TeraWulf Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial amounts below are in U.S. dollars; figures are unaudited.
Business context
TeraWulf develops and operates U.S. bitcoin-mining facilities, principally Lake Mariner in New York and Nautilus in Pennsylvania, and routinely sells mined bitcoin for cash. It reported 8.0 EH/s of operating capacity at quarter-end, including its share of Nautilus operations. The company also established WULF Compute to explore high-performance computing (HPC) as a potential source of revenue diversification.
Key financial results and position
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $42.4 million | $11.5 million |
| Gross profit | $28.0 million | $6.5 million |
| Gross margin | 66.1% | 56.6% |
| Operating loss | $2.3 million | $9.2 million |
| Net loss attributable to common stockholders | $9.9 million | $26.5 million |
| Adjusted EBITDA (non-GAAP) | $32.0 million | $(2.3) million |
| Cash from operating activities | $22.8 million | $(8.7) million |
- Revenue increased 268%, primarily from expanded mining capacity and a higher bitcoin price. Mining revenue was $41.6 million; hosting revenue fell to $0.8 million from $2.3 million after the sole hosting contract expired in February.
- Cost of revenue, excluding depreciation, rose to $14.4 million from $5.0 million as operations expanded. Reported gross margin improved, while depreciation increased to $15.1 million from $5.4 million.
- Interest expense was $11.0 million, up from $6.8 million, largely reflecting amortization of debt discounts and issuance costs. A $2.0 million debt-extinguishment loss arose from voluntary prepayment fees and write-off of unamortized discount.
- Cash and equivalents were $45.8 million at quarter-end, down from $54.4 million at year-end 2023. Current assets were $54.4 million and current liabilities $122.1 million, a $67.8 million working-capital deficiency.
- Capital spending and equipment deposits used $47.0 million in investing cash flow. Financing provided $15.5 million, including $50.7 million net proceeds from issuing 23.3 million common shares, offset in part by $33.4 million of debt principal payments. Cash declined by $8.6 million overall.
- Term-loan principal was $106.0 million at March 31; the loans bear 11.5% stated interest and mature December 1, 2024. The company reported $99.4 million of debt net of discounts and financing balances. After quarter-end, it repaid $30.2 million on April 8; outstanding principal was $75.8 million as of May 13.
Changes, outlook and risks
- Growth in mining capacity drove the year-over-year revenue increase. The company reported 160 MW at Lake Mariner and 50 MW allocated to its Nautilus mining operations at quarter-end. Management said an additional 35 MW at Lake Mariner was under construction and expected to be operational in mid-2024.
- Energy cost per bitcoin mined was $15,501, compared with $7,842 a year earlier; total cash cost to mine one bitcoin, excluding depreciation, was $15,529 versus $7,897. Average power cost was $0.041/kWh versus $0.039/kWh. Demand-response credits reduced cost of revenue by $1.2 million.
- The April 20, 2024 bitcoin halving reduced the block reward from 6.25 to 3.125 bitcoin. This occurred after the reporting period and is expected to reduce mining rewards per block, excluding transaction fees.
- The company exercised an option to add 50 MW of Nautilus energy capacity at its own cost, with expansion discussed for 2025. It also paid a $9.6 million fee for an option to purchase up to approximately 30,000 additional miners for $96.0 million; the option is not an obligation to buy.
- Management stated that it expects to fund operations and expansion through operating cash flows, bitcoin sales, cash on hand and possible equity issuance, and concluded there was no substantial doubt about its ability to continue as a going concern for at least 12 months. This assessment depends on forecast bitcoin prices, network hashrate and power costs. The $200 million ATM program had $28.9 million of remaining capacity at March 31; the company subsequently raised $10.8 million through ATM sales through May 13.
- Key risks include bitcoin-price declines, rising network difficulty, volatile power prices, capital needs and potential shareholder dilution. TeraWulf reported no material pending legal proceedings and no material changes to the risk factors in its latest Form 10-K.
- Unusual and accounting items: the company early adopted fair-value accounting for qualifying crypto assets on January 1, recording a $37,000 cumulative-effect adjustment and a $1.3 million bitcoin fair-value gain in Q1. It also recorded $3.8 million of accelerated depreciation on miners expected to be replaced by April 30.
Important facts for investors to verify
- Debt repayment and refinancing progress before the remaining term loans mature on December 1, 2024, including the effect of the excess-cash-flow sweep.
- Post-halving mining output, revenue, cash cost per bitcoin and realized power costs, including the impact of network difficulty and curtailment.
- Funding and returns for Lake Mariner’s additional 35 MW and any Nautilus expansion, as well as whether the miner purchase option is exercised.
- Ongoing share issuance and dilution from ATM sales, warrants and stock-based compensation; common shares outstanding were 302.9 million at March 31 and 333.2 million as of May 10.
- The assumptions supporting management’s liquidity and going-concern assessment, given the working-capital deficiency and substantial near-term debt obligations.