stockholders’ equity section of our condensed consolidated balance sheets.

There was no Class A common stock issued or outstanding as of December 31, 2020.

with the closing of the Initial Public Offering (including exercise of the over-allotment option), we recognized the accretion from initial

book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated

income per common shares

comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares,

which are referred to as Class A common stock and Class B common stock.

Income and losses are shared pro rata between the two classes

Net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average shares of common

stock outstanding for the respective period.

calculation of diluted net income (loss) does not consider the effect of the Public Warrants and the Private Placement Warrants to purchase

an aggregate of 34,500,000 shares of Class A common stock in the calculation of diluted income (loss) per share, because their exercise

is contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method.

As a result, diluted

net income (loss) per share is the same as basic net income (loss) per share for the three and nine months ended September 30, 2021.

Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates

Accounting Pronouncements

August 2020, the FASB issued ASU No.

2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts

in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

(“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required

under current GAAP.

The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the

derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.

The Company adopted ASU 2020-06

on January 1, 2021.

Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.

does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material

effect on the accompanying condensed consolidated financial statements.

Sheet Arrangements

of September 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain

reporting requirements for qualifying public companies.

We qualify as an “emerging growth company” and under the JOBS Act

are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies.

We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised

accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company

effective dates.

Additionally,

we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act.

to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions

we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over

financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth

public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted

by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about

the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items

such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee

compensation.

These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until

we are no longer an “emerging growth company,” whichever is earlier.

and Qualitative Disclosures About Market Risk

are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise

required under this item.

Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “Company” or “Core Scientific” refer to Core Scientific Holding Co.

and its subsidiaries prior to the consummation of the Business Combination (as defined below) and Core Scientific, Inc.

(f/k/a Power & Digital Infrastructure Acquisition Corp.) and its subsidiaries after the consummation of the Business Combination.

References to “XPDI” refer to the predecessor registrant prior to the consummation of the Business Combination.

The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results of operations and financial condition.

This discussion and analysis should be read together with the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q.

In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions.

See the sections entitled “─Forward-Looking Statements” and Item 1A.

“Risk Factors” elsewhere in this Report.

Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A.

“Risk Factors.”

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws.

Our forward-looking statements include, but are not limited to, statements regarding our and our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future.

In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:

• execute its business strategy, including monetization of services provided and expansions in and into existing and new lines of business;

• realize the benefits expected from the acquisition of Blockcap, including any related synergies;

• anticipate the uncertainties inherent in the development of new business lines and business strategies;

• retain and hire necessary employees;

• anticipate the impact of the COVID-19 pandemic, including variant strains of COVID-19, and its effect on business and financial conditions;

• our ability to source clean and renewable energy;

• future estimates of computing capacity and operating power;

• future demand for hosting capacity;

• future estimates of hashrate (including mix of self-mining and hosting);

• operating gigawatts and power;

• future projects in construction or negotiation and future expectations of operation location;

• orders for miners and critical infrastructure;

• future estimates of self-mining capacity;

• future infrastructure additions and their operational capacity;

• operating power and site features of our operations center in Denton, Texas;

• manage risks associated with operational changes in response to the COVID-19 pandemic, including the emergence of variant strains of COVID-19;

• increase brand awareness;

• attract, train and retain effective officers, key employees or directors;

• upgrade and maintain information technology systems;

• acquire and protect intellectual property;

• meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness;

• effectively respond to general economic and business conditions, including the price of bitcoin;

• maintain the listing on, or to prevent the delisting of our securities from, Nasdaq or another national securities exchange;

• obtain additional capital, including use of the debt market;

• the public float of our shares;

• enhance future operating and financial results;

• successfully execute expansion plans;

• anticipate rapid technological changes;

• comply with laws and regulations applicable to its business, including tax laws and laws and regulations related to data privacy and the protection of the environment;

• stay abreast of modified or new laws and regulations applicable to its business or withstand the impact of any new laws and regulations related to its industry;

• anticipate the impact of, and response to, new accounting standards;

• anticipate the significance and timing of contractual obligations;

• maintain key strategic relationships with partners and distributors;

• respond to uncertainties associated with product and service development and market acceptance;

• anticipate the impact of changes in U.S.

federal income tax laws, including the impact on deferred tax assets;

• successfully defend litigation;

• successfully deploy the proceeds from the Business Combination.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and the documents we reference in this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties.

Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect.

We qualify all of our forward-looking statements by these cautionary statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Core Scientific is a best-in-class large-scale operator of dedicated, purpose-built facilities for digital asset mining and a premier provider of blockchain infrastructure, software solutions and services.

We mine digital assets for our own account and provide hosting services for other large-scale miners.

We are one of the largest blockchain infrastructure, hosting provider and digital asset mining companies in North America, with approximately 457MW of power as of December 31, 2021 and 571MW as of March 31, 2022.

We mine Bitcoin, Ethereum and other digital assets for third-party hosting customers and for our own account at our six fully operational data centers in North Carolina (2), Georgia (2), North Dakota (1) and Kentucky (1).

In addition, in October 2021, we announced the entry of an agreement with the City of Denton, Texas which became operational in February 2022 with an initial operating capacity approaching 22MW and an affiliate of Tenaska Energy, Inc.

to develop our seventh facility, a blockchain data center in Denton, Texas, which is expected to have 300MW of power when completed.

In February 2022, the Muskogee City County Port Authority announced an agreement with us to develop a 500MW data center at the Port of Muskogee John T.

Griffin Industrial Park.

In July 2021 we completed the acquisition of Blockcap, one of our largest hosting customers.

Blockcap is a blockchain technology company with industrial scale digital asset mining operations.

Blockcap’s primary historical business was the mining of digital asset coins and tokens, primarily Bitcoin and, to a lesser extent, Siacoin and Ethereum.

At the time of its acquisition, Blockcap claimed to be the largest independent cryptocurrency mining operator in North America.

While Blockcap did sell or exchange the digital assets it mined to fund its growth strategies or for general corporate purposes from time to time, it generally retained its digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more accessible and efficient medium of exchange than traditional fiat currencies.

In addition to mining, holding and exchanging digital assets, Blockcap also evaluated and completed investments in related technologies and ancillary businesses, including RADAR, an early stage company focused on technology enhancement and development in the digital asset industry that it acquired on July 1, 2021.

The acquisition of Blockcap significantly expanded our self-mining operations and increased the number of miners we own.

We intend to utilize RADAR’s business assets and the technical expertise of its principals in enhancing our existing blockchain mining technology and software and in further strengthening our leadership position and value creation potential through the development of DeFi products and services.

Our total revenue was $192.5 million and $54.2 million for the three months ended March 31, 2022 and 2021, respectively.

We had an operating loss of $26.7 million and operating income of $9.0 million for the three months ended March 31, 2022 and 2021, respectively.

We had a net loss of $466.2 million and net income of $6.8 million for the three months ended March 31, 2022 and 2021, respectively.

Our Adjusted EBITDA was $93.0 million and $12.5 million for the three months ended March 31, 2022 and 2021, respectively.

Adjusted EBITDA is a non-GAAP financial measure.

See “ Key Business Metrics and Non-GAAP Financial Measure ” below for our definition of, and additional information related to, Adjusted EBITDA.

Our Business Model

Company Overview

Core Scientific is a blockchain technology company with industrial scale digital asset mining, equipment sales and hosting operations.

