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    Terawulf Inc (WULF)

    Business Description

    TeraWulf Inc. (WULF) is a digital asset technology company specializing in bitcoin mining and digital infrastructure development. The company focuses on providing sustainable, low-cost, and reliable energy solutions to power its operations. TeraWulf generates revenue primarily through bitcoin mining, miner hosting services, and emerging high-performance computing (HPC) and AI infrastructure offerings.

    1. Bitcoin Mining - Mines bitcoin by providing hash computation services to mining pool operators, earning bitcoin rewards for validating transactions on the global bitcoin network. The mined bitcoin is routinely sold for U.S. dollars.

      • Lake Mariner Facility - Located in New York, with a capacity of 195 MW as of Q2 2024.
      • Nautilus Cryptomine Facility - Located in Pennsylvania, with a capacity of 50 MW, though TeraWulf sold its 25% equity interest in October 2024.

    2. Miner Hosting Services - Provides hosting services for third-party miners, offering infrastructure and operational support for external mining operations.

    3. High-Performance Computing (HPC) and AI Infrastructure - Develops scalable digital infrastructure for HPC and AI applications, leveraging clean energy and advanced technology. Includes a 2 MW proof-of-concept facility at the Lake Mariner site, with plans to expand to 100 MW in the future.

    Q3 2024 Summary

    Initial Price$4.60July 1, 2024
    Final Price$4.33October 1, 2024
    Price Change$-0.27
    % Change-5.87%

    What went well

    • Strong and intensifying demand for power capacity, driven by projected tripling of data center demand by 2030, positions TeraWulf to capitalize on high-speed compute and AI workloads. The company is well-positioned due to its abundant, low-cost, sustainable energy resources and scalable infrastructure, particularly at its Lake Mariner facility. , ,
    • Advanced negotiations with high-quality, creditworthy customers for its initial 72.5 MW of HPC hosting capacity are expected to result in definitive lease agreements before year-end, providing a stable and significant revenue stream. This includes one-year revenue pre-pays and potential options for additional capacity, enhancing financial outlook. , , ,
    • Demonstrated financial strength and shareholder value creation, evidenced by a $500 million convertible bond offering with favorable dilution protection, $115 million in stock repurchases, and maintaining positive EBITDA while peers are incurring losses. TeraWulf's focus on operational efficiency and low-cost operations differentiates it in the industry and positions it for sustainable long-term growth.

    What went wrong

    • The company has not yet secured definitive customer agreements for its high-power compute (HPC) hosting business, introducing uncertainty in revenue projections.
    • Expansion plans are heavily reliant on project financing and customer prepayments, which are credit-dependent; delays or challenges in obtaining financing could hinder growth plans.
    • Operational facilities like the Wulf Den are currently not generating revenue, as the company opts to wait for customers rather than utilize the capacity themselves, leading to potential inefficiencies.

    Q&A Summary

    1. HPC Customer Agreement Timing
      Q: When will you announce your first HPC customer?
      A: We expect to announce a definitive lease agreement with one or two customers covering 72.5 megawatts before year-end. Negotiations are very advanced, and this contract will cover our initial capacity through the first half of next year. The scramble for power has intensified since the FERC ruling, and we're ensuring we secure the best deal for our shareholders.

    2. CapEx and Project Financing
      Q: How is the capital spend progressing on CB-1 and CB-2?
      A: The build cost for CB-1, a 20-megawatt building, is about $100 million, or $5 million per megawatt. CB-1 will be operationally complete at the end of the first quarter. CB-2, a 50-megawatt building costing $250 to $300 million (approximately $5.5 million per megawatt), will be operationally complete by the end of the second quarter. Capital is moving out the door quickly in the next few months.

    3. Demand Environment and Pricing
      Q: How has demand affected pricing and terms recently?
      A: Demand is robust and intensifying, especially after the recent FERC ruling. Pricing per kilowatt-hour has increased on the margins, and more parties are prepared to meet our terms. There's a greater interest in tying up as many megawatts as possible with one party. Sites like ours have moved up in the pecking order and are getting significantly more attention.

    4. Funding Without Additional Equity
      Q: Can you fund HPC expansion without extra equity?
      A: Yes, project financing is readily available and becoming more robust. We're utilizing one-year revenue prepayments and approximately 75% project financing. We have substantial unallocated cash, and if the market isn't valuing us appropriately, we've authorized a $200 million buyback and have bought back $115 million of stock. Management and insiders own about 30% of the equity, and we're focused on creating value for shareholders.

