TeraWulf Q2 2024 Earnings Report

TeraWulf EPS Results

• Actual EPS: -$0.03
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

TeraWulf Revenue Results

• Actual Revenue: $35.57 million
• Expected Revenue: $35.73 million
• Beat/Miss: Missed by -$160.00 thousand
• YoY Revenue Growth: N/A

TeraWulf Announcement Details

• Quarter: Q2 2024
• Date: 8/12/2024
• Time: N/A
• Conference Call Date: Monday, August 12, 2024
• Conference Call Time: 5:00PM ET

TeraWulf (NASDAQ:WULF), Inc. (NASDAQ: WULF) is a digital asset infrastructure company focused on the development and operation of zero-carbon bitcoin mining facilities. The company integrates sustainable power generation with high-density data center technologies to deliver environmentally responsible digital asset mining services. Its core business revolves around designing, building and operating large-scale mining projects powered exclusively by renewable or emissions-free energy sources.

One of TeraWulf’s flagship projects is “Project Nautilus,” located in Tompkins County, New York, which harnesses hydroelectric power sourced from the New York State Electric & Gas (NYSEG) grid. The company has also secured additional sites in North America, including the repurposing of former coal-fired power plant infrastructure in Pennsylvania to create new zero-carbon mining campuses. By colocating mining operations at existing energy facilities, TeraWulf aims to achieve high operational efficiencies and significantly lower its carbon footprint compared with traditional mining approaches.

Founded in 2021, TeraWulf completed its public listing in mid-2022 through a business combination transaction, positioning itself as one of the first publicly traded bitcoin miners with a strict zero-carbon mandate. The company has assembled a technical team with backgrounds in energy markets, data center operations and blockchain technologies, enabling it to scale its mining footprint while maintaining sustainability commitments. TeraWulf continues to pursue expansion across additional U.S. jurisdictions with abundant low-cost, emissions-free power.

Under the leadership of CEO Darin Feinstein, TeraWulf is guided by a strategy that prioritizes long-term resource conservation and transparent reporting on energy sourcing. The management team is focused on advancing digital asset innovation within the broader energy transition, seeking partnerships and offtake agreements that reinforce its mission of decarbonizing bitcoin mining. As digital currencies evolve, TeraWulf aims to set industry benchmarks for responsible mining practices and sustainable infrastructure deployment.

TeraWulf Q2 2024 Earnings Call Transcript

Key Takeaways

• Completed Building 4 at Lake Mariner, boosting mining capacity to over 10 EH/s with a fleet efficiency of 23.7 J/TH and projected 2024 power costs of $0.035/kWh.
• Advanced AI/HPC roadmap via the Wolf Den project—128-GPU cluster financed by an OEM—and the CV1 co-location facility targeting 20 MW gross HPC capacity by year-end.
• Streamlined capital structure by fully repaying debt, converting ~$29 million of lender warrants into common shares, and ending Q2 with $104 million cash; growth plans for 2024 are fully funded without near-term equity needs.
• Q2 mining output fell 34% to 699 Bitcoin quarter-over-quarter, driving GAAP revenues down 16% to $35.6 million and adjusted EBITDA declining to $19.5 million.

Presentation

[Operator]

Greetings, and welcome to the TeraWulf 2024 Second Quarter earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Assad, Director of Corporate Communications. Thank you. You may begin.

[Jason Assad, Director of Corporate Communications at TeraWulf Inc.]

Thank you, operator. Good afternoon, and welcome to TeraWulf's Second Quarter earnings call. With me today are Chairman and Chief Executive Officer, Paul Prager, and our Chief Financial Officer, Patrick Fleury. Before we get started, I'd like to remind everyone that our prepared remarks may contain forward-looking statements, which are subject to risk and uncertainties, and we may make additional forward-looking statements during the question and answer session. When used on this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to TeraWulf are such forward-looking statements. Investors are cautioned that results may differ materially from those anticipated by TeraWulf at this time. In addition, other risks are more fully described in our public filings with the U.S. Securities and Exchange Commission, which may be viewed at sec.gov and in the investor section of our corporate website at terawulf.com.

[Jason Assad, Director of Corporate Communications at TeraWulf Inc.]

Finally, please note that today's call will refer to certain non-GAAP financial measures. Please refer to our company's periodic reports on Form 10-K and 10-Q and on our website for a full reconciliation of these non-GAAP performance measures to the most comparable GAAP financial measures. An updated version of our new investor deck may also be found at terawulf.com. We'll begin today's call with prepared remarks from Paul and Patrick, and then we'll proceed to Q&A. It's my pleasure to now turn the call over to TeraWulf's CEO, Paul Prager. Paul?

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Thank you, Jason, and good afternoon, everyone. We appreciate your attendance today as we review our Second Quarter 2024 financial results. To start, let me provide an overview of who we are and highlight some key aspects of our business. For those new to TeraWulf, we are an energy and digital infrastructure company dedicated to utilizing predominantly zero carbon energy to power our operations. Our two premier data centers are the Lake Mariner facility in upstate New York, which utilizes over 91% zero carbon energy sourced from the grid, and the Nautilus crypto mine in Pennsylvania, a joint venture with Talen that is directly powered by nuclear energy. We believe our strategic focus on scalable, zero carbon energy infrastructure gives us a unique and competitive edge.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

