TeraWulf Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated financial statements. TeraWulf develops and operates U.S. bitcoin-mining facilities, principally Lake Mariner in New York and its 25%-owned Nautilus joint venture in Pennsylvania. The company reported approximately 5.5 EH/s of installed operating capacity, with average operating hashrate of about 5.0 EH/s during the period.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $19.0 million | $3.9 million | $45.9 million | $5.5 million |
| Gross profit (loss) | $10.7 million | $(1.3) million | $27.6 million | $(0.3) million |
| Operating loss | $(9.7) million | $(13.4) million | $(24.8) million | $(30.4) million |
| Net loss | $(19.1) million | $(34.0) million | $(62.9) million | $(65.8) million |
| Loss attributable to common stockholders | $(19.4) million | $(34.2) million | $(63.7) million | $(66.4) million |
| Adjusted EBITDA (non-GAAP) | $9.0 million | $(11.3) million | $14.3 million | $(26.5) million |
Cost of revenue, excluding depreciation, was $8.3 million in Q3 and $18.4 million year to date. Interest expense was $10.3 million in Q3 and $25.5 million year to date. Depreciation was $8.2 million and $20.1 million, respectively. The company mined 611 bitcoin in Q3 and 1,510 year to date; bitcoin mining revenue was $17.2 million in Q3 and $40.1 million year to date.
Liquidity and debt at September 30: Cash and cash equivalents were $6.6 million; working capital deficiency was $95.5 million. Total liabilities were $157.9 million and stockholders’ equity was $153.9 million. Term-loan principal was $146.0 million, with $76.5 million of debt classified as current and a stated interest rate of 11.5%. The term loans mature December 1, 2024. Reported long-term debt net of discount and issuance costs was $124.9 million. Operating cash used was $6.9 million for continuing operations; investing cash used was $53.8 million and financing cash provided was $58.7 million for the first nine months.
Changes versus prior comparable periods
- Revenue increased substantially as mining and hosting capacity came online, including Lake Mariner Building 2. Q3 gross profit improved from a loss to $10.7 million.
- Operating and net losses narrowed year over year. For nine months, net loss improved by $2.9 million, while higher depreciation and interest expense remained significant costs.
- Interest expense increased year over year, largely due to amortization of debt discounts and issuance costs. Nine-month depreciation rose to $20.1 million from $1.7 million as more mining infrastructure was placed in service.
- Cash used in operations fell to $6.6 million in total, including discontinued operations, from $29.6 million. Investing outflows also declined, while financing included $57.7 million of net proceeds from equity, warrants and convertible notes.
- Common shares outstanding increased from 145.5 million at December 31, 2022 to 232.2 million at September 30, 2023. The filing reports 238.2 million shares outstanding on November 10, 2023.
Outlook, commentary and risks
Management expects the operating fleet to support positive operating cash flows, but provides no specific financial guidance or date for achieving that goal. It expects to fund operations and expansion through operating cash flows, bitcoin sales, hosting services, available cash and potential equity issuance. Management concluded that these plans make it probable the company can meet obligations for at least the next 12 months and stated there is no substantial doubt about its ability to continue as a going concern.
Lake Mariner’s third building is under development, planned to add 43 MW. The company also reported a July 2023 miner purchase agreement with an estimated effective price of $53.4 million for up to 18,500 miners; $14.3 million had been paid by quarter-end. A separate letter of intent covered at least 1,200 PH/s of Antminer S21 miners, with purchase price still to be confirmed. The company’s $200 million ATM program had $162.2 million of remaining capacity at quarter-end.
- Bitcoin price declines, increases in network difficulty, and the anticipated 2024 block-reward halving could pressure mining revenue and profitability.
- Lake Mariner power costs are variable and sensitive to wholesale prices and weather. The company curtailed operations during the period; demand-response credits reduced cost of revenue by $1.7 million in Q3 and $2.5 million year to date.
- Debt service, the 2024 maturity, covenant terms and the need for additional capital create liquidity and refinancing risks. Further equity issuance could dilute shareholders.
- Unusual items include $13.6 million of year-to-date loss related to miners distributed from Nautilus, substantial noncash debt-cost amortization, and related-party costs. The company also has material arrangements with a management-controlled service provider.
- The company reported no material pending legal proceedings, but noted elevated regulatory and litigation risks for the cryptocurrency industry. It also relies on mining-pool, custodian and miner-supplier counterparties.
Important facts for investors to verify
- Whether mining operations generate sustained positive cash flow after power costs, debt service, curtailments and capital spending.
- The timing and funding of Lake Mariner’s third building and miner purchases, including the final S19j XP purchase cost and the S21 commitment terms.
- Debt repayment requirements and covenant compliance, including the October 2023 $5.5 million principal payment and approximately $1.1 million expected true-up.
- Equity dilution and cash raised: after quarter-end, the company sold 4.6 million ATM shares for $5.3 million in net proceeds through November 10, 2023.
- Nautilus results, distributions and any additional capital requirements; TeraWulf owns 25%, while bitcoin distributions are based on relative hashrate contributions.