    5. Future Expansion Plans
      Q: Should we expect further expansions like CB-3 next year?
      A: Our capability to deliver is shown on Page 17, but actual expansion will depend on customer demand and factors like their progress with NVIDIA and capital raises. We'll provide 2025 guidance when we file our 10-K in February. We can scale as fast or slow as customers require, and we'll offer more details once we announce the customer contract.

    6. Bitcoin Mining vs. HPC Economics
      Q: How do you view Bitcoin mining versus HPC economics?
      A: We focus on dollars per megawatt-hour. The midpoint revenue for HPC is around $1.5 million per megawatt, equivalent to $150 per megawatt-hour, with approximately 70% margins. Bitcoin mining profitability depends on volatile factors like bitcoin price and network hash rate. Our next 500 megawatts of expansion will be in HPC and AI, likely coinciding with the next halving. We have time to decide whether to continue Bitcoin mining.

    7. Additional Capacity Approvals
      Q: When will you request approval for more capacity?
      A: Getting in the queue for the next 250 megawatts will depend on how fast our customers want to expand. We anticipate starting the process at some point next year. Regarding Cayuga Lake, it's a valuable asset similar to Lake Mariner, and we're ensuring we meet our customers' needs.

    8. Customer Visits to Wulf Den
      Q: Have potential customers visited your Wulf Den facility?
      A: Yes, customers in advanced discussions have visited the site, seen our operations, and were uniformly pleased. They are interested in securing as much capacity as they can get.

    9. Lease Economics and Demand Potential
      Q: Can you improve lease terms due to strong demand?
      A: Our projected economics of $1.3 to $1.8 million per megawatt are detailed on Page 16 and remain largely unchanged since May. While demand is strong, our focus is on securing customers with excellent credit quality to enable project financing for CB-1 and CB-2. We are confident in announcing a customer before year-end.

    10. Sustainability of Power Demand
      Q: How sustainable is the current demand for power?
      A: Significant growth is expected, with data center demand projected to triple by 2030. High-speed compute workloads are expected to grow from 40% to over 70% of total power capacity by 2030. Power demand is growing at 5% annually, highlighting a scarcity of power. We believe the demand is real and are well-positioned due to our site and team's experience.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Paul PragerCEO and Chairman of the Board of DirectorsFebruary 2021Paul Prager is the Co-Founder, Chairman of the Board of Directors, and Chief Executive Officer of TeraWulf. He also co-founded NovaWulf Digital Management, LP, and has been CEO of Beowulf Energy LLC since 1990.
    Kenneth DeaneChief Accounting Officer and TreasurerMay 16, 2022Kenneth Deane manages TeraWulf's financial functions, including accounting, audit, internal control, and treasury. He has over 20 years of experience in the power, high tech, and public accounting sectors.
    Patrick FleuryChief Financial OfficerMay 16, 2022Patrick Fleury oversees TeraWulf's financial activities, including investment of funds and securing capital for expansion. He has 24 years of finance experience, including roles at Platinum Equity and Blackstone.
    Nazar KhanChief Operating Officer and Chief Technology OfficerFebruary 2021Nazar Khan is the Co-Founder, COO, and CTO of TeraWulf, responsible for operations and technology resources. He previously led acquisition and development efforts at Beowulf.
    Kerri LanglaisChief Strategy OfficerFebruary 2021Kerri Langlais is responsible for TeraWulf's corporate strategy, business development, and growth initiatives. She previously led M&A and financing efforts at Beowulf and worked at Goldman Sachs and Harvard University.

    Questions to Ask Management

    1. Given that your cost to mine bitcoin was approximately $54,000 in Q3 and is expected to increase to $59,000 in Q4, how do you plan to maintain profitability in bitcoin mining amid rising costs and the recent bitcoin halving?

    2. You anticipate announcing your first high-power compute (HPC) hosting partner before year-end, but with only weeks remaining, can you provide more detail on any challenges or delays in finalizing these contracts?

    3. With significant capital expenditures planned for 2025 totaling over $500 million, how do you intend to fund these investments without additional equity, especially considering your current cash position and debt levels?

    4. The planned outage at Lake Mariner will impact approximately 5.2 exahash of mining capacity for a week in mid-November; how might this downtime affect your bitcoin production and financial results in the next quarter?

    5. Given the recent regulatory shifts and increasing difficulty in securing large-scale carbon-free power, how confident are you in your ability to expand to up to 750 megawatts at Lake Mariner, and what risks do you foresee in achieving this expansion?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateOctober 23, 2024
    End Date/DurationDecember 31, 2025
    Total Additional Amount$200.0 million
    Remaining Authorization$85.0 million (as of 2025-01-07)
    Details17,968,750 shares repurchased for approximately $115 million as of November 12, 2024. Purpose: return value to shareholders and commitment to driving shareholder value.

    Past Guidance

    1. Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2025

    Guidance:

    1. SG&A Expenses for FY 2024: Approximately $30 million.
    2. Marginal Cost of Production:
      • Q3 2024: Approximately $54,000 per bitcoin.
      • Q4 2024: Expected to be approximately $59,000 per bitcoin.
      • Q1 2025: Expected to be approximately $47,000 per bitcoin.
    3. Capital Expenditures:
      • Q4 2024 and FY 2025:
        • $400 million for WULF Compute and related infrastructure.
        • $23 million for Building 5 construction (50 MW, operational in Q1 2025).
        • $79 million for miner purchases and fleet upgrades.
    4. High-Power Compute Hosting Capacity:
      • CB-1 (20 MW) operational in Q1 2025.
      • CB-2 (50 MW) operational in Q2 2025.
      • Total capacity to reach 72.5 MW.
    5. Cash Flow from Operations in FY 2025: Assumes CB-1 and CB-2 will generate revenue for 9 months and 6 months, respectively.
    6. Stock Buyback Program: $200 million authorized, with $115 million already repurchased.
    7. Convertible Financing: Executed $500 million financing in October 2024, with no dilution until stock price exceeds $18 per share.
    8. Customer Contracts: First high-power compute hosting partner expected by year-end 2024, covering 72.5 MW of capacity.

    2. Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024

    Guidance:

    1. SG&A Expenses: Increased from $27.5 million to $30 million for FY 2024.
    2. Operating Expenses: Expected to be $13.5 million for FY 2024, split equally between Lake Mariner and Nautilus.
    3. Power Costs:
      • Average power cost of $0.035 per kWh for FY 2024.
      • Achieved $0.037 per kWh in Q2 2024.
    4. Cost of Production per Bitcoin:
      • Achieved $41,587 per bitcoin in Q2 2024.
      • Expected to achieve approximately $40,000 per bitcoin in H2 2024.
    5. Margins for Co-Location Business: Projected 65%-75% margins.
    6. Capital Expenditures for H2 2024:
      • $8 million for WULF Den (2 MW HPC/AI project).
      • $14 million for Lake Mariner electrical expansion.
      • $23 million for Building 5 construction (54 MW).
      • $30 million for CB-1 construction (20 MW HPC/AI project).
    7. Expansion Plans:
      • Nautilus Cryptomine expansion to 100 MW in 2025.
      • Additional 300 MW near-term expansion capacity at Lake Mariner.
    8. Debt-Free Status: Fully funded for growth plans and debt-free.

    3. Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024

    Guidance:

    1. Bitcoin Mining Metrics:
      • Average Power Cost: Expected at $0.035 per kWh for FY 2024.
      • Cost to Mine a Bitcoin Post-Halving: Estimated at $40,000 per bitcoin.
      • Marginal Cost of Production: Expected at $40,000 per bitcoin in Q2 and H2 2024.
    2. Operational Metrics:
      • Infrastructure Capacity: Plan to achieve 300 MW by year-end 2024, expanding to 600 MW in 2025.
      • Hash Rate Expansion: Projected to exceed 10 EH/s by mid-2024 and 13 EH/s subsequently.
    3. Financial Metrics:
      • Operating Expenses: Expected to total $13.5 million in FY 2024.
      • SG&A Expenses: Anticipated at $27.5 million in FY 2024.
      • Debt Repayment: Estimated $15 million to $20 million repayment in July 2024.
    4. Power Costs: Realized power costs expected to average $0.035 per kWh, consistent with 2023's blended rate of $0.032.

    4. Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024

    Guidance:

    1. Operating Expenses: Expected to be $13.5 million in FY 2024, split equally between Lake Mariner and Nautilus.
    2. SG&A Expenses: Anticipated at $27.5 million in FY 2024.
    3. Marginal Cost of Production: Expected at $36,000 per bitcoin post-halving.
    4. Average Power Cost: Expected at $0.035 per kWh, including demand response revenues and Nautilus' $0.02 power contract.
    5. Infrastructure Capacity: Committed to achieving 300 MW by year-end 2024, with plans to expand to 550 MW by 2025.