TeraWulf Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited consolidated financial statements; amounts below are in U.S. dollars unless stated otherwise. TeraWulf is developing and operating U.S. bitcoin-mining facilities, with revenue from mining and miner hosting.
Financial results and liquidity
| Metric | Q3 2022 | Nine months 2022 |
|---|---|---|
| Revenue | $3.9 million | $5.5 million |
| Cost of revenue | $5.2 million | $5.8 million |
| Gross profit (loss) | $(1.3) million | $(0.3) million |
| Operating loss | $(13.4) million | $(30.4) million |
| Net loss | $(34.0) million | $(65.8) million |
| Net loss attributable to common stockholders | $(34.2) million | $(66.4) million |
| Basic and diluted loss per share | $(0.32) | $(0.63) |
Nine-month revenue included $3.6 million from mining and approximately $1.9 million from hosting, according to MD&A. The company reported $16.7 million of interest expense for the nine months. Mining began in March 2022, so the comparable 2021 periods had no revenue and are not directly comparable.
For the nine months, operating cash flow was $(33.0) million, investing cash flow $(75.1) million, and financing cash flow $73.4 million. Cash and cash equivalents were $4.5 million at September 30; restricted cash was $7.3 million. The company reported an $89.5 million working-capital deficiency, $121.8 million of stockholders’ equity, and a $162.1 million accumulated deficit.
Term-loan principal was $138.5 million and the Yorkville convertible note had $12.0 million principal outstanding at September 30. The filing states total principal indebtedness of $150.6 million. The term loan bears 11.5% interest, matures December 1, 2024, and has scheduled quarterly amortization beginning in 2023. The note was due November 25, 2022, subject to subsequent amendments described below.
Material changes and operating developments
- Lake Mariner began mining in March; Building 1, with about 50 MW of capacity, was energized in Q3. Building 2 was substantially complete and targeted for early 2023.
- Higher-than-expected Lake Mariner power costs reflected a delayed transition to a New York Power Authority tariff, billing discrepancies, and delayed demand-response enrollment. Management said power-price futures had moderated and expected costs to align with projections.
- The Nautilus joint venture was amended in August. TeraWulf reduced its targeted ownership to approximately 25.1% and its planned infrastructure funding; it later contributed $7.3 million of the scheduled $17.1 million and was not obligated to fund the balance.
- Transfer of miners from Nautilus to Lake Mariner resulted in an $11.5 million loss recorded in equity in net loss of investee. The company also reported an $804,000 loss on a separate nonmonetary miner exchange.
- TeraWulf sold substantially all former IKONICS assets in August. IKONICS was reported as discontinued operations; the nine-month loss included a $4.5 million impairment, partly offset by a $1.4 million gain from remeasuring contingent value rights. About $7.2 million of sale proceeds remained in escrow.
- Common shares outstanding rose from 100.0 million at year-end 2021 to 115.4 million at September 30, 2022; the filing reports 128.4 million shares outstanding as of November 14.
Outlook, risks and contingencies
Management plans to expand mining capacity and complete facility development. It describes a long-term target of more than 90% zero-carbon energy, with a goal of 100%; the Nautilus power agreement is approximately 2.0 cents per kWh, and management estimated average long-term electricity cost of approximately 3.5 cents per kWh. These are expectations, not assured outcomes. No specific revenue or earnings guidance is provided.
The filing states that mining had not yet reached a scale sufficient to support principal operations. Management expects to rely on debt or equity issuance, mined-bitcoin sales, and hosting revenue until positive operating cash flow is achieved. Despite management’s expectation of successful fundraising, the filing concludes that conditions raise substantial doubt about the company’s ability to continue as a going concern for at least the next 12 months. Financing may not be available on acceptable terms, and failure to raise capital could delay or reduce development plans.
- Results depend heavily on bitcoin prices, mining difficulty, power costs and availability, and miner delivery and construction schedules. The filing notes bitcoin’s substantial price decline since the business combination.
- Minerva deliveries for Nautilus were significantly delayed. The company also cancelled or revised batches under Bitmain miner contracts; it said it did not expect additional payments under the specified December 2021 agreements.
- The term loan is secured by substantially all company assets other than IKONICS and contains covenants and events of default. Debt service, potential dilution, and restricted financing flexibility are material risks.
- The New York power allocation of up to 90 MW is subject to usage and site-investment conditions. The filing also discusses inflation, market volatility, regulatory changes, and possible construction or supply-chain delays.
- No material pending legal proceedings were reported. Potential environmental testing and remediation related to former IKONICS property remained unresolved; the company could not estimate possible costs.
Subsequent events: On October 6, 2022, TeraWulf raised approximately $9.5 million in a private placement of shares and warrants. On October 7, it drew $7.5 million under its debt commitment and issued additional warrants. On October 25, it amended the Yorkville note, including changing its conversion price from $3.75 to $1.26 per share and allowing a maturity extension to December 23, 2022.
Key facts for investors to verify
- Available unrestricted liquidity, near-term obligations, and whether financing can be secured to address the disclosed going-concern doubt.
- Term-loan covenants, repayment schedule, total debt costs, and dilution from existing or potential warrants and convertible securities.
- Actual Lake Mariner power costs and operating margins as mining capacity ramps; compare realized bitcoin production and hosting revenue with expenses.
- Miner delivery status, contract credits or cancellations, and the cash and ownership consequences of the Nautilus joint venture arrangements.
- Release conditions and timing for IKONICS-related escrow funds, including any environmental testing, remediation, or working-capital adjustments.