Our operations are currently conducted in the United States at state-of-the-art facilities specifically designed and constructed for housing advanced mining equipment.

Our primary business is self-mining and hosting third-party equipment used in mining of digital asset coins and tokens, including bitcoin.

We continue to evaluate investments in related blockchain technologies and ancillary businesses.

Our rapidly growing digital asset mining operation is focused on the generation of digital assets by solving complex cryptographic algorithms to validate transactions on specific digital asset network blockchains, which is commonly referred to as “mining.” Our digital asset self-mining activity competes with myriad mining operations throughout the world to complete new blocks in the blockchain and earn the reward in the form of an established unit of a digital asset.

While we sell or exchange a portion of the digital assets we mine to fund our growth strategies or for general corporate purposes, we will hold a portion of our digital assets as investments in anticipation of continued adoption of digital assets as a “store of value” and a more efficient medium of exchange than traditional fiat currencies.

Following the Blockcap acquisition, we significantly expanded our self-mining operation and consequently reevaluated our digital asset investment policy.

In 2021, we adopted an investment policy pursuant to which an investment committee consisting of corporate officers use common risk management techniques to manage our assets in light of specified liquidity criteria.

Liqu idity will be maintained thro ugh management of a portfolio of money market instruments, obligations of the U.S.

government, bank deposits, commercial paper, and certain digital asset currencies and digital asset instruments, each of which must satisfy certain risk criteria.

The investment committee will retain the discretion to manage these approved investment instruments, including digital asset currencies and instruments, in accordance with the investment policy, which may involve opportunistic sales or conversions of digital asset currencies and instruments in light of market and other conditions.

As one of the largest blockchain hosting providers in North America, we focus on clients with large-scale deployments and provide power, racks, proprietary thermodynamic management (heat dissipation and airflow management), redundant connectivity, 24/7 security as well as our proprietary software platforms, MinderTM and MinderOSTM, which provide infrastructure management and custom firmware that boost performance and energy efficiency.

Our blockchain business is one of the only large-scale vertically integrated digital asset mining and blockchain infrastructure and hosting solutions business in North America.

Our proprietary data centers in North Carolina, Georgia, Kentucky and North Dakota are purpose-built facilities optimized for the unique requirements of high density blockchain computer servers.

These facilities have long-term power contracts at approximately 571MW and 457MW of power as of March 31, 2022 and December 31, 2021, respectively.

In addition, we opened a new facility in Denton, Texas in February 2022 with an initial operating capacity approaching 22 MW and expect to achieve full capacity of 300MW when completed.

In February 2022, the Muskogee City County Port Authority announced an agreement with us to develop a 500MW data center at the Port of Muskogee John T.

Griffin Industrial Park.

Our existing completed facilities leverage our specialized construction proficiency by employing high-density, low-cost engineering and power designs.

Our North Dakota facility is expected to benefit from our operational mining experience and techniques to maximize operational efficiency.

As the demand for digital assets increases and digital assets become more widely accepted, there is an increasing demand for professional-grade, scalable infrastructure to support growth of the blockchain ecosystem.

We continually evaluate our mining performance, including our ability to access additional megawatts of electric power and to expand our total self-mining and customer and related party hosting hash rates.

We may explore additional mining facilities and mining arrangements in connection with our short-, medium- and long-term strategic planning.

We have two operating segments:

“Equipment Sales and Hosting” which consists primarily of our blockchain infrastructure and third-party hosting business and equipment sales to customers, and “Mining” consisting of digital asset mining for our own account.

The blockchain hosting business generates revenue through the sale of consumption-based contracts for our hosting services which are recurring in nature.

Equipment sales revenue is derived from our ability to leverage our partnerships with leading equipment manufacturers to secure equipment in advance, which is then sold to our customers when they are unable to obtain them otherwise.

The digital asset mining operation segment generates revenue from operating owned computer equipment as part of a pool of users that process transactions conducted on one or more blockchain networks.

In exchange for these services, we receive digital assets.

Mining Equipment

We own and host specialized computers (“miners”) configured for the purpose of validating transactions on multiple digital asset network blockchains (referred to as, “mining”), predominantly the Bitcoin network.

Substantially all of the miners we own and host were manufactured by Bitmain and incorporate application-specific integrated circuit (“ASIC”) chips specialized to solve blocks on the bitcoin blockchains using the 256-bit secure hashing algorithm (“SHA-256”) in return for bitcoin digital asset rewards.

We have entered into and facilitated agreements with vendors to supply mining equipment for our and our users’ digital asset mining operations.

We prepay a significant portion of the purchase price for these new miners as partially refundable deposits, with delivery scheduled to occur in monthly installments through December 2022, and the remainder of the purchase price for these new miners is payable in installments, with payment due in advance of the scheduled delivery dates set forth in the applicable purchase agreement.

As of March 31, 2022, we had deployed approximately 164,000 bitcoin miners, which number consists of approximately 82,000 self-miners and approximately 82,000 hosted miners, which represented 8.3 EH/s and 7.9 EH/s for self-miners and hosted miners, respectively.

In addition, as of March 31, 2022, we had 91,000 and 54,000 additional self-miners and hosted miners, respectively, expected to be deployed in 2022 and thereafter, which are expected to increase our hash rate and our customers and related parties hash rate by approximately 9.1 EH/s and 5.4 EH/s respectively.

As of March 31, 2022, the remaining payments due on the bitcoin miners on order is approximately $134.8 million, of which substantially all is expected to be paid in 2022.

We allocate in advance our mining equipment orders between our self-mining operations and our hosting operations conducted on behalf of customers based on our estimates of where such equipment can most profitably and efficiently be used and in accordance with contractual arrangements with our customers.

The first table below summarizes the total number of self- and hosted miners in operation as of March 31, 2022.

The second table below summarizes the total number of self- and hosted miners for delivery and deployment in 2022 and Q1 of 2023 , (Miners in thousands).

Bitcoin Miners in Operation as of March 31, 2022

Mining Equipment Hash rate (EH/s) Number of Miners

Self-miners 8.3 82.3

Hosted miners 7.9 81.6

Total mining equipment 16.2 163.9

Bitcoin Miners Ordered or Transferred In 2022 and Thereafter

Mining Equipment Hash rate to be deployed (EH/s) Number of Miners

Self-miners 9.1 91.4

Hosted miners 5.4 53.7

Total mining equipment 14.5 145.1

Total in operation and to be deployed 30.7 309.0

Performance Metrics

Miners perform computational operations in support of digital asset blockchains measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain;

therefore, a miner’s “hash rate” refers to the rate at which it is capable of solving such computations.

The original equipment used for mining bitcoin utilized the Central Processing Unit (“CPU”) of a computer to mine various forms of digital assets.

Due to performance limitations, CPU mining was rapidly replaced by the Graphics Processing Unit (“GPU”), which offers significant performance advantages over CPUs.

General purpose chipsets like CPUs and GPUs have since been replaced as the standard in the mining industry by ASIC chips such as those found in the S17 and S19 miners we and our customers use to mine bitcoin.

These ASIC chips are designed specifically to maximize the rate of hashing operations.

Network Hash Rate

In digital assets mining, hash rate is a measure of the processing speed by a mining computer for a specific digital asset.

A participant in a blockchain network’s mining function has a hash rate total of its miners seeking to mine a specific digital asset and, system-wide, there is a total hash rate of all miners seeking to mine each specific type of digital asset.