In our last earnings call, we identified a significant shift in the industry, emphasizing that low-cost, clean energy, operational efficiency, and profitability are becoming more critical than simply scaling operations. This insight will frame our discussion today as we review our second quarter results and strategic positioning. In the second quarter of 2024, we achieved several milestones that significantly strengthen our position as one of the most efficient public Bitcoin miners and digital infrastructure owners. First, we successfully completed the construction of Building Four at Lake Mariner, pushing our total mining capacity to over 10 EH/s. With a fleet efficiency of 23.7 J per terahash and industry-leading power costs projected at $0.035 per kWh for 2024, we have solidified our position as one of the sector's most efficient public miners.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Second, we strategically amended our Bitmain purchase agreements to specify the delivery of S21 Pro miners. We opted to acquire approximately 5,000 of the 30,000 miners available under the option purchase agreement, monetizing our option at an attractive rate of $16 per terahash. Third, we made significant progress in our AI and high-performance computing initiatives through the Wulf Den project. We committed to purchasing a 128 GPU cluster from NVIDIA, financed by an industry-leading OEM. This arrangement minimizes the equity required from the company, preserving capital for future strategic investments. Finally, we achieved a pivotal milestone by streamlining our capital structure, eliminating debt, and converting approximately 29 million out of 41 million lender warrants into common shares. This deliberate restructuring strengthens our balance sheet and positions us for sustained future growth. With that in mind, let me touch on our operational expansion.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

At Lake Mariner, we currently deploy approximately 200 MW of operational infrastructure for Bitcoin mining, achieving industry-leading unit economics, as disclosed in our updated investor presentation found on our website. We also have an additional 300 MW of near-term expansion capacity to meet the growing demand from HPC and AI data centers. Lake Mariner's location offers the ideal trifecta for scaling operations, low-cost power, ample land, and abundant water for cooling. At the Nautilus crypto mine, we currently have 50 MW of operational capacity for Bitcoin mining, and earlier this year, we announced plans to expand to 100 MW in 2025. Our partnership with Talen, underscored by the recent sale of the Cumulus Data portion of the campus to Amazon Web Services, highlights the strategic value of our direct connection to a baseload nuclear power station.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Amazon's acquisition not only validates the importance of leveraging sustainable energy, but also signifies the inevitable convergence of sustainable energy with the growing demand for high-performance computing. From day one, our model has been to strategically locate our operations where we have access to scalable, low-cost, predominantly zero-carbon power. Both of our sites embody this approach. Recently, market participants and analysts have emphasized the importance of bringing data center capacity to locations that have access to power. This has been our strategy for many years, bringing our operations to locations with access to predominantly zero-carbon generation resources. In addition to our current operations, we are exploring a pipeline of opportunities outside of the company, including certain properties owned by Beowulf Energy, a private company wholly owned by me.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

While our primary focus today is creating value with the organic scalability within TeraWulf, we are continuously assessing the contribution of additional assets. Any such contributions will be made in a fair and reasonable manner, consistent with our board and committee charters. Moving on to our financial performance, TeraWulf continues to leverage our low-cost infrastructure to drive profitability and create value for shareholders. Our commitment to shareholders has always been to deliver on our promises, and we've been successful in doing so quarter-after-quarter. In July, we fully repaid our debt well ahead of maturity and are now completely debt-free. This significant milestone not only strengthens our balance sheet, but optimizes our strategic flexibility.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

This is particularly advantageous as we aim to deploy our Lake Mariner facility to support the surging demand for data centers, driven by the proliferation of data-intensive applications such as artificial intelligence, machine learning, and big data analytics. In the second quarter, we achieved a GAAP gross profit margin of 61% and non-GAAP Adjusted EBITDA of $19.5 million, translating to an EBITDA per exahash of approximately $2.4 million. Our SG&A expenses totaled $11.9 million, and only $7.1 million, excluding stock-based compensation expense, materially lower than our peers. Looking ahead, as Patrick will detail shortly, our growth plans for the remainder of 2024 are fully funded. This underscores our commitment to capital efficiency and ensures the continuation of our strategic initiatives without the need for additional equity financing in the near term.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

As regards dilution in the second quarter, we took advantage of the favorable stock price and market liquidity to safeguard our future valuation creation path and to facilitate our entry and growth in the HPC/AI sector in the most capital-efficient manner. These data points highlight TeraWulf's competitive advantages. Low cost, zero-carbon power. Access to some of the lowest cost, predominantly zero-carbon energy in the industry. Profitability. Higher EBITDA per exahash than any other player in the space, requiring less capital for growth. Efficiency. A lean team and efficient management drive maximum profitability for shareholders. Scalable infrastructure for AI/HPC. Wulf has access to over 300 MW of infrastructure to scale into high-value and high-performance compute data centers.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

The true value in TeraWulf lies not only in the Bitcoin we mine profitably, but in the quality of our asset base and our ability to generate industry-leading profits while expanding into HPC/AI. Even in times of market volatility, as we all have experienced in the last week, our focus on maintaining robust infrastructure and profitable operations ensures sustainable growth and long-term returns. With that segue, I'd like to now address our strategic advancements in AI and HPC. Wulf Compute is in the final stages of our 2-MW proof-of-concept project, the Wulf Den, which is on track for completion in early September. This state-of-the-art project is designed to support the latest generation GPUs, featuring advanced liquid cooling systems and high rack density. In addition, we are advancing the development of CB-1, a colocation project set to deliver 20 MW gross and 60 MW of critical computing power.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

This Building will be tailored to support the next generation of GPUs and is projected to be operational by the end of the year. We are actively engaging with several colocation customers regarding the 300 MW expansion capacity at Lake Mariner. Our team is thoroughly evaluating each opportunity to maximize the potential of what we believe is one of the premier data center locations in the country. Our primary focus here is on securing the most suitable customers to achieve the highest possible valuation multiple for TeraWulf common shareholders, among whom management is one of the largest groups. As we look ahead, TeraWulf is at a pivotal moment, as strategic positioning and substantial infrastructure scale offer significant opportunities for value creation. With our large-scale facilities, we are well-equipped to meet the growing demands of the data center market, positioning us to capitalize on emerging opportunities and drive substantial growth.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

We are excited about leveraging our infrastructure and expertise to enhance value for our stakeholders in the coming quarters. Now, I'll turn it over to Patrick to discuss our financial performance.

