TeraWulf Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 15, 2023. TeraWulf develops and operates U.S. bitcoin-mining facilities, including wholly owned Lake Mariner in New York and the Nautilus joint venture in Pennsylvania. All dollar amounts below are U.S. dollars.
Financial and operating results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $11.5 million | $0.2 million |
| Gross profit | $6.5 million | $0.2 million |
| Gross margin | 56.6% | 85.3% |
| Operating loss | $9.2 million | $9.2 million |
| Net loss | $26.3 million | $18.2 million |
| Net loss attributable to common stockholders | $26.5 million | $18.2 million |
| Cash used in operating activities | $8.7 million | $15.3 million |
| Cash used in investing activities | $16.2 million | $46.8 million |
| Cash provided by financing activities | $33.5 million | $19.2 million |
- Mining revenue was $9.2 million and miner-hosting revenue was $2.3 million. Revenue growth reflected increased mining capacity and the start of hosting services. Hosting revenue represented 17.2% of consolidated revenue.
- Cost of revenue, excluding depreciation, was $5.0 million. Depreciation rose to $5.4 million from $4,000 as mining equipment entered service. Interest expense increased to $6.8 million from $5.3 million.
- At March 31, cash and cash equivalents were $17.0 million; restricted cash was negligible. Working capital was deficient by $33.9 million. Total assets were $316.8 million, total liabilities $170.5 million, and stockholders’ equity $146.3 million. Accumulated deficit was $212.7 million.
- Term-loan principal was $146.0 million, with a 11.5% stated rate and December 2024 maturity. Its balance-sheet carrying amount, net of $32.6 million in debt issuance costs and discount, was $113.4 million. The company reported $6.8 million in quarterly interest expense.
Material changes and financing
- Revenue rose substantially from the prior-year quarter as facilities ramped up. Net loss widened, primarily reflecting higher interest expense, depreciation, and a larger equity-method loss from Nautilus.
- A March debt amendment removed scheduled principal amortization through April 7, 2024, after the company met a required equity-raise condition. The amendment also imposed an excess-cash-flow sweep and provided lenders with warrants for 27.4 million shares at $0.01 and 13.7 million shares at $1.00, subject to stated terms. The company recorded $16.0 million of warrant value as debt discount.
- The February–March public offering issued 40.8 million shares and generated $26.6 million net proceeds. The company also received proceeds from warrant issuances and convertible notes; the filing describes approximately $34.7 million in net proceeds from equity and equity-linked financing. Convertible notes were converted into shares during March.
- Common shares outstanding were 186.3 million at March 31 and 212.0 million as of May 15. The filing also reports 65.4 million warrants outstanding at quarter-end, with a weighted-average strike price of $0.43; further dilution is possible.
Outlook, risks, and unusual items
- Management expected remaining construction at Lake Mariner and Nautilus to be completed in Q2 2023 and said available capital was expected to cover Lake Mariner construction and near-term obligations. Nautilus began mining in February 2023 and reached full energization of TeraWulf’s allotted capacity in April. Lake Mariner Building 2 was substantially complete at quarter-end.
- Management said the company was not yet mining at a scale sufficient to support its principal operations. It expects to fund operations and buildout through cash, bitcoin sales, hosting services and, if needed, equity issuance. The company had an active ATM facility with up to $200 million of aggregate offering capacity.
- Despite a quarterly common-stockholder loss and working-capital deficit, management concluded that actions and financing plans made it probable the company could meet obligations for at least the next 12 months; it stated there was no substantial doubt about going concern. This remains dependent on execution, financing availability, and reaching positive operating cash flow.
- Nautilus-related items materially affected results: the company recorded an $8.9 million loss when miners transferred from the joint venture were marked to fair value. The company owns 25% of Nautilus; its share of the joint venture’s losses contributed to a $10.2 million equity-method loss for the quarter.
- The company paid $3.9 million during the quarter to holders of contingent value rights related to the former IKONICS business; the quarter-end liability was $7.0 million.
- Key risks include bitcoin price and mining difficulty changes, power costs and availability, construction and equipment delivery, access to additional capital and resulting dilution, debt covenants, and reliance on counterparties. Related-party service fees were $3.2 million paid in the quarter. No material legal proceedings were reported. Nasdaq minimum-bid compliance, previously at risk, was regained in April 2023.
- The filing states that certain Q1 2022 cash-flow amounts were restated in the company’s 2022 annual report; the restatement concerned classification of noncash plant-and-equipment activity between operating and investing cash flows.
Important facts for investors to verify
- Whether mining capacity and Q2 construction milestones were achieved, and whether operating cash flow improved after the quarter.
- Current cash, working-capital needs, remaining capital commitments, and any subsequent use of the ATM or other financing.
- Debt-amendment compliance, cash-sweep requirements, maturity and repayment terms, and the potential dilution from lender and other warrants.
- Nautilus economics, TeraWulf’s 25% ownership and hashrate-based distributions, and any additional capital requirements.
- Bitcoin-price sensitivity, electricity costs, hosting-contract duration and customer concentration, and the related-party service arrangements.