A higher total hash rate relative to the system-wide total hash rate generally results over time in a corresponding higher success rate in digital asset rewards as compared to mining participants with relatively lower total hash rates.

However, as the relative market price for a digital asset, such as bitcoin, increases, more users are incentivized to mine that digital asset, which increases the network’s overall hash rate.

As a result, a mining participant must increase its total hash rate in order to maintain its relative possibility of solving a block on the network blockchain.

Achieving greater hash rate power by deploying increasingly sophisticated miners in ever greater quantities has become one of the Bitcoin mining industry’s great sources of competition.

Our goal is to deploy a powerful fleet of self- and hosted-miners, while operating as energy-efficiently as possible.

Impact of COVID-19

In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic.

We continue to closely monitor the impact of COVID-19.

COVID-19 has had and continues to have an adverse impact on our business and operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking.

Refer to “Item 1A.

Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q for more information.

On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.

It also allocated funds for the U.S.

Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

In April 2020, Legacy Core received a loan of $2.2 million from the PPP through the SBA.

The loan was unsecured and bore interest at a rate per annum of 1% and monthly payments of principal were to begin in July 2021.

The loan was due in full in April 2022, however in July 2021, Legacy Core repaid the loan in full.

We are unable to predict the full impact that the COVID-19 pandemic, including variant strains of COVID-19, will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities across the United States.

However, COVID-19, including variant strains of COVID-19, is not expected to result in any significant changes in costs going forward.

We will continue to monitor the performance of our business and assess the impacts of COVID-19 and the emergence of new variant strains of COVID-19, including potential constraints on the supply of new miners.

The Merger and Public Company Costs

We entered into a merger agreement with XPDI and Merger Subs on July 20, 2021.

Pursuant to the merger agreement, Legacy Core became a wholly owned subsidiary of XPDI at the closing of the Business Combination on January 19, 2022.

The merger is accounted for as a reverse recapitalization and XPDI is treated as the “acquired” company for financial reporting purposes.

Legacy Core has been deemed the predecessor and Core, the post-combination company, is the successor SEC registrant, meaning that Legacy Core’s financial statements for periods prior to the consummation of the merger are disclosed in Core’s periodic reports.

As a consequence of the merger, we and XPDI collectively incurred an aggregate of $39.0 million in professional fees associated with, legal services, M&A advisor fees, financial advice, due diligence, and other deal-related costs.

These transaction costs will be allocated to all instruments assumed or issued in the merger on a relative fair value basis as of the date of the merger.

Transaction costs allocated to equity-classified instruments will be recognized as an adjustment to additional paid-in capital within total stockholders’ equity while transaction costs allocated to liability-classified instruments that are subsequently measured at fair value through earnings and were expensed in the first quarter of 2022.

Core Scientific is registered with the SEC and listed on Nasdaq as of January 19, 2022, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices.

We expect to incur additional annual expenses as a public company for, among other things, internal controls compliance and public company reporting obligations, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

Key Factors Affecting Our Performance

Market Price of Digital Assets

Our business is heavily dependent on the spot price of bitcoin, as well as other digital assets.

The prices of digital assets, specifically bitcoin, have experienced substantial volatility, which may reflect “bubble” type volatility, meaning that high or low prices may have little or no relationship to identifiable market forces, may be subject to rapidly changing investor sentiment, and may be influenced by factors such as technology, regulatory void or changes, fraudulent actors, manipulation, and media reporting.

Bitcoin (as well as other digital assets) may have value based on various factors, including their acceptance as a means of exchange by consumers and others, scarcity, and market demand.

Our financial performance and continued growth depend in large part on our ability to mine for digital assets profitably and to attract customers for our hosting services.

Increases in power costs, inability to mine digital assets efficiently and to sell digital assets at favorable prices will reduce our operating margins, impact our ability to attract customers for our services, may harm our growth prospects and could have a material adverse effect on our business, financial condition and results of operations.

Over time, we have observed a positive trend in the total market capitalization of digital assets which suggests increased adoption.

However, historical trends are not indicative of future adoption, and it is possible that the adoption of digital assets and blockchain technology may slow, take longer to develop, or never be broadly adopted, which would negatively impact our business and operating results.

Network Hash Rate

Our business is not only impacted by the volatility in digital asset prices, but also by increases in the digital asset, primarily Bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks.

The increase in digital assets, primarily, Bitcoin difficulty and hash rate reduces the mining proceeds of the equipment proportionally and eventually requires Bitcoin miners to upgrade their mining equipment to remain profitable and compete effectively with other miners.

The table below provides a summary of the impact to revenue from the increase or decrease in the market price of Bitcoin, difficulty and our hash rate.

The impact to revenue in each scenario assumes only one driver increases or decreases and all others are held constant.

Impact to Revenue

Driver Increase in Driver Decrease in Driver

Market Price of Bitcoin Favorable Unfavorable

Difficulty Unfavorable Favorable

Core Scientific Hash Rate Favorable Unfavorable

Further affecting the industry, and particularly for the Bitcoin blockchain, the digital asset reward for solving a block is subject to periodic incremental halvening.

Halvening is a process designed to control the overall supply and reduce the risk of inflation in digital assets using a proof of work consensus algorithm.

At a predetermined block, the mining reward is reduced by half, hence the term “halvening.”

For bitcoin, our most significant digital asset to which the majority of our mining power is devoted, the reward was initially set at 50 bitcoin currency rewards per block.

The Bitcoin blockchain has undergone halvening three times since its inception as follows:

(1) on November 28, 2012 at block 210,000;

(2) on July 9, 2016 at block 420,000;

(3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 bitcoin per block.

The next halvening for the Bitcoin blockchain is anticipated to occur in early 2024 at block 840,000.

This process will repeat until the total amount of bitcoin currency rewards issued reaches 21 million and the theoretical supply of new bitcoin is exhausted, which is expected to occur around 2140.

Many factors influence the price of bitcoin and the other digital assets we mine for, and potential increases or decreases in prices in advance of or following a future halvening are unknown.

Electricity Costs

Electricity cost is the major operating cost for the mining fleet, as well as for the hosting services provided to customers and related parties.

Energy costs and availability are vulnerable to market price volatility, tariff changes, market dynamics of natural gas, general inflationary trends, risks of outages and power grid damage as a result of inclement weather, animal incursion, sabotage, and other events out of our control.

Equipment Costs

As the market value of digital assets has increased, the demand for the newest, most efficient miners has also increased, leading to scarcity in the supply of and thereby a resulting increase in the price of miners.

As a result, the cost of new machines can be unpredictable, and could also be significantly higher than our historical cost for new miners.

Similarly, as bitcoin prices have changed over time, so has the demand for miners.

As a result, at times, we may obtain Bitmain miners and other hardware from Bitmain or from third parties at higher prices, to the extent they are available.

For example, in the second half of 2020 and continuing into 2021, we observed a significant appreciation in the market price of bitcoin, as well as an increase in the per-unit price of the new Bitmain Antminer model S19-Pro and S19j-Pro miners we purchased during this same period.

While we cannot know definitively if these two phenomena are linked, we have seen a measurable increase in the prices for new miners offered by Bitmain.

Our Competitive Environment

In addition to factors underlying our mining business growth and profitability, our success greatly depends on our ability to retain and develop opportunities with our existing customers and to attract new customers.