[Patrick Fleury, CFO at TeraWulf Inc.]

Thank you, Paul. As Paul stated, the second quarter and beginning of the third quarter was a transformative time for Wulf, with strong financial results, even in a challenging fundamental business environment following the Bitcoin reward halving in April. In the second quarter of 2024, we self-mined 539 Bitcoin at Lake Mariner, and our net share of Bitcoin mined at Nautilus was 160, for a total of 699 Bitcoin, or about 7.7 Bitcoin per day, a 34% decrease over the 1,051 Bitcoin mined in 1Q 2024. The hosting agreement at Lake Mariner terminated in February 2024, and as a result, we received 0 and an additional 6 Bitcoin in 2Q 2024 and 1Q 2024, respectively, from associated profit sharing.

[Patrick Fleury, CFO at TeraWulf Inc.]

Our GAAP revenues were down 16% quarter-over-quarter, at $35.6 million in 2Q 2024, from $42.4 million in 1Q 2024. Our value per Bitcoin self-mined in this quarter, a non-GAAP metric that includes Bitcoin mined at Nautilus, averaged $65,984 per Bitcoin, for a total of $46.1 million, as detailed and defined in our monthly operating reports, press releases, and MD&A section of our 10-Q. As a reminder, there is a key difference between our GAAP financials and the monthly operating reports in 2024 guidance. Due to our 25% ownership in the Nautilus JV, the revenue, cost of revenue, operating expenses, depreciation, and amortization at Nautilus are not consolidated into our GAAP financial statements.

[Patrick Fleury, CFO at TeraWulf Inc.]

Instead, the financial impact of the Nautilus JV is reflected in the equity and net income or loss of investee net of tax line item on the GAAP income statement. Our GAAP cost of revenue, exclusive of depreciation, for 2Q 2024 was $13.9 million, a 3% decrease over $14.4 million in 1Q 2024. The quarter-over-quarter decrease was due to a 14% decrease in the average cost of power at Lake Mariner, from $0.049/kWh in 1Q 2024 to $0.042/kWh in 2Q 2024, and expected demand response proceeds of $1.9 million in 2Q 2024 versus $1.3 million in 1Q 2024.

[Patrick Fleury, CFO at TeraWulf Inc.]

Our gross profit, exclusive of depreciation, decreased by 23% quarter-over-quarter, from $28 million in 1Q 2024 to $21.7 million in 2Q 2024. Our power cost or cost of energy per Bitcoin mined, a non-GAAP metric that includes Bitcoin mined at Nautilus, was $22,954 in 2Q 2024, compared to $15,501 in 1Q 2024. As a reminder, in our GAAP financials, unlike our monthly operating reports, the company records proceeds received and to be received for demand response programs as a reduction in cost of revenue. These expected proceeds totaled $1.9 million in 2Q 2024 and $1.3 million in 1Q 2024.

[Patrick Fleury, CFO at TeraWulf Inc.]

As disclosed in our 2024 guidance, we expect to achieve an average power cost, including demand response revenues and the impact of Nautilus $0.02 power of $0.035/kWh in 2024. For 2Q 2024, we achieved an average power cost of $0.037/kWh, compared to $0.041 in 1Q 2024. This is consistent with historical power price variability in Upstate New York, where the Lake Mariner facility is located. Operating expenses were stable quarter-over-quarter at $1.7 million in 2Q 2024 and 1Q 2024. As disclosed in our 2024 guidance, we expect $13.5 million of operating expenses in 2024, which includes operating expenses at Nautilus.

[Patrick Fleury, CFO at TeraWulf Inc.]

Of the $13.5 million total anticipated for 2024, approximately 50% is expected to be incurred at Lake Mariner and 50% at Nautilus. SG&A expenses decreased quarter-over-quarter from $14.9 million in 1Q 2024 to $11.9 million in 2Q 2024. The decrease is almost entirely due to $6.9 million of stock-based compensation expense incurred in 1Q 2024, versus $4.8 million in 2Q 2024. Adjusting for stock-based comp, SG&A decreased 11% quarter-over-quarter from $8 million in 1Q 2024 to $7.1 million in 2Q 2024. As I've indicated previously, this decline is expected as SG&A spend is more heavily weighted to the first quarter of the year versus following quarters.

[Patrick Fleury, CFO at TeraWulf Inc.]

With our entry into HPC and AI and need for more staff, we are updating our 2024 SG&A guidance from $27.5 million-$30 million of SG&A in 2024, as indicated on page 14 of our August Investor Presentation, available on our website. Depreciation decreased quarter-over-quarter from $15.1 million in 1Q 2024 to $14.1 million in 2Q 2024, which was the result of a quarter-over-quarter decrease of $2.5 million in accelerated depreciation related to certain miners, of which the company shortened their estimated useful lives based on expected replacement by April 30, 2024, partially offset by increased assets placed into service and depreciated as a result of our continued infrastructure build-out.

[Patrick Fleury, CFO at TeraWulf Inc.]

Gain or loss on fair value of digital currency is a new income statement line item for us in 2024, given our early adoption of the new FASB accounting rule, which marks the company's Bitcoin holdings to the fair market value as of the filing date, with changes in fair value recorded in net income. In 2Q 2024, we incurred a loss of $0.7 million, compared with a gain of $1.3 million in 1Q 2024. It's critically important to note the six-month 2024 net gain of $0.6 million is substantially all realized, meaning it's a realized cash in our bank account, not theoretical mark-to-market gains on paper, which many of our peers that HODL have reported.

