TeraWulf Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Business context
TeraWulf develops and operates U.S. bitcoin-mining facilities and provides miner-hosting services. Its Lake Mariner facility is wholly owned; Nautilus in Pennsylvania is a joint venture in which TeraWulf held a 25% interest. The company reported 5.5 EH/s of operating capacity in June 2023. Management said its facilities used over 91% zero-carbon energy; Nautilus is powered by nuclear energy.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $15.5 million | $1.4 million | $27.0 million | $1.6 million |
| Gross profit | $10.3 million | $0.8 million | $16.9 million | $1.0 million |
| Gross margin | 66.9% | 57.3% | 62.5% | 61.1% |
| Operating loss | $(5.8) million | $(7.8) million | $(15.1) million | $(17.0) million |
| Net loss | $(17.5) million | $(13.7) million | $(43.8) million | $(31.9) million |
| Net loss attributable to common stockholders | $(17.8) million | $(13.9) million | $(44.3) million | $(32.1) million |
| Basic and diluted loss per share | $(0.08) | $(0.14) | $(0.24) | $(0.31) |
| Adjusted EBITDA (non-GAAP) | $7.6 million | $(7.1) million | $5.3 million | $(15.3) million |
Revenue growth primarily reflected increased mining and hosting capacity, including Lake Mariner Building 2 entering service. First-half revenue included $23.0 million from mining and $4.0 million from hosting. Depreciation rose to $11.9 million for the half-year from $0.2 million, reflecting expanded operating assets. Interest expense increased to $15.3 million from $9.5 million, including greater amortization of debt discounts and issuance costs. Q2 net loss worsened despite a narrower operating loss, mainly alongside higher interest expense and equity-method losses from Nautilus.
For the six months, cash used in operating activities was $9.0 million, compared with $23.5 million used in 2022; continuing-operations operating cash use was $9.3 million. Investing activities used $28.4 million, including $16.0 million for plant and equipment and $2.8 million invested in the joint venture; financing activities provided $37.4 million. Cash and cash equivalents were $8.2 million at June 30, with no restricted cash.
At June 30, total assets were $299.8 million, total liabilities $165.0 million, and stockholders’ equity $134.8 million. Working capital deficit was $67.3 million. Debt principal was approximately $146.1 million; balance-sheet debt, net of discounts and current classification, was $118.9 million. The term loan bears 11.5% stated interest and matures December 1, 2024. Approximately $146.0 million of principal maturities were scheduled for 2024.
Material changes versus prior periods
- Revenue increased sharply as mining and hosting operations scaled up; gross margin also improved modestly.
- Operating losses narrowed, but net losses increased year over year because of higher interest expense and Nautilus-related equity losses. The six-month Nautilus equity loss was $13.5 million and included a $13.6 million loss associated with miner transfers and fair-value differences.
- Cash used in operations improved from the prior-year first half, while capital spending and joint-venture investment also declined substantially.
- Common shares outstanding rose from 145.5 million at December 31, 2022 to 216.1 million at June 30, 2023, reflecting equity issuance, warrant exercises and other share issuances. The company reported 221.1 million shares outstanding as of August 11.
- Gross debt principal remained $146.0 million on the term loan, while its balance-sheet carrying amount reflects substantial unamortized discounts and issuance costs.
Outlook, risks and unusual items
Management expects the operating scale reached in June to support positive operating cash flows, and says it expects to fund operations and further infrastructure development through operating cash flows, bitcoin sales or hosting, cash on hand and equity issuance. It stated there was no substantial doubt about the company’s ability to continue as a going concern for at least 12 months. This expectation is subject to execution and market conditions; the filing provides no specific financial guidance for future revenue, earnings or cash flow.
The March 2023 debt amendment removed scheduled principal amortization through April 7, 2024 after the company met an equity-proceeds condition. It also provides for an excess-cash-flow sweep and a possible maturity extension subject to repayment conditions. Lenders received warrants, adding potential dilution. The company had up to $184.6 million of remaining capacity under its ATM agreement at June 30.
After quarter-end, TeraWulf agreed to purchase 15,138 Bitmain miners, with an option for 3,362 more, for a stated $75.4 million purchase price. Coupons were expected to reduce the effective price to $53.4 million; $5.3 million had been paid by August 14. The company also sold 3.6 million ATM shares after quarter-end for net proceeds of $10.0 million.
Key risks include bitcoin-price and mining-difficulty volatility, the need for future capital and possible dilution, execution and construction risks, power availability and costs, counterparty and cybersecurity risks, weather and internet disruptions, and limited access to banking services. Management disclosed no material pending legal proceedings. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether 5.5 EH/s of capacity and management’s anticipated positive operating cash flows are sustained, particularly as bitcoin prices, network difficulty and power costs change.
- How the company will fund the $53.4 million effective miner purchase price and planned Lake Mariner expansion while managing its cash balance and working-capital deficit.
- Debt service and refinancing capacity before the December 2024 maturity, including the excess-cash-flow sweep, repayment conditions and covenant compliance.
- Potential dilution from outstanding warrants, stock awards, preferred stock conversion and further ATM or other equity issuance.
- The assumptions and exclusions underlying adjusted EBITDA, a non-GAAP measure, and its reconciliation to GAAP net loss.