On July 30, 2021, we acquired an existing hosting customer, Blockcap, and thereby increased our self-mining operations.

Our business environment is constantly evolving, and digital asset miners can range from individual enthusiasts to professional mining operations with dedicated data centers.

The Company competes with other companies that focus all or a portion of their activities on mining activities at scale.

We face significant competition in every aspect of our business, including, but not limited to, the acquisition of new miners, the ability to raise capital, obtaining low-cost electricity, obtaining access to sites with reliable and sufficient sources of power, and evaluating new technology developments in the industry.

At present, the information concerning the activities of these enterprises may not be readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable.

Published sources of information include “bitcoin.org” and “blockchain.info”;

however, the reliability of that information and its continued availability cannot be assured.

We believe, based on available data, that the trend of increasing market prices for bitcoin and other major digital assets we observed beginning in the third fiscal quarter of calendar year 2020 has resulted in an increase in the scale and sophistication of competition in the digital asset mining industry, with new entrants and existing competitors gaining access to substantial capital resources to build ever larger mining operations.

If this trend of increasing market prices for bitcoin and other digital assets continues, which has occurred (though with significant volatility) throughout calendar year 2021, we believe many new and existing competitors may be encouraged to build or expand their Bitcoin mining operations.

Despite this trend, we believe, based on available data and assuming full deployment of the miners we have ordered from Bitmain, we have and will continue to maintain a competitive hash rate capacity among both public and private Bitcoin miners.

However, to remain competitive in our evolving industry, both against new entrants into the market and existing competitors, we

anticipate that we will have to continue to expand our existing miner fleet by purchasing the latest generation of miners, as well as innovating to develop and implement new technologies and mining solutions.

We believe that our integrated blockchain service portfolio, as well as our differentiated customer experience and technology, are keys to retaining and growing revenue from existing customers and to acquiring new customers.

For example, we believe our significant build-out and ready power along with our Minder TM software layer represent meaningful competitive advantages favorable to our business.

Differentiation, Innovation and Expansion of Our Platform

Our investments in research and development drive differentiation of our service offerings, core technology innovation and our ability to bring new products to market.

We believe that we differentiate ourselves by offering premium products and services including our ability to manage our electricity sourcing, construct proprietary passive cooled data centers, and enable the efficient performance of commercially available mining equipment through our management software.

We intend to continue to invest in our research and development capabilities to extend our platform management and software solutions across the blockchain in order to manage our mining fleet more efficiently, expand within existing accounts, and gain new customers by offering differentiated blockchain products and services.

Grow Our Go-to-Market and Partnership Ecosystem

In addition to the activities of our sales organization, our success in our mining business as well as in retaining and attracting new customers will depend on our ability to expand our ecosystem of strategic partners.

For blockchain, strategic partners include OEM manufacturers of mining equipment, including Bitmain and others.

Our blockchain business requires access to the latest generation miners.

Our management team constantly evaluates current and future hardware for reliability, performance, and cost efficiency.

These partnerships enable at-scale access to new equipment at competitive prices, which in turn helps secure the profitability of our fleet for the long term as well as provide our customers access to leading-edge mining technology.

Our financial prospects and continued growth depend in part on our ability to continue to operate in a compliant manner with all rules and regulations.

Our business is subject to the oversight of numerous regulatory agencies in the United States and other jurisdictions.

Our strategy is to continue to invest in our finance, legal, compliance, and security functions in order to remain at the forefront of applicable policy initiatives and regulatory trends.

As the industry matures, we may experience fluctuations in our operating results as a result of changes in the law and regulations that are applicable to our business, which may limit our ability to support new blockchains and digital assets, onboard customers, and offer our products and services across jurisdictions.

Strategic Acquisitions and Investments

We intend to continue growing our platform through strategic acquisitions and investments.

We plan to acquire and invest in companies with complementary products and technologies.

Our strategic acquisitions may affect our future financial results.

We will also continue to enter into strategic partnerships with various companies to scale our business, provide best-in-class blockchain infrastructure and hosting to our clients, grow our digital asset mining practice, and pioneer innovative financial products and services through blockchain technology.

Merger Agreement

On July 20, 2021, we entered into the merger agreement with XPDI and the Merger Sub.

XPDI’s stockholders approved the transactions contemplated by the merger agreement (collectively, the “Business Combination”) at a special meeting of stockholders held on January 19, 2022 (the “Special Meeting”).

Pursuant to the merger agreement, and subject to the terms and conditions set forth therein, XPDI acquired Legacy Core through a series of transactions, including (x) Merger Sub merging with and into Legacy Core, with Legacy Core surviving the First Merger as a wholly owned subsidiary of XPDI, and (y) following the closing of the First Merger, Legacy Core merging with and into XPDI, with XPDI surviving the Second Merger.

In connection with the closing of the Business

Combination, we changed our name from Power & Digital Infrastructure Acquisition Corp.

to Core Scientific, Inc.

As a result of the merger, among other things, each outstanding share of Legacy Core common stock was cancelled in exchange for the right to receive 1.6001528688 of a share of New Core common stock.

The Transaction provided gross proceeds of approximately $221.6 million from the XPDI trust account, resulting in approximately $195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses.

As a result of the Transaction, former Core Scientific stockholders own 90.7%, former XPDI public stockholders own 6.7% and XPDI’s sponsor owns 2.6% of the issued and outstanding shares of common stock, respectively, of the Company, excluding the impact of unvested restricted stock units and options.

The proceeds from the Transaction will be used to fund mining equipment purchases and infrastructure build-out as the Company expands its leadership position.

2021 Acquisitions

In July 2021, we acquired Blockcap, a Nevada corporation engaged in the business of digital asset mining and through its subsidiary, RADAR, an early stage company focused on technology enhancement and development in the digital asset industry.

Pursuant to the Core/Blockcap merger agreement, each eligible share of Blockcap was converted into shares of Core common stock in accordance with a determined ratio, and Blockcap was merged with a wholly owned subsidiary of Legacy Core.

As a result of the merger we acquired for self-mining all of the digital asset mining machines owned by Blockcap and hosted by us in our facilities.

As a result, the existing hosting agreement between Legacy Core and Blockcap was terminated.

Condensed Statement of Operations

The following table presents a condensed statement of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

(in thousands)

Total Revenue

$ 192,519 $ 54,246

Cost of revenue

122,516 39,713

70,003 14,533

Gain from sales of digital assets 2,163 30

Impairment of digital assets (53,985) —

Total operating expenses

Operating (loss) income (26,717) 9,026

Total non-operating expense, net 397,081 2,177

Income (loss) before income taxes

(423,798) 6,849

Income tax expense

Net (loss) income $ (466,204) $ 6,849

Key Business Metrics and Non-GAAP Financial Measure

In addition to our financial results, we use the following business metrics and non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions.

For a definition of these key business metrics, see the sections titled “─Self-Mining Hash Rate” and “─Adjusted EBITDA” below.

Self-Mining Hash rate (Exahash per second)

Adjusted EBITDA (in millions)

$ 93.0 $ 12.5

Self-Mining Hash rate

We operate mining hardware that performs computational operations in support of the blockchain measured in “hash rate” or “hashes per second.” A “hash” is the computation run by mining hardware in support of the blockchain;

therefore, a miner’s “hash rate” refers to the rate at which the hardware is capable of performing such computations.

Our hash rate represents the hash rate of our miners as a proportion of the total Bitcoin network hash rate and drives the number of digital asset rewards that will be earned by our fleet.

