TeraWulf Inc. — Q1 2022 Form 10-Q
Business context and reporting period. This unaudited filing covers the three months ended March 31, 2022. TeraWulf is developing U.S. bitcoin-mining operations powered primarily by low-carbon energy. Mining began at its wholly owned Lake Mariner, New York facility in March; the Pennsylvania Nautilus facility is a 50%-owned joint venture with Talen and remained under development. The legacy IKONICS imaging business is classified as held for sale and discontinued operations. The comparison period is February 8, 2021 (inception) through March 31, 2021, so it is not a comparable full quarter.
Financial results and position
| Metric | Q1 2022 | Comparison / balance |
|---|---|---|
| Revenue from continuing operations | $0.217 million | $0 in inception-to-March 2021 period |
| Gross profit / gross margin | $0.185 million / approximately 85% | Cost of revenue: $0.032 million |
| Operating loss | $9.167 million | $1.676 million loss in comparison period |
| Interest expense | $5.322 million | Includes debt discount and issuance-cost amortization |
| Net loss | $18.183 million | $1.676 million loss in comparison period |
| Operating cash flow | $(21.509) million | Continuing operations used $21.459 million |
| Investing cash flow | $(40.560) million | Primarily facility, miner and joint-venture investment |
| Financing cash flow | $19.200 million | Common and preferred equity, net, and insurance financing |
| Cash and restricted cash | $3.586 million | Down from $46.455 million at December 31, 2021 |
| Total assets / liabilities | $272.838 million / $151.830 million | At March 31, 2022 |
| Working capital | Deficit of approximately $27.0 million | Includes held-for-sale balances |
The company reported $121.0 million of stockholders’ equity and a $113.9 million accumulated deficit. Term-loan principal was $123.5 million; its carrying value, net of $25.8 million of unamortized issuance costs and discount, was $97.7 million. The loan bears 11.5% interest, matures December 1, 2024, and scheduled principal installments begin in April 2023.
Material changes and operating developments
- Mining revenue commenced but remained immaterial because operations were not yet at scale. Management said the business had not generated material mining revenue.
- SG&A rose to $8.8 million from $0.8 million in the inception comparison period, reflecting public-company costs, infrastructure buildout and operations. Related-party SG&A was $2.8 million.
- The company invested $21.5 million in plant and equipment and $19.1 million net in Nautilus during the quarter. Property, plant and equipment was $121.9 million, including $82.7 million of miner deposits.
- IKONICS generated $4.2 million of sales but recorded a $4.3 million discontinued-operations loss before the contingent-value-right remeasurement gain; the filing reports $2.9 million of discontinued-operations loss in the consolidated income statement.
Funding, outlook, risks and unusual items
- Going concern and funding: Management stated that the low cash balance, working-capital deficit, operating cash burn and capital needs raise substantial doubt about the company’s ability to continue as a going concern for at least the next 12 months. It expects to seek debt or equity financing and may provide miner-hosting services; it cautioned that financing may not be available on acceptable terms.
- Capital commitments: Remaining obligations shown for two Bitmain miner agreements totaled approximately $118.9 million, and the company’s stated remaining Nautilus commitment was $30.6 million. The filing says miner-purchase terms may permit cancellation of batches and refunds, subject to compliance and agreement conditions. Nautilus contributions were rescheduled from March 2022; the filing gives differing expected timing—third quarter in one note and fourth quarter in MD&A.
- Execution and supply: The Minerva supplier was substantially behind its miner-delivery schedule, citing COVID-19 lockdowns, power shortages and factory issues. Construction, equipment delivery and timely setup of miners could delay deployment.
- Bitcoin and power risks: Results depend on bitcoin prices, mining difficulty, competition and power costs and availability. The New York site secured an initial 90 MW power allocation, subject to usage and site-investment commitments; the Pennsylvania project is planned for up to 300 MW of zero-carbon nuclear power.
- Financing and dilution: The company had a $200 million at-the-market common-stock program. It issued $9.3 million net of Series A convertible preferred stock during Q1; the preferred carries a 10% cumulative dividend and is convertible into common stock. Subsequent to quarter-end, the company disclosed about $27.1 million of gross equity proceeds from an offering, private placement and ATM sales. Common shares outstanding were 100.8 million at quarter-end and 104.6 million on May 16.
- Related parties: The company pays a management-controlled service provider under a five-year services agreement, including a $7 million first-year base fee and future fee terms. A $12.5 million share-based liability was recorded for promised awards to designated provider employees; the filing also identifies a related-party lender and private-placement investor.
- IKONICS disposition: A $3.9 million impairment was recorded on held-for-sale long-lived assets, partially offset by a $1.4 million gain from remeasuring CVR consideration. A property-sale agreement for $7.0 million was signed after quarter-end, subject to conditions. Potential environmental remediation was identified, but costs could not be estimated.
- Other disclosures: Management reported effective disclosure controls and no material change in internal control over financial reporting. The company reported no material pending legal proceedings and no material changes to its previously disclosed risk factors.
Most important facts for investors to verify
- Whether the stated financing plans can cover the cash burn, miner-payment schedule and Nautilus commitments, and how long available liquidity will last.
- Actual miner delivery dates, cancellation/refund rights and the resolution of the filing’s differing expected timing for Nautilus contributions.
- Mining capacity brought online, realized bitcoin production and revenue, and the impact of bitcoin prices, network difficulty and power costs.
- The terms and use of post-quarter equity proceeds, remaining ATM capacity, potential dilution and the Series A preferred conversion and dividend effects.
- The outcome and proceeds of the IKONICS sale process, CVR obligations and any environmental remediation exposure.
- The amounts and governance implications of related-party arrangements, including the services agreement and promised share awards.