TeraWulf Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted. TeraWulf is developing and operating U.S. bitcoin-mining facilities and began mining at its Lake Mariner, New York facility in March 2022. Its IKONICS imaging business was classified as held for sale and discontinued operations.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Revenue | $1.385 million | $1.602 million |
| Gross profit / gross margin | $0.794 million / 57.3% | $0.979 million / 61.1% |
| Operating loss | $7.816 million | $16.983 million |
| Interest expense | $4.139 million | $9.461 million |
| Net loss | $13.669 million | $31.852 million |
| Net loss attributable to common stockholders | $13.908 million | $32.136 million |
| Basic and diluted loss per share | $0.14 | $0.31 |
- Revenue began with mining and hosting activity: first-half revenue included $1.2 million from mining and $0.4 million from hosting. Comparable 2021 revenue was zero.
- Six-month net loss included discontinued-operation losses of $3.5 million. IKONICS recorded a $4.5 million impairment, partly offset by a $1.4 million gain from remeasuring contingent value rights.
- Cash and cash equivalents were $0.9 million at June 30, down from $43.4 million at December 31, 2021; restricted cash was $0.001 million. The company reported a $76.0 million working-capital deficiency, $135.0 million of stockholders’ equity, and a $127.8 million accumulated deficit.
- Six-month cash flow: $29.8 million used in operations, $75.7 million used in investing, and $59.9 million provided by financing. Cash and restricted cash declined by $45.5 million to $0.9 million.
- Term-loan principal was $123.5 million; its carrying value, net of debt discounts and issuance costs, was $100.8 million, including $15.4 million current and $85.4 million long-term. The term loan bears 11.5% interest and matures December 2024. A separate $15.0 million convertible note was issued in June; its June 30 carrying amount was $14.7 million.
Changes, outlook, and material matters
- Compared with the prior-year periods, mining and hosting revenue commenced, while losses and expenses increased as the company expanded operations and construction. Q2 2021 and the 2021 six-month comparison period had no revenue; the latter began at the company’s February 2021 inception.
- Lake Mariner has an initial 90 MW power allocation and began mining in March. The company says it may expand that allocation by up to 410 MW. The 50%-owned Nautilus joint venture is developing a Pennsylvania facility with up to 300 MW of planned capacity; TeraWulf expected miner installation to begin in the second half of 2022.
- Management targets more than 90% zero-carbon energy, with a goal of 100%, and estimates a long-term average electricity cost of about 3 cents/kWh. These are expectations, not guarantees. The filing provides no quantified revenue or earnings guidance.
- Management stated that additional capital is needed for contractual obligations and the planned buildout, and that substantial doubt exists about the company’s ability to continue as a going concern for at least the next 12 months. The company expects to seek debt or equity financing and hosting revenue; financing may not be available on acceptable terms or in sufficient amounts.
- At June 30, remaining contractual commitments included approximately $118.9 million under two Bitmain miner purchase agreements and $14.1 million of Nautilus joint-venture contributions. Delivery timing and payment terms were under discussion; a separate Minerva supplier had been significantly behind schedule. These commitments and delays could affect construction pace and funding needs.
- In July, the company drew $15.0 million under a new term facility of up to $50.0 million; up to $35.0 million of further borrowing is conditional, including on raising matching junior capital. The facility’s lenders received warrants for 5,787,732 shares at $0.01 per share, with additional warrant dilution tied to later draws. The company also reported $2.4 million of net ATM proceeds after June 30 through August 14.
- Other risks include bitcoin price and mining difficulty volatility, inflation and rising interest rates, construction and equipment-supply delays, and reliance on financing. The company reported no material legal proceedings. Potential environmental work at the former IKONICS property remained unresolved; sale proceeds were subject to escrow pending testing and any required remediation.
Most important facts for investors to verify
- Current liquidity, cash burn, financing availability, and progress toward addressing the disclosed going-concern uncertainty.
- Actual miner deliveries, facility commissioning and capacity, and whether the Bitmain and Nautilus commitments can be met or renegotiated.
- Mining economics under changing bitcoin prices, network difficulty, electricity costs, and operating conditions.
- Terms and conditions of subsequent debt draws, cash repayment or conversion of the Yorkville note, and potential dilution from equity sales, preferred stock, and warrants.
- Final IKONICS sale proceeds, contingent-value-right obligations, escrow release, and any environmental remediation costs.