We calculate and report our hash rate in exahash per second (“EH/s”).

One exahash equals one quintillion hashes per second.

We measure the hash rate produced by our mining fleet through our management software, Minder TM , which consolidates the reported hash rate from each miner.

The method by which we measure our hash rate may differ from how other operators present a such measure.

Our self-mining hash rate was 8.30 EH/s and 0.40 EH/s for the three months ended March 31, 2022 and 2021, respectively representing a 1975% increase year over year.

Our self-mining hash rate, inclusive of Blockcap (“combined self-mining”), for the three months ended March 31, 2022 and 2021, was 8.30 EH/s and 1.48 EH/s, respectively.

Our combined self-mining and customer and related party hosting hash rate grew 354%, to 16.20 EH/s for the the three months ended March 31, 2022 from 3.57 EH/s for the three months ended March 31, 2021.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure defined as our net income or (loss), adjusted to eliminate the effect of (i) interest income, interest expense, and other income (expense), net;

(ii) provision for income taxes;

(iii) depreciation and amortization;

(iv) stock-based compensation expense;

and (v) certain additional non-cash and non-recurring items, that do not reflect our ongoing business operations.

For additional information, including the reconciliation of net income (loss) to Adjusted EBITDA, please refer to the table below.

We believe Adjusted EBITDA is an important measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making the adjustments described above.

In addition, it provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business, as it removes the effect of net interest income (expense), taxes, certain non-cash items, variable charges, and timing differences.

Moreover, we have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measurement used by our management internally to make operating decisions, including those related to operating expenses, evaluate performance, and perform strategic and financial planning.

The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount and timing of these items is unpredictable, not driven by core results of operations and renders comparisons with prior periods and competitors less meaningful.

However, you should be aware that when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures.

Our presentation of this measure should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items.

Further, this non-GAAP financial measure should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

We compensate for these limitations by relying primarily on GAAP results and using Adjusted EBITDA on a supplemental basis.

Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies because not all companies calculate this measure in the same fashion.

You should review the reconciliation of net income (loss) to Adjusted EBITDA below and not rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Adjusted EBITDA (in thousands)

Net income (loss)

$ (466,204) $ 6,849

Interest expense, net 21,676 2,135

Income tax expense 42,406 —

Depreciation and amortization 42,139 2,916

Loss on debt from extinguishment — 42

Stock-based compensation expense 25,797 588

Fair value adjustments on derivative warrant liabilities (10,275) —

Fair value adjustment on convertible notes 386,037 —

Gain from sales of digital assets (2,163) (30)

Impairment of digital assets 53,985 —

Other non-cash and non-recurring items (357) —

Adjusted EBITDA

$ 93,041 $ 12,500

Components of Results of Operations

Our revenue consists primarily of returns from our hosting operations, including the sales of mining equipment to be hosted in our data centers and proceeds related to digital currency transaction processing (digital asset mining income) fees.

• Hosting revenue from customers and related parties.

Hosting revenue from customers and related parties is based on consumption-based contracts with our customers and related parties.

Most contracts are renewable, and our customers are generally billed on a fixed and recurring basis each month for the duration of their contracts, which vary from one to three years in length.

• Equipment sales to customers and related parties.

Revenue from equipment sales to customers and related parties is derived from our ability to leverage our partnerships with leading equipment manufacturers to secure equipment in advance, which is then sold to our customers and related parties.

Our equipment sales are typically in connection with a hosting contract.

• Digital asset mining income.

We operate a digital asset mining operation using specialized computers equipped with application-specific integrated circuit (ASIC) chips (known as “miners”) to solve complex cryptographic algorithms in support of the Bitcoin blockchain (in a process known as “solving a block”) in exchange for digital asset rewards (primarily bitcoin).

The Company participates in “mining pools” organized by “mining pool operators” in which we share our mining power (known as “hash rate”) with the hash rate generated by other miners participating in the pool to earn digital asset rewards.

The mining pool operator provides a service that coordinates the computing power of the independent mining enterprises participating in the mining pool.

Fees are paid to the mining pool operator to cover the costs of maintaining the pool.

The pool uses software that coordinates the pool members’ mining power, identifies new block rewards, records how much hash rate each participant contributes to the pool, and assigns digital asset rewards earned by the pool among its participants in proportion to the hash rate each participant contributed to the pool in connection with solving a block.

Revenue from digital asset mining are impacted by volatility in bitcoin prices, as well as increases in the Bitcoin blockchain’s network hash rate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain and the difficulty index associated with the secure hashing algorithm employed in solving the blocks.

The diagram below provides a simple illustration of the calculation of our annual digital asset mining income.

1 Amount represents the average number of blocks mined per year, e.g., blocks are mined on average every 10 minutes, or 144 per day, 52,560 per year

Cost of Revenue

The Company’s Cost of Hosting Services and Cost of Digital Asset Mining primarily consist of electricity costs, salaries, stock-based compensation, depreciation of property, plant and equipment used to perform hosting services and mining operations and other related costs.

Cost of Equipment Sales includes costs of mining computer equipment sold to customers.

Operating expense

Operating expense consists of research and development, sales and marketing, and general and administrative expenses.

Each is outlined in more detail below.

• Research and development.

We invest in research and development to build capabilities to extend our blockchain platform management and software solutions, in order to manage our mining fleet more efficiently, expand within existing accounts, and to gain new customers by offering differentiated blockchain hosting services.

Research and development costs include compensation and benefits, stock-based compensation, other personnel related costs and professional fees.

• Sales and Marketing.

Sales and Marketing expenses consist of marketing expenses, trade shows and events, professional fees, compensation and benefits, stock-based compensation and other personnel related costs.

• General and administrative.

General and administrative expenses include compensation and benefits expenses for employees, who are not part of the research and development and sales and marketing organization, professional fees, and other personnel related expenses.

Also included is stock-based compensation, insurance, amortization of intangibles, gain (loss) on disposals of property, plant and equipment, asset impairments, franchise taxes, and bank fees.

Gain from sales of digital assets

Gain from sales of digital assets consists of gain on sales of digital assets and impairment charges for digital assets at the lower of cost or fair value.

Impairment of digital assets

We initially recognize digital assets that are received as digital asset mining revenue based on the fair value of the digital assets.

Digital assets that are purchased in an exchange of one digital asset for another digital asset are recognized at the fair value of the asset received.

These assets are adjusted to fair value only when an impairment is recognized, or the underlying asset is held for sale.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital asset at the time its fair value is being measured, which is on a daily basis.

To the extent that an impairment loss is recognized, the loss establishes the new costs basis of the digital asset.

Impairment losses are recognized in the period in which the impairment is identified.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value.

See Note 2 in our audited financial statements under “Digital Assets” for further information.

Non-operating expenses, net

Non-operating expenses, net includes loss on debt extinguishment, interest expense, net, other fair value adjustments on convertible notes, fair value adjustments on derivative warrant liabilities and other non-operating income, net.

Income tax expense

Income tax expense consists of U.S.

federal, state and local income taxes, if any.

For the three months ended March 31, 2022, our income tax expense was $42.4 million.

We had no income tax expense for the three months ended March 31, 2021.

We evaluate our ability to recognize our deferred tax assets quarterly by considering all positive and negative evidence available as proscribed by the FASB under its general principles of ASC 740, Income Taxes.