[Patrick Fleury, CFO at TeraWulf Inc.]

GAAP interest expense in 2Q 2024 and 1Q 2024 was $5.3 million and $11 million, respectively, which includes cash interest expense and amortization of debt issuance costs and debt discount related to the term loan financing. However, cash interest paid during 2Q 2024 was $2.5 million, down over 33% from $3.7 million in 1Q 2024. This decrease is the result of repayment of $30.2 million of debt in 2Q 2024 and $33.4 million in 1Q 2024. As detailed in our press release on July ninth and debt footnote of our 10-Q, we repaid the remaining $75.8 million of debt with approximately $19.8 million of excess cash flow sweep, as defined in our credit agreement, and $56 million of equity proceeds from our ATM facility.

[Patrick Fleury, CFO at TeraWulf Inc.]

In connection with the voluntary prepayment of $56 million of debt in July, a third quarter 2024 event, the company incurred prepayment fees of $0.9 million, wrote off unamortized discount of $3.3 million associated with the principal repaid, and recorded a loss on extinguishment of debt of $4.2 million. In 2Q 2024, we reported $0.8 million in equity and net income of investee, net of tax, as compared to $5.3 million in 1Q 2024. These amounts represent TeraWulf's proportional share of net income of the Nautilus joint venture. Let's take a moment to review in detail how Nautilus impacts our GAAP financial statements and non-GAAP adjusted EBITDA. Please refer to the hypothetical quarter on the Nautilus illustrative P&L and financial statement impact, page 10 of our August investor deck to follow along.

[Patrick Fleury, CFO at TeraWulf Inc.]

We run approximately 1.85 EH of total capacity at Nautilus and pay $0.02 for 50 MW of power. Assuming 98% uptime, a 610 network hash rate, and $60,000 Bitcoin price, this results in quarterly revenue of $7.4 million. Cost of revenue, excluding depreciation of $2.2 million, and therefore, gross profit of $5.2 million. Subtracting quarterly and other operating expenses of $1.7 million, which, as discussed previously, is approximately $6.75 million annually, results in operating profit of $3.5 million. This would effectively be the net distribution of Bitcoin to Wulf from Nautilus and the figure we add back in the non-GAAP Adjusted EBITDA calculation.

[Patrick Fleury, CFO at TeraWulf Inc.]

Including quarterly depreciation of $5.6 million results in equity and net loss of investee, net of tax, of -$2.1 million, which is what would appear on our GAAP income statement and be stripped out of our non-GAAP Adjusted EBITDA calculation. Our GAAP net loss for the second quarter was $11.2 million, compared to a net loss of $9.9 million in 1Q 2024. Our non-GAAP Adjusted EBITDA for 2Q 2024 was $19.5 million, compared to $32 million in 1Q 2024. Now, turning our attention to the balance sheet. As of June 30, we held $104 million in cash, with total assets amounting to $480 million and total liabilities of $93 million. Pro forma for our debt repayment on July 9, our adjusted cash and Bitcoin balance was $28.4 million.

[Patrick Fleury, CFO at TeraWulf Inc.]

Our net working capital as of June 30 was a +$18.5 million. As disclosed on page 14 of our August Investor deck, we achieved a marginal cost of production, including every single cost in the company, of $41,587 per Bitcoin in 2Q 2024, and expect to achieve approximately $40,000 per Bitcoin in second half 2024. Regarding our capital position and growth plans for the remainder of 2024, we are fully funded. On page 12 of the August Investor deck, you'll find a capital sources and uses bridge for 2Q 2024, as well as our expectations for second half 2024 on page 13. We are now debt-free and in pole position to maximize the value of our assets as we diversify into HPC and AI.

[Patrick Fleury, CFO at TeraWulf Inc.]

Let me take a moment to point out a few key items in the second half 2024 capital budget on page 13. We expect the following approximate capital expenditures in second half 2024. Number one, $8 million on Wulf Compute's 2-MW HPC AI Wulf Den, which includes the purchase of 128 NVIDIA H100 GPUs, consisting of direct liquid-to-chip cooling, with backbone of a full cluster, of which approximately 50% of the purchase price is being financed by a large OEM partner. Two, $14 million on LMD site electrical to allow expansion to 500 MW. Three, $23 million on construction of Building Five, a 54-MW Bitcoin mining building expected to be substantially complete by year-end 2024. Four, $30 million on construction of Wulf Compute's CB-1, a liquid-cooled, redundant, and high-power density, 20-MW HPC AI infrastructure expected to be substantially complete by year-end.

[Patrick Fleury, CFO at TeraWulf Inc.]

The $30 million spend constitutes Wulf's equity contribution for the 20-MW building, and we expect to finance the remaining 70% in the project finance market. As discussed on our 1Q 2024 earnings call, updated on page 15 of our August Investor deck, and as a peer public colocation company has announced, we are targeting a customer contract with a 1-year revenue prepay, which would return Wulf's $30 million equity contribution. Given the quality and quantity of customer interest in our assets, we are comfortable paying this forward so we can deliver sizable HPC AI capacity by year-end 2024, with additional rapid growth in 2025. At Wulf, our financial objectives remain clear and simple: maximize profits, secure long-term, high-quality customers in HPC and AI to minimize Wulf's future equity needs, and return value to shareholders while providing investors access through transparency and accountability.

[Patrick Fleury, CFO at TeraWulf Inc.]

With that, I'll hand it over to the operator and look forward to answering your questions.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question is from Mike Grondahl from Northland Securities. Please go ahead.