Results of Operations

The following table sets forth our selected consolidated statements of operations for each of the periods indicated (in thousands, except percentages).

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

Hosting revenue from customers $ 27,338 $ 8,356 $ 18,982 227 %

Hosting revenue from related parties 5,876 4,336 1,540 36 %

Equipment sales to customers 416 24,042 (23,626) NM

Equipment sales to related parties 25,889 7,884 18,005 228 %

Digital asset mining income 133,000 9,628 123,372 1,281 %

Total revenue 192,519 54,246 138,273 255 %

Cost of revenue:

Cost of hosting services 31,231 11,829 19,402 164 %

Cost of equipment sales 22,535 26,231 (3,696) NM

Cost of digital asset mining 68,750 1,653 67,097 NM

Total cost of revenue 122,516 39,713 82,803 209 %

Gross profit 70,003 14,533 55,470 382 %

Gain from sales of digital assets 2,163 30 2,133 NM

Impairment of digital assets (53,985) — (53,985) NM

Operating expenses:

Research and development 3,340 1,208 2,132 176 %

Sales and marketing 1,398 534 864 162 %

General and administrative 40,160 3,795 36,365 958 %

Total operating expenses 44,898 5,537 39,361 711 %

Operating (loss) income (26,717) 9,026 (35,743) NM

Non-operating expenses, net:

Loss on debt from extinguishment — 42 (42) NM

Interest expense, net 21,676 2,135 19,541 915 %

Fair value adjustments on convertible notes 386,037 — 386,037 NM

Fair value adjustment on derivative warrant liabilities (10,275) — (10,275) NM

Other non-operating (income), net (357) — (357) NM

Total non-operating expense, net 397,081 2,177 394,904 NM

(Loss) income before income taxes (423,798) 6,849 (430,647) NM

Income tax (benefit) 42,406 — 42,406 NM

Net (loss) income $ (466,204) $ 6,849 $ (473,053) NM

NM - Not Meaningful

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Hosting revenue from customers $ 27,338 $ 8,356 $ 18,982 227 %

Hosting revenue from related parties 5,876 4,336 1,540 36 %

Equipment sales to customers 416 24,042 (23,626) NM

Equipment sales to related parties 25,889 7,884 18,005 228 %

Digital asset mining income 133,000 9,628 123,372 1,281 %

Total revenue $ 192,519 $ 54,246 $ 138,273 255 %

Percentage of total revenue:

Hosting revenue from customers

Hosting revenue from related parties

Equipment sales to customers

Equipment sales to related parties

Digital asset mining income

Total Revenue

Total revenue increased by $138.3 million to $192.5 million for the three months ended March 31, 2022 from $54.2 million for the three months ended March 31, 2021 as a result of the factors described below.

Total hosting revenue from customers increased by $19.0 million or 227%, to $27.3 million for the three months ended March 31, 2022 from $8.4 million for the three months ended March 31, 2021.

The increase in hosting revenue from customers was driven primarily by the onboarding of new clients for the three months ended March 31, 2022.

Total hosting revenue from related parties increased by $1.5 million or 36%, to $5.9 million for the three months ended March 31, 2022 from $4.3 million for the three months ended March 31, 2021.

The increase in related party hosting contracts was primarily driven by the onboarding of new related party hosting contracts for miners deployed during the three months ended March 31, 2022.

Equipment sales to customers decreased by $23.6 million to $0.4 million for the three months ended March 31, 2022 from $24.0 million for the three months ended March 31, 2021.

The decrease in equipment sales to customers was primarily driven by fewer miners being deployed during the three months ended March 31, 2022.

Equipment sales to related parties increased by $18.0 million or 228%, to $25.9 million for the three months ended March 31, 2022 from $7.9 million for the three months ended March 31, 2021.

The increase in equipment sales to related parties was primarily driven by higher demand for new generation mining equipment during the three months ended March 31, 2022.

Digital asset mining income increased by $123.4 million, to $133.0 million, for the three months ended March 31, 2022 from $9.6 million for the three months ended March 31, 2021.

The year over year increase in mining income was driven primarily by an increase in our self-mining hash rate.

Our self-mining hash rate increased by 1,975%, to 8.3 EH/s for the three months ended March 31, 2022 from 0.40 EH/s for the three months ended March 31, 2021.

The total number of bitcoins awarded for the three months ended March 31, 2022 was 3,202 compared to 206 for the three months ended March 31, 2021.

The average price of bitcoin for the three months ended March 31, 2022 was $41,299 as compared to $44,274 for the three months ended March 31, 2021, a decrease of 7%.

Cost of revenue

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Cost of revenue

$ 122,516 $ 39,713 $ 82,803 209 %

70,003 14,533 55,470 382 %

Cost of revenue increased by $82.8 million or 209%, to $122.5 million for the three months ended March 31, 2022 from $39.7 million for the three months ended March 31, 2021.

The increase in cost of revenue was primarily attributable to increased depreciation expense of $39.0 million driven by an increase in the number of self-mining units deployed, higher power consumption driven by an increase in the number of self-mining and hosted miners operating in our fleet of $37.6 million, higher personnel and facilities operating costs driven by the opening and expansion of our data centers of $9.9 million, which includes increased payroll and benefit costs for personnel of $3.1 million and increased stock-based compensation of $2.0 million, partially offset by lower equipment sales costs of $3.7 million.

As a percentage of total revenue, cost of revenue totaled 64% and 73% for the three months ended March 31, 2022 and 2021, respectively.

Gain from sales of digital assets

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Gain from sales of digital assets $ 2,163 $ 30 $ 2,133 NM

Percentage of total revenue

Gain from sales of digital assets increased by $2.1 million to $2.2 million for the three months ended March 31, 2022 from a nominal gain for three months ended March 31, 2021.

The increase was driven by the sale of non-bitcoin digital assets.

Gains are recorded when realized upon sale(s).

In determining the gain to be recognized upon sale, we calculate the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

For the three months ended March 31, 2022, the carrying value of our digital assets sold was $21.4 million and the sales price was $23.6 million.

Impairment of digital assets

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Impairment of digital assets $ (53,985) $ — $ (53,985) NM

Percentage of total revenue

Impairment of digital assets increased by $54.0 million for the three months ended March 31, 2022.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital currency asset at the time its fair value is being measured, which is on a daily basis.

We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired.

In determining if an impairment has occurred, we consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset.

If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying value and the price determined.

The carrying value of our digital assets amounted to $316.3 million and $234.3 million as of March 31, 2022 and 2021, respectively.

The Company’s digital asset policy prior to the Blockcap acquisition on July 30, 2021 included selling all digital assets and converting them into fiat currency shortly after they are mined, typically within one to three days, in order to fund the growth of the Company’s operations.

Following the Blockcap acquisition, the Company significantly expanded its self-mining operation and consequently reevaluated its digital asset investment policy and began holding a more significant portion of its digital assets mined on its balance sheet.

Operating Expenses

Research and development

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Research and development

$ 3,340 $ 1,208 $ 2,132 176 %

Percentage of total revenue

Research and development expenses increased by $2.1 million or 176%, to $3.3 million for the three months ended March 31, 2022 from $1.2 million for the three months ended March 31, 2021.

The increase was primarily driven by higher stock-based compensation of $1.9 million, and an increase in professional fees of $0.2 million.

Sales and marketing

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Sales and marketing

$ 1,398 $ 534 $ 864 162 %

Percentage of total revenue

Sales and marketing expenses increased by $0.9 million or 162%, to $1.4 million for the three months ended March 31, 2022 from $0.5 million for the three months ended March 31, 2021.

The increase was primarily driven by higher stock-based compensation of $0.5 million, marketing and advertising expenses of $0.3 million, and travel expenses of $0.1 million.

General and administrative

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

General and administrative

$ 40,160 $ 3,795 $ 36,365 958 %

Percentage of total revenue

General and administrative expenses increased by $36.4 million, or 958%, to $40.2 million for the three months ended March 31, 2022 from $3.8 million for the three months ended March 31, 2021.

The increase of $36.4 million was driven by $20.8 million higher stock-based compensation driven by the impact of the Blockcap acquisition, $7.8 million of higher professional fees, primarily related to investments made to support public company readiness and $2.5 million of higher payroll and benefit costs for personnel.

Non-operating expenses, net

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

Non-operating expenses, net:

(in thousands, except percentages)

Loss on debt from extinguishment $ — $ 42 $ (42) NM

Interest expense, net 21,676 2,135 19,541 915 %

Fair value adjustments on convertible notes 386,037 — 386,037 NM

Fair value adjustment on derivative warrant liabilities (10,275) — (10,275) NM

Other non-operating expenses, net (357) — (357) NM

Total non-operating expense, net $ 397,081 $ 2,177 $ 394,904 NM

Total non-operating expense, net increased by $394.9 million, to $397.1 million for the three months ended March 31, 2022 from $2.2 million for the three months ended March 31, 2021.

The increase in non-operating expense, net of $394.9 million was primarily driven by a change in the fair value of the convertible notes (excluding interest expense and changes in instrument-specific credit risk) of $386.0 million and higher interest expense, net of $19.5 million .

See Note 7─Fair V alue Measurements in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further information.

As discussed in Note 7, the fair value of our convertible notes as of December 31, 2021 included the effect of a negotiation discount, which is a calibration adjustment that reflects the illiquidity of the instruments and Core Scientific's negotiating position.

Since the transaction was an orderly transaction, we deemed that the fair value equaled the transaction price at initial recognition.

However, the closing of the merger of XPDI (which represents the occurrence of a qualified financing event as defined by the terms of the notes) in January 2022 resulted in the elimination of the negotiation discount along with other changes in fair value, which resulted in a significant increase in the fair value of the convertible notes (excluding interest expense and changes in instrument-specific credit risk) of $386.0 million for the three months ended March 31, 2022.

Income tax expense

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Income tax (benefit) $ 42,406 $ — $ 42,406 NM

Percentage of total revenue

Income tax expense consists of U.S.

federal, state and local income taxes.

For the three months ended March 31, 2022, our income tax expense was $42.4 million.

We did not have any income tax expense for the three months ended March 31, 2021.

Segment Total Revenue and Gross Profit

The following table presents total revenue and gross profit by reportable segment for the periods presented:

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

Equipment Sales and Hosting Segment (in thousands, except percentages)

Hosting revenue $ 33,214 $ 12,692 $ 20,522 162 %

Equipment sales 26,305 31,926 (5,621) NM

Total revenue 59,519 44,618 14,901 33 %

Cost of revenue:

Cost of hosting services 31,231 11,829 19,402 164 %

Cost of equipment sales 22,535 26,231 (3,696) NM

Total Cost of revenue $ 53,766 $ 38,060 $ 15,706 41 %

Gross profit $ 5,753 $ 6,558 $ (805) NM

Mining Segment

Digital asset mining income $ 133,000 $ 9,628 $ 123,372 1281 %

Total revenue 133,000 9,628 123,372 1281 %

Cost of revenue 68,750 1,653 67,097 NM

Gross profit $ 64,250 $ 7,975 $ 56,275 706 %

Consolidated total revenue $ 192,519 $ 54,246 $ 138,273 255 %

Consolidated cost of revenue $ 122,516 $ 39,713 $ 82,803 209 %

Consolidated gross profit $ 70,003 $ 14,533 $ 55,470 382 %

For the three months ended March 31, 2022, cost of revenue included depreciation expense of $2.2 million for the Equipment Sales and Hosting segment and $39.4 million for the Mining segment.

For the three months ended March 31, 2021, cost of revenue included depreciation expense of $1.8 million for the Equipment Sales and Hosting segment and $0.8 million for the Mining segment.

For the three months ended March 31, 2022 and 2021, the top three customers accounted for approximately 20% and 70%, respectively, of the Equipment Sales and Hosting’s segment total revenue.

A reconciliation of the reportable segment gross profit to (loss) income before income taxes included in our consolidated statements of operations for the three months ended March 31, 2022 and 2021, is as follows:

Three Months Ended March 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Reportable segment gross profit $ 70,003 $ 14,533 $ 55,470 382 %

Gain from sales of digital assets 2,163 30 2,133 NM

Impairment of digital assets (53,985) — (53,985) NM

Operating expense:

Research and development 3,340 1,208 2,132 176 %

Sales and marketing 1,398 534 864 162 %

General and administrative 40,160 3,795 36,365 958 %

Total operating expense 44,898 5,537 39,361 711 %

Operating (loss) income (26,717) 9,026 (35,743) NM

Non-operating expense, net:

Loss on debt extinguishment and other — 42 (42) NM

Interest expense, net 21,676 2,135 19,541 915 %

Fair value adjustments on derivative warrant liabilities (10,275) — (10,275) NM

Fair value adjustment on convertible notes 386,037 — 386,037 NM

Other non-operating expenses, net (357) — (357) NM

Total non-operating expense, net 397,081 2,177 394,904 NM

(Loss) income before income taxes $ (423,798) $ 6,849 $ (430,647) NM

Liquidity and Capital Resources

Sources of liquidity

To date, we have financed our operations primarily through sales of equity securities, debt issuances, equipment financing arrangements and cash generated from operations.

We will continue to seek to fund our growth through private debt and equity capital markets, secured borrowing, equipment finance, digital asset-based financing and sales of digital assets to supplement cash flow from operations.

However, the ability to raise funds through financing and capital market transactions is subject to many risks and uncertainties and current market conditions have reduced the availability of these capital and liquidity sources.

In the near term, we expect to continue to increase investing activities, subject to the availability of capital and financing, as we build out our facilities and grow our company.

Some of ou r vendor contracts for the purchase of mi ning equipment include variable pricing provisions that offset some of the variability of cash flow from operations associated with fluctuations in the price of bitcoin.

Completion of the SPAC transaction provided gross proceeds of approximately $221.6 million from the XPDI trust account, resulting in approximately $195.0 million in net cash proceeds to Core Scientific, after the payment of transaction expenses.

The proceeds from the transaction will be used to fund mining equipment purchases and infrastructure build-out as we expand our leadership capacity.

Cash, cash equivalents, restricted cash, cash requirements and cash flows

Cash and cash equivalents include all cash balances and highly liquid investments with original maturities of three months or less from the date of acquisition.

March 31, December 31, Period over Period Change

2022 2021 Dollar Percentage

(in thousands, except percentages)

Cash and cash equivalents $ 96,355 $ 117,871 $ (21,516) NM

Restricted Cash 14,077 13,807 270 2 %

Total cash, cash equivalents and restricted cash $ 110,432 $ 131,678 $ (21,246) NM

As of March 31, 2022 and December 31, 2021, restricted cash of $14.1 million and $13.8 million, respectively, consisted of cash held in escrow to pay for construction and development activities.