[Mike Grondahl, Head of Equities, Director of Research and Senior Research Analyst at Northland Capital Markets]

Hey, guys. Thank you. How would you characterize the demand environment for the 2 MW, the 20 MW, and then sort of, you know, 50+ going forward? Could you just give us a little bit of flavor of, you know, who you're talking to and what you're hearing?

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, Paul, I think your line is unmuted. Do you want to take that, or you want me to?

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Sure. You know, Mike, we're very active. Listen, I can tell you that we're talking to a range of customers and a variety of customer class, if you will. We're talking to a couple of the hyperscalers. We're talking to end users. We're talking to enterprise customers of our OEM. And I think that what's exciting to people is the immediacy that we're able to meet their goals. As you know, we've advertised that we'll have megawatts available by year-end, and we've given a very programmatic schedule for folks in 25. So I think interest is at the beginning, at the tip of the iceberg, not even close to sort of the end of it.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

I think that the market's continuing to evolve, and a lot of folks are talking to the hyperscalers about what their needs are, and a lot of people don't want to be working with hyperscalers, so they want direct access. But we are engaged daily on this. For us, I think it's very, very important, Mike, that we make the right decision and have a customer that's the right credit quality. You know, we don't want to go out there with, if you will, somebody that isn't somebody that we could scale with over time or that we think, you know, won't be around in a year or two. So, I can only tell you that we're very excited about the prospects.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

We're very excited about the potential customers we're speaking to, but they're coming in all shapes and sizes. Again, our primary concern is credit quality and value, ultimately, to our shareholders in the deal that we strike. I think most of all, that should be indicated by the fact that we're funding this $30 million here. I think that should indicate to you real confidence on our part.

[Mike Grondahl, Head of Equities, Director of Research and Senior Research Analyst at Northland Capital Markets]

No, that's great. And then just maybe as a follow-up to that, in the last 90 days, as you've taken part in a lot of these discussions, you know, what have you maybe learned the most, or what's been surprising or interesting to you, Paul?

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Patrick, I'm going to let you start, and I'll give my sort of closing remark on that, but.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, look, Mike, as you know, I always tend to answer things too honestly. So I would just say, you know, look, I'm the CFO, right? My job is to get the numbers right and get things financed and financially engineered. I think for me, we have a, you know, I won't use the word, but we have a kick-butt team, and I got to tell you, like, being on the phone with some of the largest and most accomplished data center folks in the world, and having our team impress those people, I mean, that, to me, has honestly surprised me the most. Because, again, I mean, we're really good at what we do, but, you know, we're getting into a bit of a new lane here, and we've been studying it extremely hard.

[Patrick Fleury, CFO at TeraWulf Inc.]

So I think, you know, to add some fuel to Paul's fire on the customer side, I mean, the customer conversations are red hot. You know, our phones are ringing off the hook, and I think our team is really doing an incredible job.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

I guess for me, what I've learned most in terms of over the course of the last 90 days is, how different the requirements are for each one of these customers. And yet the one uniform thing that's missing, as sophisticated as these customers are, is a lack of familiarity with power and energy infrastructure. And as we have these discussions and they've advanced, it's been great to watch these potential customers appreciate, how important solving the energy infrastructure problem is, and the value of partnership in getting that endeavor completed. So I think we're spending a lot of time educating these folks about energy infrastructure, how we do it, how we suggest they do it. They're teaching us a lot about their requirements.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

And so, I think it's pretty fascinating. And for me, it's far more than you know, it's not fascinating because, oh, it's interesting. It's fascinating because I believe that it will Jettison TeraWulf to be an important company, I think, as we continue to expand into HPC/AI, given the backbone of the energy infrastructure that we have.

[Mike Grondahl, Head of Equities, Director of Research and Senior Research Analyst at Northland Capital Markets]

Sure. Hey, thanks a lot, guys.

[Operator]

The next question is from Joe Flynn from Compass Point Research & Trading. Please go ahead.

[Joe Flynn, Senior Research Analyst at Compass Point Research & Trading]

Hi, thanks for the question. And to kind of piggyback off the earlier question, I was wondering if you would you expect to have a 20 MW customer by year-end? And with the forward guidance on, you know, the build of colocation, Building Two, in future capacity, is this, you know, build it, and they will come situation, or would you expect to have customers secured beforehand? Thanks.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah. Look, hey, it's Patrick. I'll answer that. I mean, look, I would just say, you know, we put a slide in the deck that updates on timing and, you know, we're having constant discussions where, you know, folks are looking for hundreds and hundreds of megawatts of capacity. So I would just say, as Paul echoed, we are really, every day, everyone on the team focused on making sure we've got the right customer or group of customers to achieve the maximum valuation multiple. And so, you know, if that takes a little bit longer than expected, then it does. But I think, you know, there's a balance here of, we know power is in short supply. We have it. And then we also know folks are scrambling, you know, for it.

[Patrick Fleury, CFO at TeraWulf Inc.]

So I think I'm not gonna answer directly your timing question. But, you know, there's kind of a sweet spot, as we all know, over, you know, the coming months, and that's what we're trying to align with.

[Joe Flynn, Senior Research Analyst at Compass Point Research & Trading]

Thanks. That's helpful. And then, I guess, as we look for like into the future in 2026 and 2027, you talked about like, you know, the hundreds of megawatts type deals, like, what kind of margin profile should we expect as like the, you know, time moves out? Thanks.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, look, I think, you know, you can see on page 15, we, we did update that page around the edges. If you kinda compare it to our page from the last deck, you know, I, I think we've kinda stuck with 65%-75% margins on this colocation business. You know, I know some of our public-- or one of our public peers has put out a higher number. You know, we're gonna stick with that sort of 70% for now, and once we have some operations under our belt, you know, we'll, we'll update that. But that's kind of... That's what we're sticking with for today.

[Joe Flynn, Senior Research Analyst at Compass Point Research & Trading]

All right, thanks.

[Operator]

The next question is from Darren Aftahi, from Roth Capital Partners. Please go ahead.

[Darren Aftahi, Managing Director and Senior Research Analyst at ROTH Capital Partners]

Thanks, guys, for taking the questions. Can you talk about how the Wulf Den, sort of the role it plays relative to the 20-MW facility you're building? I guess asked another way, is this something that you would showcase for clients that are potentially interested in the bigger capacity?

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, that's exactly right, Darren. I think it's -- And again, on the, you know, as we talked about buying these GPUs, and you can see, as we've kinda laid out on page 15, that is not our core business, but it is a, you know, show me story. And, you know, some of the folks that we're in negotiations with wanna come on site, wanna see that we can run the, you know, greatest and latest technology, and so that's, you know, our commitment there. But again, these are $1-$9 million, right, that we're spending on that business, on the sort of GPU-as-a-service business, if you will. And our major and main focus remains colocation.

[Darren Aftahi, Managing Director and Senior Research Analyst at ROTH Capital Partners]

Great. And then just one more. I noticed in the release you guys talked about Building Five as having optionality for either BTC or HPC. I guess, like, when it's complete, is it-- what's the calculus from your perspective that determines which way you go there? Thanks.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, look, I think as we've said before, you know, there's other—like, there's—it's not just, you know, a capital allocation decision for us. So, you know, we have contractors and subs that have been on this site for three years, right? And they've built Building One, Building Two, Building Three, Building Four. Now they're moving to Building Five. So, you know, part of that is we're competing with Buffalo Bills Stadium, for example, so we need to keep those contractors and subs on site working. So we're moving ahead with Building Five. Yes, Building Five does have some optionality, you know, should we land a customer very, very soon, where we could pivot that building. But just order of magnitude, right?

[Patrick Fleury, CFO at TeraWulf Inc.]

We're talking about, call it, around $25 million to build that whole building, and, you know, roughly 50% of that can be repositioned as, you know, as high power compute AI infrastructure. So Darren, it's small dollars to kind of keep our people at the site, keep them working so that we've got runway for the next, you know, 2, 3 years to build out hundreds of megawatts. So that kind of comes into the calculus as well. But it—and again, to kind of pivot, you know, you're talking about sort of 50% of that CapEx that's reusable. Does that make sense?

[Darren Aftahi, Managing Director and Senior Research Analyst at ROTH Capital Partners]

That's helpful. Thank you.

[Operator]

The next question is from Lucas Pipes, from B. Riley Securities. Please go ahead.

[Nicholas Giles, Senior Equity Research Associate at B. Riley Securities]

Thanks, operator. Good afternoon, everyone. This is Nick Giles on for Lucas. Guys, I appreciate all the color so far. Your CapEx on the CB-1, I believe it implies a CapEx per megawatt of $5 million. Should we think about this as a good go-forward target? You know, what levels of redundancy could influence this figure? I mean, Paul, you said it earlier, that each customer has different needs, so just trying to think about how that figure could potentially flex.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah. Hi, Nick. So it's a good question. So yeah, it's roughly $5 million. As you can see on page 15, you know, we did update our build cost per megawatt to $6 million-$8 million. Generally speaking, like, that's specific for our site. And, and, and what I mean by that is, if you were to add, for example, backup diesel reciprocating generators, which we're not planning to do, you know, that would cost you at least another $2 million per megawatt. And so, again, our site is very unique in that it's a former coal plant, right? Retired and reclaimed. So we have grid infrastructure in place that you typically would not build for a data center. For example, we have two 345 kV lines that come into our substation and multiple transformers, right?

[Patrick Fleury, CFO at TeraWulf Inc.]

So what that means is, unlike a sort of typical data center that has one line coming in, if we lose one of those lines because a transformer goes down, we just move to the other line. And so when you think about that redundancy, I mean, really, you're talking about you're only going down in a blackout, which happened once in kind of the last 60 years, right? And, and, and so that, again, makes our site very unique and our build cost unique to this specific location.

[Nicholas Giles, Senior Equity Research Associate at B. Riley Securities]

Patrick, that's super helpful. My next question, obviously, the team has really deep experience in power and infrastructure, TeraWulf and even Beowulf included in that. Good to hear that potential customers are recognizing this. As it relates to data center design, are you using any third parties today, or is there any appetite to bring in any partners on either the data center design or operations side?

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah. So Nick, we and I'm the wrong guy to answer that question, and I know my team is spread out all over the place, so I'm not exactly sure who's online, nor am I sure what we're willing to disclose. But the short answer is yes, yes, and yes. You know, we are, we are partnered with a variety of different partners on all aspects of the HPC AI, or what I would call, like, the data center of the future build. And literally, that's everyone from, you know, NVIDIA, Supermicro, Dell, HP, like, all the way down the line. So, yes, that, that is a collective effort led by Sean Farrell, SVP of Operations on our team, and, and Nazar Khan, COO and co-founder, and their whole team, and augmented by multiple outside parties.

[Patrick Fleury, CFO at TeraWulf Inc.]

So yeah, that is a big team effort, and like I said, been just really, really impressed with the team that Nazar and Paul have assembled there.

[Nicholas Giles, Senior Equity Research Associate at B. Riley Securities]

Got it. Got it. Well, appreciate all the detail, and Patrick, to you and the team, continue. Best of luck.

[Patrick Fleury, CFO at TeraWulf Inc.]

Thanks, Nick.

[Operator]

The next question is from Brett Knoblauch, from Cantor Fitzgerald. Please go ahead.

[Brett Knoblauch, Equity Research Analyst at Cantor Fitzgerald]

Hi, guys. Thanks for taking my question, and thanks for all the color you guys have shared. Maybe to start, for Lake Mariner, I know you guys have talked about that facility being able to go to 770 if you do an additional interconnect. Would that occur before you guys consider to drop down additional assets into TeraWulf from Beowulf? I guess, to just help us understand, like, the timing and what would happen between the two.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, that's a good question. I, I don't—I don't know if Paul wants to address that, but my answer is not necessarily, Brett. You know, some of the customers we're talking to, you know, have demand. I mean, if you think about what we have, we have close to a gigawatt of low cost, predominantly zero carbon power, and that, that is extremely rare, right? And, and that's, by the way, in what's sitting, you know, effectively in the public company and what we have access to also in the private company. But I don't know, Paul, if you want to add any color to that.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Yeah, I think we've discussed this before, Brett. Hey, you know, the priority is absolutely TeraWulf, and they have a call on, you know, the opportunity to expand. And obviously, processes are involved, right? You got to figure out what's fair, you got to go to your audit committee, you got to get a fairness opinion, you got to do all this stuff. But at the end of the day, we're going to be most responsive to customer demand and not assume. We don't want to assume a whole lot of risk here until we've decided the customer path. But we're not going to run out of the opportunity to access power, anytime in the very near future or further out.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

I mean, TeraWulf has what it needs, and obviously, to take that site and to continue on at it makes sense because of scale, familiarity with the site, and familiarity with the stakeholders there, which includes, you know, some state agencies. So, we're most excited about Lake Mariner and our build costs there and our continuing ability to grow the usefulness of that site.

[Brett Knoblauch, Equity Research Analyst at Cantor Fitzgerald]

Perfect. Appreciate it. And then maybe just one follow-up on, I guess, just how we should be thinking about the AI HPC capacity coming online. I think I'm reading in the fine print on one of the slides that you expect the 20-MW building to be substantially complete by end of the year. I guess, first, should we expect by the end of this year, GPUs to be plugged in there? And then secondly, I'm also seeing that you guys are expecting to have called 150 MW of, call it, maybe gross power capacity to—for AI HPC in 2025, which is, I guess, a bit more than I was expecting, or thinking about before this call. Does that kind of assume that you'll have a, a couple additional, maybe 50-MW buildings that you would look to construct in the back half of next year? Thank you, guys. Really appreciate it.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah. Hey, bud. It's Patrick. So, you know, I hate to do this, but I was persuaded by both, you know, our team and investors and analysts. But if you look in our deck on page 16, you know, we did put together an illustrative development timeline to address exactly that question. And so I just want to point out, though, that that timeline can be sped up if we need to, based on customer demand, or it can be slowed down. So, you know, it's not absolute, but I think generally speaking, you know, we feel pretty comfortable with what we put on page 16 from a timing perspective. But again, like I said, it's very dependent on customer demand.

[Brett Knoblauch, Equity Research Analyst at Cantor Fitzgerald]

Perfect. Appreciate it, guys. Have a good one.

[Patrick Fleury, CFO at TeraWulf Inc.]

Thanks, bud.

[Operator]

As a reminder, it is star one to ask a question. The next question is from Bill Papanastasiou from Stifel. Please go ahead.

[Bill Papanastasiou, VP and Equity Research Analyst at Stifel]

Good afternoon, Paul and Patrick. Congrats on another quarter of solid unit economics. For my first question, just wanted to touch on that 150 MW of growth in 2025, part of your Wulf Compute business. Can you give a breakdown in terms of, the makeup of that 150 MW? How much of that could potentially be coming from Wulf Den operations versus your CB-1? Thanks.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, Bill. So good question again. I'll point you to page 16, where we kind of laid it out in Wulf Den Colocation Building One, which is what we refer to as CB-1, CB-2, and then sort of additional, you know, colocation capacity. So, you know, it's all kind of laid out there in black and white. Take a look at it. I think if you have questions, again, holler at us, but it's meant to at least provide a guideline of what we think is very, very achievable. And then, like I said, that could kind of be sped up or slowed down, depending upon demand.

[Bill Papanastasiou, VP and Equity Research Analyst at Stifel]

Okay, awesome. I see that now. And then secondly, now that the term loan's been extinguished, how should we think about dilution going forward to fund Bitcoin mining and your aggressive HPC AI growth strategy? Thanks.

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah. Look, Paul, do you want me to answer that, and then you can chime in after?

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Sure.

[Patrick Fleury, CFO at TeraWulf Inc.]

I mean, look, Bill, I think, you know, that's, there's a lot of different places to take that question. But as you know, I think we have among the largest, you know, insider board management team ownerships of the stock, so we've always been very conscious about dilution. We've also been willing to use it when it makes sense. And so I think paying down the debt and then positioning us to really expand into high power compute and AI, you know, our team's view with that was, that is a very productive and accretive use of dilution. But I think now, right, if we can get the financial engineering correct with the right customer, then we have a free cash flow positive Bitcoin mining business, which, by the way, if you look on page 11, is among the most profitable of any of our peers.

[Patrick Fleury, CFO at TeraWulf Inc.]

And, you know, put a nice quote in there, "It's not the size of the dog in the fight, it's the size of the fight in the dog." I mean, we're, you know, small compared to these other folks that are, you know, trying to build Exahash to the moon, and we're generating more profit. And that's important because if we can get the financial engineering correct, like one of our peers has done in the high power compute and AI business, then we have a business that's generating positive free cash flow while we build out a massive high power compute and AI business. So that is the goal, and if you kind of read between the lines, that would mean very little incremental dilution. So that's what we're trying to achieve.

[Patrick Fleury, CFO at TeraWulf Inc.]

You know, whether we get there or not and how quickly, you know, I can't answer that today, but that is the goal. Paul, do you want to add anything?

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Yeah, just two things. Listen, we made the decision to issue equity to pay down the debt for, you know, on the back of two things. One, we were uncomfortable how having the debt would affect our flexibility if we wanted to make a deal in the HPC AI space, and we didn't want the tail to be wagging the dog. I mean, the value proposition from HPC AI is, you know, it's just a whole different magnitude. So we felt it was critical to pay off the debt. In retrospect, we're delighted that we paid off the debt, given the volatility that the mining space has gone through, but more importantly, given the opportunity set that we've become aware of in the HPC AI world.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

And to have the time to thoroughly review each one of the HPC AI customer candidates, to review their credit, to be thoughtful about how long will they be in the business, and what commitments we should expect from them, and they could honor. I think that's a luxury that we would not have had had we still had the lenders sitting out there. So I get it. You know, we had to dilute a little bit, but it was accretive, it was conscious, it was intentional.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

I think, you know, I'm so proud of the team for being committed to do that because I think having, you know, having a company that's debt-free and the opportunity to have free cash flow at the levels that we do, and having the time to be able to come up with the right HPC AI customer conclusion, as opposed to sort of just race and, you know, marry the first girl who asks us out on a date, you know, we ended up in a whole different place. So that was our thinking, and I believe ultimately it was in the absolute best interest of our shareholders.

[Bill Papanastasiou, VP and Equity Research Analyst at Stifel]

Appreciate the color. Congrats again on the quarter.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Thank you.

[Operator]

The next question is from Kevin Cassidy, from Rosenblatt Securities. Please go ahead.

[Kevin Cassidy, Managing Director and Senior Research Analyst at Rosenblatt Securities]

Hi, yeah, thanks for letting me ask a question. Just a question around as you're building out the HPC AI business, with, you know, lead times on these GPUs are stretched out quite a bit. Do you have secure deliveries or some of your colocation, your customers going to help you bring in the equipment?

[Patrick Fleury, CFO at TeraWulf Inc.]

Yeah, good question, Kevin. It's Patrick, and thanks for joining the call. So again, that's part of the customer, you know, as Paul likes to say, the sort of get to know you process, right? I mean, a lot of customers, as you know, are very well funded, but if they're not in the right queue with NVIDIA, then it doesn't matter. So I think as part of that diligence process, you know, we are for example, like, we are in touch with NVIDIA regularly because you think about, again, what's in the public company, what's in the private company, some other stuff we look at, like, I mean, we have close to 1,000 GW of power. So, excuse me, 1,000 MW of power. So from a GPU perspective, I mean, that moves the needle for NVIDIA.

[Patrick Fleury, CFO at TeraWulf Inc.]

I mean, that's $30 billion of GPUs. So yeah, I think that is certainly one very important aspect of the diligence process, you know, that we are in touch with when we're talking to customers.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Yeah, I would add, like to add in just a little bit to that. You know, I can't speak, you know, for NVIDIA, but, but it would appear to us, talking to them and to their customers, it appears to us that they are keen, to have allocations to customers other than, you know, the hyperscalers. As such, and therefore diversify their customer base, right? So it makes sense. So I think that it won't be an issue, to have a customer, if it's not a hyperscaler, that, if you will, has an allocation. I think the second thing is, and this is great for the team here, is that I think NVIDIA's basically telling people, "Hey, if you want your allocation, show me where you're going to put them.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Show me that you have the power." You know, and so that's creating some real energy on the part of potential customers to strike a deal, because they move up, if you will, in their supply queue on their side of the equation when they have access to megawatts. So I think that is a good, healthy pressure that we can be the beneficiaries of, as long as we think they're the right partner, have the right culture, and could ultimately scale with us.

[Kevin Cassidy, Managing Director and Senior Research Analyst at Rosenblatt Securities]

Great. Yeah, I understand that. That's good for the diversification. I'm sure NVIDIA doesn't want to have all of their GPUs going to companies that are just competing with each other. So great. Thanks for that answer.

[Operator]

There are no further questions at this time. I would like to turn the floor back over to Paul Prager, CEO, for closing comments. Paul, you can go ahead.

[Paul Prager, Co-Founder, Chairman, and CEO at TeraWulf Inc.]

Sorry, figuring out my mute button. In closing, I want to thank you all for joining us today. TeraWulf continues to lead the industry with best-in-class assets, lowest unit economics, unmatched scalability of our owned infrastructure. We remain committed to consistent growth and profitability that aligns with investor interests. I am personally, and as a company, we are entirely optimistic about the future and confident in our ability to deliver sustainable growth and value. I want to thank you all again for your time, and we look forward to continuing to respond to you as, as you think about TeraWulf's investment and any questions you may have. Thank you.

Participants

Executives

• Jason Assad, Director of Corporate Communications
• Patrick Fleury, CFO
• Paul Prager, Co-Founder, Chairman, and CEO

Analysts

• Bill Papanastasiou, VP and Equity Research Analyst at Stifel
• Brett Knoblauch, Equity Research Analyst at Cantor Fitzgerald
• Darren Aftahi, Managing Director and Senior Research Analyst at ROTH Capital Partners
• Joe Flynn, Senior Research Analyst at Compass Point Research & Trading
• Kevin Cassidy, Managing Director and Senior Research Analyst at Rosenblatt Securities
• Mike Grondahl, Head of Equities, Director of Research and Senior Research Analyst at Northland Capital Markets
• Nicholas Giles, Senior Equity Research Associate at B. Riley Securities