The following table summarizes our cash, cash equivalents and restricted cash and cash flows for the periods indicated.

March 31, December 31,

(in thousands)

Cash, cash equivalents and restricted cash – beg.

131,678 8,721

Cash provided by (used in)

Operating activities

(3,615) 15,412

Investing activities

(269,096) (10,773)

Financing activities

251,465 21,033

Cash, cash equivalents and restricted cash - end of period

$ 110,432 $ 34,393

Our principal uses of cash in recent periods have been funding our operations and investing in capital expenditures.

Operating Activities

Changes in net cash from operating activities results primarily from cash received from hosting customers and equipment sales and payments for power fees and equipment purchases.

Other drivers of the changes in net cash from operating activities include research and development costs, sales and marketing costs and general and administrative expenses (including personnel expenses and fees for professional services) and interest payments on debt.

Net cash used by operating activities was $3.6 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $15.4 million for the three months ended March 31, 2021.

The decrease in net cash used in operating activities for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was primarily due to a decrease in net income, excluding non-cash adjustments, of $59.9 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily driven by a $28.6 million decrease in cash inflows on gross profit, a $14.2 million increase in cash outflows for operating expenses and a $11.2 million increase in cash outflows for interest payments on debt.

Offsetting the decrease in net income, excluding non-cash adjustments, was changes in working capital, which increased cash from operating activities by $40.9 million and was primarily due to a $162.5 million decrease in deposits for equipment, a $12.5 million increase in accrued expenses and other and a $7.8 million decrease in accounts receivable, net, partially offset by a $73.0 million decrease in deferred revenue, a $22.5 million decrease in deferred revenue from related parties, a $24.9 million increase in other current assets, a $12.6 million increase in digital assets, and a $7.2 million decrease in accounts payable.

Investing Activities

Our net cash used in investing activities consists of purchases of property, plant and equipment and acquisitions of intangible assets, net of proceeds from sales of property, plant and equipment.

Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was $269.1 million and $10.8 million, respectively, driven by $133.2 million and $10.8 million, respectively, used for the purchase of property, plant and equipment primarily related to the development of hosting facilities and the acquisition of equipment used for generating digital asset mining income.

For the three months ended March 31, 2022, $135.9 million was used for deposits for self-mining equipment.

Financing Activities

Net cash provided by financing activities consists of proceeds from stock issuances, issuances of debt, net of debt issuance costs and principal payments on debt, including notes payable and capital leases.

For the three months ended March 31, 2022, net cash provided by financing activities was $251.5 million, primarily related to $195.0 million of proceeds from the issuance of common stock and cash acquired upon the Merger with XPDI, net of issuance costs, $82.2 million from the issuance of debt, driven by equipment financing arrangements.

Offsetting this increase to net cash provided by financing activities for the three months ended March 31, 2022 was $15.4 million of principal payments on debt and $10.3 million of principal repayments of financing leases.

For the three months ended March 31, 2021, net cash provided by financing activities was $21.0 million, primarily related to $22.2 million from the issuance of debt, including $10.0 million received in January 2021 from a stockholder for the purchase of Bitcoin mining equipment, the issuance of a $9.0 million tranche of senior secured notes (net of issuance costs) in February 2021 and additional loans under a master finance agreement issued in March 2021.

Offsetting this increase to net cash provided by financing activities for the three months ended March 31, 2021 was $1.7 million of principal payments on debt.

Operating and capital expenditure requirements

We believe our existing cash and cash equivalents, together with cash provided by operations and funding from debt or equity issuances, will be sufficient to meet our needs for at least the next 12 months.

Our future capital requirements will depend on many factors including our revenue growth rate, the timing and extent of spending to support further sales and marketing and research and development efforts and the timing and extent of additional capital expenditures to invest in the expansion of existing facilities as well as new facilities.

In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.

We may be required to seek additional equity or debt financing.

If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

If we are unable to raise additional capital when desired, our business, results of operations and financial condition would be materially and adversely affected.

Commitments and Contractual Obligations

For a discussion of Commitments and Contractual Obligations, refer to Note 9 to the consolidated financial statements.

Financing activities

In January 2022, as a result of the closing of the Merger with XPDI, we received approximately $195.0 million in net cash proceeds after the payment of transaction expenses along with $0.3 million of cash acquired from XPDI.

In January through March 2022, we borrowed an additional $4.8 million under our lending agreement with Bremer Bank, National Association for the purchase of blockchain mining equipment and improvements to data center and infrastructure.

The loans bear interest at 5.5% annually and are due at the earlier of the date of sale of the underlying mining equipment or 60 months from issuance.

In January 2022, we borrowed an additional $20.0 million under our two lending agreements with Blockfi Lending, LLC for the purchase of blockchain mining equipment.

The loans bear interest at 13.1% with a term of 24 months from issuance.

In February 2022, we drew down on the remaining $10.0 million of our master equipment finance facility agreement with Trinity Capital Inc.

(“Trinity”) to finance the acquisition of blockchain computing equipment.

The loan has a term of 36 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 11.0%.

In March 2022, we entered into a $20.0 million equipment loan and security agreement with Anchorage Lending CA, LLC.

(“Anchor Labs”) to finance the purchase of blockchain computing equipment.

The loan has a term of 24 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 12.5%.

In March 2022, we entered into a $100.0 million equipment loan and security agreement with Barings BDC, Inc., Barings Capital Investment Corporation and Barings Private Credit Corp.

(“Barings”) to finance the purchase of blockchain computing equipment.

In March 2022, we borrowed the first tranche of $30.0 million.

The loan has a term of 36 months from issuance.

Interest expense on the loan has been recognized based on an effective interest rate of 9.8%.

Related party transactions

We have agreements to provide hosting services to various entities that are managed and invested in by individuals who are directors and executives of Core Scientific.

For the three months ended March 31, 2022 and 2021, we recognized hosting revenue from the contracts with these entities of $5.9 million and $4.3 million , respectively.

In addition, for the three months ended March 31, 2022 and 2021, we recognized equipment sales revenue of $25.9 million and $7.9 million from these same various entities.

As of both March 31, 2022 and December 31, 2021, we had accounts receivable of $0.3 million from these entities.

Core Scientific reimburses certain of its officers and directors for use of a personal aircraft for flights taken on Company business.

F or the three months ended March 31, 2022, we incurred reimbursements of $0.5 million.

We did not incur any reimburseme nts for the three months ended March 31, 2021.

As of March 31, 2022, $0.3 million was payable.

A nominal amount was payable at December 31, 2021.

Foreign Currency and Exchange Risk

The vast majority of our cash generated from revenue is denominated in U.S.

dollars, with a small amount denominated in foreign currencies.

Critical Accounting Policies and Estimates

Preparation of our condensed consolidated financial statements in accordance with U.S.

GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 8-K/A for the year ended December 31, 2021, and which are hereby incorporated by reference herein.

Recent Accounting Pronouncements

For a discussion of new accounting standards relevant to our business, refer to Note 2 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Emerging Growth Company and a Smaller Reporting Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments.

We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier.

In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies.

We have elected to use the extended transition period under the JOBS Act.

Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) February 12, 2026, the fifth anniversary of XPDI’s initial public offering, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended.

We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if we are a smaller reporting company that qualifies as a non-accelerated filer, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis