# Terawulf Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Terawulf Inc.](/companies/wulf.md) (CIK 1083301)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 16:10 ET
- Period: 2024-09-30
- Accession: 0001083301-24-000147
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1083301/000108330124000147/wulf-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1083301/000108330124000147/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $14.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $43.0m | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$15.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$24.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $409.0k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $16.8m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$22.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$43.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.13 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.13 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 382,086,768 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 337,999,865 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $18.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $114.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $23.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $32.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $405.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $32.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $33.3m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $372.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 73,927 characters.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with a review of the other Items included in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. All figures presented below represent results from continuing operations, unless otherwise specified. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the consolidated financial statements. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “TeraWulf,” “we,” “us” or “our” refers to TeraWulf Inc. and its consolidated subsidiaries, unless otherwise indicated. Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations may be deemed to be forward-looking statements. See “Forward-Looking Statements.”

### Overview

We are a premier owner and operator of purpose-built digital infrastructure currently supporting bitcoin mining loads. With a strong commitment to utilizing predominantly zero-carbon energy, we are focused on sustainable, environmentally conscious data center operations in the United States. By leveraging clean, affordable, and reliable energy sources, we aim to drive long-term sustainability within the digital infrastructure sector.

We operate digital infrastructure through our Lake Mariner facility, located in upstate New York (the “Lake Mariner Facility”). Situated on an expansive site along the shores of Lake Ontario, adjacent to a now decommissioned coal-fired power plant, this facility has the capacity to scale up to 500 megawatts (“MW”), and potentially up to 750 MW with certain transmission upgrades. Uniquely optimized for both bitcoin mining and high-performance computing (“HPC”) workloads, the Lake Mariner Facility is well-positioned to meet the growing demand for compute-intensive applications. We believe this dual-purpose strategy enhances operational efficiency and diversifies our revenue streams.

### Revenue Structure

We are primarily engaged in, and all of our revenues are derived from, bitcoin mining for our own account. Our digital asset mining involves solving complex cryptographic algorithms that validate transactions on the bitcoin blockchain— a process known as “mining.” Competing on a global scale, we aim to complete new blocks on the blockchain to secure bitcoin rewards. With a large fleet of high-performance miners, primarily sourced from Bitmain Technologies Limited, we strive to increase bitcoin production while continuously enhancing operational efficiencies to reduce costs. We generate revenue by providing hash computation services to a mining pool operator to mine bitcoin and validate transactions using application-specific integrated circuit computers (“ASIC” or “miners”) owned by us. Beyond block rewards, we also earn transaction fees for confirming blockchain transactions. These earnings are routinely converted into U.S. dollars. Presently, we liquidate the bitcoin mined as part of our routine treasury management processes to acquire U.S. dollars for operational, capital, or other corporate expenses. Our bitcoin holdings are securely stored in a cold storage wallet managed by our custodian, NYDIG Trust Company LLC, a duly chartered New York limited liability trust company (“NYDIG”).

For our bitcoin mining operations, we utilize a third-party mining pool operated by Foundry Digital LLC (“Foundry”). At the close of each day, the bitcoin we have earned is transferred by Foundry to our custodial wallet address at NYDIG. We abstain from engaging in the direct sale of our bitcoin on any exchange. Instead, we rely on NYDIG to handle the sale of our mined bitcoin in accordance with our execution agreement with NYDIG, as detailed further in the “Risk Factors” section herein. Our bitcoin sales occur on a daily and weekly basis.

### Bitcoin and Blockchain

Bitcoin, introduced in 2008, fundamentally transformed the landscape of digital currency by providing a decentralized mechanism for exchanging and preserving value. It operates on a consensus-based network, utilizing a public ledger termed as the “blockchain” to meticulously record every bitcoin transaction, allowing users to send and receive payments without the need for banks and other intermediaries. Bitcoin is not linked to any fiat currency or country’s monetary policy, therefore serves as a store of value outside of government control.

Bitcoin mining involves validating transactions through a proof-of-work consensus method, where miners solve complex mathematical problems to add transactions to the blockchain. The blockchain is maintained by a robust and public open-source architecture consisting of a network of computers, known as nodes, that work together to verify and validate new transactions. Because the blockchain is decentralized and transparent, all users can verify the legitimacy of a transaction without having to rely on a third party. This eliminates the need for intermediaries, which can be slow and expensive, and makes the network resistant to censorship and fraud. Bitcoin mining plays a key role in the maintenance and growth of the Bitcoin network by providing the computational power needed to verify transactions and add new blocks to the blockchain. Factors such as computing capacity, electricity costs, and location play pivotal roles in mining operations. Generally, the greater the share a single mining rig can capture of the blockchain’s total network hashrate, or the aggregate hashrate deployed to solving a block on the Bitcoin blockchain, the greater the rig’s chances of solving a block and therefore earning the reward.

Network difficulty, which is a measure of how hard it is for miners to solve a block on the Bitcoin blockchain (and, thus, earn a mining reward), is determined by the network’s total hashrate (i.e., the total computational power devoted to solving a block), which is adjusted every 2,016 blocks (with a new block being added approximately every ten minutes). Therefore, as more miners join the network and the network’s global hashrate increases, its difficulty will increase. Conversely, if miners leave the network and its hashrate decreases, its difficulty will decrease.

### Bitcoin Reward Halving

The bitcoin subsidy issued by the Bitcoin network for solving a block is subject to periodic incremental halving. The network halving is a preprogrammed, fixed process of the Bitcoin network where the bitcoin subsidy for solving a block received by miners is reduced by half approximately every four years. The network halving is a process designed to implement a periodic decreasing schedule of the issuance of new bitcoin into the market, which results in a predictable and controlled inflationary rate. The network halving will continue to occur on this schedule until the amount of bitcoin in existence reaches the cap of 21.0 million. After each halving, the decrease in the subsidy provided to miners from the Bitcoin network leads to fewer rewards for miners and therefore a decrease in revenues should the price of bitcoin remain the same. Transaction fees, which together with the block subsidy comprise the block reward for successfully solving a block, is not directly impacted by the halving. On April 19, 2024, the bitcoin rewards issued for each block solved dropped from 6.25 to 3.125, effectively reducing the bitcoin earned from bitcoin mining by 50% (excluding transactions fee rewards).

### Business Strategy

In December 2023, we launched our digital infrastructure and third-party colocation initiative, which aims to provide colocation, facility operations, security, and essential services for workloads in machine learning, artificial intelligence, and other compute-intensive fields. While capital investments have been made to develop our HPC data center infrastructure, this investment is still in its early stages and is not yet generating revenue. Nonetheless, this initiative reinforces our long-term growth and diversification strategy, positioning us to meet the increasing demand for high-density compute capacity powered by low-cost, predominantly zero-carbon energy.

Since our public debut in December 2021, we have primarily focused on sustainable bitcoin mining as our principal revenue-generating activity. As of September 30, 2024, we deployed a fleet of 74,200 miners, including miners deployed at our jointly owned Nautilus facility located in central Pennsylvania (the “Nautilus Cryptomine Facility”), achieving a hashrate capacity of approximately 10.0 exahashes per second (“EH/s”) with a fleet-wide efficiency of 23.2 joules per terahash (“J/TH”). In October 2024, we sold our 25% equity interest in the Nautilus Cryptomine LLC (“Nautilus”) joint venture, representing 50 MW of mining load capacity at the Nautilus Cryptomine Facility, as part of a strategic transaction to reinvest in future growth.

We determine the sources of electricity used in our operations and the proportion of energy attributable to zero-carbon energy sources based on energy production data published by New York Independent System Operator (“NYISO”) for upstate New York, specifically covering NYISO Zones A-E, where the Lake Mariner Facility is located, consistent with recommended geographic resolution for projected emissions factors for upstate New York published by the New York State Energy Research and Development Authority.

Our business strategy centers on growing revenue and profitability by enhancing the capacity and efficiency of our self-mining fleet while expanding our data center infrastructure to support HPC activities. We plan to strategically develop the infrastructure necessary for growth and profitability while pursuing adjacent high-value computing opportunities that leverage our power and mining expertise.

For example, we recently completed a 2.5 MW HPC proof-of-concept project designed to support both current and next-generation GPU technology. Additionally, we are constructing a 20 MW colocation building (“CB-1”), a facility designed with advanced liquid cooling systems and Tier 3 redundancy. Key planned features include N+1 redundant cooling systems, variable speed fans, chilled water infrastructure, dual power supplies, and redundant fiber network paths.

CB-1 is scheduled to be operational by the first quarter of 2025. Following this, a second colocation building (“CB-2”) with a planned gross capacity of 50 MW, is expected to be completed by the end of the second quarter of 2025. Planned capital expenditures associated with CB-1 will be funded in part from proceeds from the sale of our equity stake in the Nautilus Cryptomine Facility, which was completed on October 2, 2024, and we expect that proceeds from the private offering of 2.75% Convertible Senior Notes due 2030 (the “2030 Convertible Notes”) will substantially fund the capital expenditures associated with CB-2. Once CB-1 and CB-2 are operational, we anticipate adding approximately 178 MW of additional HPC data center capacity throughout 2025, bringing the total deployed capacity at the site to around 500 MW, with the capacity approximately divided between bitcoin mining and HPC workloads.

These initiatives mark significant progress in our HPC build-out, tapping into the rapidly growing hyperscale data center market. We believe that HPC hosting aligns with our current business model, leading to stable, long-term, and high-margin revenue.

We are confident that our expertise in power infrastructure and digital asset mining can be favorably applied to the design, development, and operation of large-scale data centers. These data centers are optimized for high-value applications such as cloud computing, machine learning, and artificial intelligence. We will actively seek opportunities to expand into these areas using our knowledge, expertise, and existing infrastructure wherever favorable market opportunities arise.

### Our Facilities

As of September 30, 2024, TeraWulf conducted its bitcoin mining operations at two established data centers: the Lake Mariner Facility in upstate New York and the jointly owned Nautilus Cryptomine Facility located in central Pennsylvania, which had a combined operating capacity of 10.0 EH/s with approximately 74,200 miners deployed, comprised of 58,400 deployed miners at the Lake Mariner Facility and 15,800 deployed at the Nautilus Cryptomine Facility. As of the date of this Quarterly Report, the Company has a total operational bitcoin mining capacity of approximately 195 MW at the Lake Mariner Facility and is currently constructing an additional 50 MW facility, which we expect to be operational in the first quarter of 2025.

#### The Lake Mariner Facility

Located at a site adjacent to the now decommissioned coal-fired power plant in Barker, New York, the Lake Mariner Facility began sustainably mining bitcoin in March 2022. As of the date of this Quarterly Report, the Lake Mariner Facility is operating approximately 195 MW of bitcoin mining capacity and the Company is currently constructing an additional 50 MW, which we expect to be operational in the first quarter of 2025. The Company has an agreement in place with the Power Authority of the State of New York (“NYPA”) for 90 MW of high load factor power to support its bitcoin mining operations (the “PPA”). The PPA was executed in February 2022 and has a term of ten years from the date of commencement of NYPA’s power delivery. The Lake Mariner Facility is situated on an expansive site on the shores of Lake Ontario and has the capacity to scale up to 500 MW, and potentially up to 750 MW with certain transmission upgrades.

As of September 30, 2024, we own approximately 58,400 miners of which approximately 55,200 are operational at the Lake Mariner Facility with the remainder undergoing maintenance, awaiting disposal or on standby to replace miners under repair. These miners were comprised as follows:

| Vendor and Model | Number of miners |
| --- | ---: |
| Bitmain S19 Pro | 6,700 |
| Bitmain S19 XP | 6,300 |
| Bitmain S19j Pro | 11,800 |
| Bitmain S19j XP | 19,400 |
| Bitmain S19k Pro | 4,100 |
| Bitmain S21 | 5,100 |
| Bitmain S21 Pro | 5,000 |
|  | 58,400 |

As of September 30, 2024, our fleet of miners ranged in age from 0.2 to 2.5 years with an average age of approximately 1.0 years. We do not have scheduled downtime for our miners; however, while we periodically perform unscheduled maintenance on our miners, such downtime has not been significant historically. When performing unscheduled maintenance, depending on the length of estimated repair time, we may replace a miner with a substitute miner to limit overall downtime. As of September 30, 2024, our fleet of miners at the Lake Mariner Facility had a range of energy efficiency from 15 to 31 joules per terahash (“"j/th”) and has an average energy efficiency of 22.3 j/th.

#### The Nautilus Cryptomine Facility

Located in Berwick, Pennsylvania, Nautilus was a joint venture between TeraWulf and a subsidiary of Talen Energy Corporation (“Talen”) (each a “Member” and collectively the “Members”). Nautilus owned and operated a 200 MW bitcoin mining facility located adjacent to the 2.5 gigawatt nuclear-powered Susquehanna Station. The Nautilus Cryptomine Facility represented the first bitcoin mining facility site that was powered by 100% “behind the meter” zero-carbon nuclear energy, which was contracted at a fixed rate of 2.0 cents per kilowatt hour (“kWh”) for a term of five years with two successive three-year renewal options. Under the Nautilus joint venture agreement and prior to the sale of TeraWulf’s interests in Nautilus in October 2024, the Company held a 25% equity interest in Nautilus and Talen held a 75% equity interest, each subject to adjustment based on relative capital contributions. TeraWulf began mining bitcoin at the Nautilus Cryptomine Facility in the first quarter of 2023 and, as of September 30, 2024, had an allotted 50 MW of operational bitcoin mining capacity at the Nautilus Cryptomine Facility.

As of September 30, 2024, approximately 48,000 miners were deployed at the Nautilus Cryptomine Facility of which 46,000 were operational. Approximately 15,800 of the deployed miners were attributed to TeraWulf’s contributions to Nautilus in order to utilize TeraWulf's allotted 50 MW of bitcoin mining capacity. These miners were comprised as follows:

| Vendor and Model | Number of miners |
| --- | ---: |
| Bitmain S19 Pro | 6,300 |
| Bitmain S19 XP | 7,100 |
| Bitmain S19j Pro | 2,400 |
|  | 15,800 |

As of September 30, 2024, these miners ranged in age from 1.5 to 1.6 years with an average age of approximately 1.5 years. Nautilus did not have scheduled downtime for our miners; however, while Nautilus periodically performed unscheduled maintenance on miners, such downtime had not been significant historically. When performing unscheduled maintenance, depending on the length of estimated repair time, Nautilus may have replaced a miner with a substitute miner to limit overall downtime. As of September 30, 2024, these miners had a range of energy efficiency from 22 to 30 j/th and an average energy efficiency of 25.5 j/th. While the Company held a 25% equity interest in Nautilus, the distributions of mined bitcoin were determined by each of TeraWulf’s and Talen’s respective hashrate contributions. Accordingly, the Company had contributed approximately 1.9 EH/s of a total 5.2 EH/s of miners which resulted in an approximate 35.7% of the hashrate share attributed to the Company. In connection with the sale of TeraWulf’s interest in Nautilus in October 2024, Nautilus distributed to TeraWulf all of Nautilus’ right, title and interest in and to all of its miners, as well as certain other related equipment owned by Nautilus.

#### Combined Facilities

As described above, there are a variety of factors that influence our ability to mine bitcoin profitably, including bitcoin’s value in USD, mining difficulty global hashrate, power prices, fleet energy efficiency, data center energy efficiency and other factors. The energy efficiency of a mining fleet helps drive profitability, because the most significant direct expense for bitcoin mining is power. We believe we operate a highly efficient fleet of miners. The Company uses the following metrics as indicators of operational progress and effectiveness and believes they are useful to investors for the same purposes and to provide comparisons to peer companies.

The table below presents our miner efficiency and computing power as compared to the global computing power as of September 30, 2024 and 2023:

| Combined facilities1 | September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| Global hashrate (EH/s)2 | 602.1 | 391.8 |
| Miner efficiency (j/th)3 | 23.2 | 27.6 |
| TeraWulf combined average operating hashrate (EH/s)4 | 8.1 | 5.0 |
| TeraWulf % of global hashrate | 1.3% | 1.3% |

1 Results reflect hashrate of mining operations at the Lake Mariner Facility and TeraWulf’s net share of hashrate produced at the Nautilus Cryptomine Facility.

2 Total global hashrate obtained from YCHARTS (https://ycharts.com/indicators/bitcoin\_network\_hash\_rate)

3 Joules of energy required to produce each terahash of processing power

4 While nameplate inventory for TeraWulf’s two facilities is 10.0 EH/s, inclusive of gross total hosted miners, actual monthly hashrate performance depends on a variety of factors, including (but not limited to) performance tuning to increase efficiency and maximize margin, scheduled outages (scopes to improve reliability or performance), unscheduled outages, curtailment due to participation in various cash generating demand response programs, derate of ASICS due to adverse weather and ASIC maintenance and repair.

As of September 30, 2024 our operating hashrate was approximately 1.3% of the total global hashrate, and we received approximately the same percentage of the global blockchain rewards, which as of that date, equaled approximately 6 to 7 bitcoin per day. Ultimately, in order to mine profitably, we work to ensure that these mining rewards cover our direct operating costs.

The table below presents the average cost of mining each bitcoin, including bitcoin mined at the Lake Mariner Facility and the Company’s net share of bitcoin mined at the Nautilus Cryptomine Facility, for the three and nine months ended September 30, 2024 and 2023 and the total energy cost per kWh utilized within the facilities:

| Cost of mining - Analysis of costs to mine one bitcoin Cost of mining - Lake Mariner Facility and net share of the Nautilus Cryptomine Facility | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Cost of energy per bitcoin mined | $30,448 | $9,322 | $21,360 | $8,020 |
| Other direct costs of mining - non energy utilities per bitcoin mined | $51 | $30 | $36 | $30 |
| Cost to mine one bitcoin(1) | $30,499 | $9,352 | $21,396 | $8,051 |
| Value of each bitcoin mined(2) | $61,075 | $28,104 | $59,257 | $26,972 |
| Cost to mine one bitcoin as % of value of bitcoin mined | 49.9% | 33.3% | 36.1% | 29.8% |
| **Statistics** |  |  |  |  |
| Lake Mariner Facility and net share of the Nautilus Cryptomine Facility |  |  |  |  |
| Total bitcoin mined(3) | 555 | 981 | 2,305 | 2,384 |
| Total value of bitcoin mined(2) ($ in thousands) | $33,898 | $27,563 | $136,562 | $64,308 |
| Total kWhs utilized | 444,817,741 | 293,573,428 | 1,267,748,635 | 614,524,560 |
| Total energy expense, net of expected demand response proceeds(4) ($ in thousands) | $16,899 | $9,142 | $49,226 | $19,123 |
| Cost per kWh | $0.038 | $0.031 | $0.039 | $0.031 |
| Energy expense, net as % of value of bitcoin mined | 49.9% | 33.2% | 36.0% | 29.7% |
| Other direct costs of mining ($ in thousands) | $28 | $29 | $84 | $72 |

(1) “Cost to mine one bitcoin” is a cash cost metric and does not include depreciation. Although the Company recognizes depreciation with respect to its mining assets, it does not consider depreciation in determining whether it is economical to operate its mining equipment. As a result, the Company does not consider the sunk costs or depreciation of past capital investments in its historical or forecasted breakeven analysis. If depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $28,827 and $20,477 per bitcoin mined for the three and nine months ended September 30, 2024, respectively, bringing the total “cost to mine one bitcoin” to $59,326 and $41,873 for the three and nine months ended September 30, 2024, respectively. If depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $10,002 and $10,025 per bitcoin mined for the three and nine months ended September 30, 2023, respectively, bringing the total “cost to mine one bitcoin” to $19,354 and $18,076 for the three and nine months ended September 30, 2023, respectively.

(2) Computed as the weighted-average opening price of bitcoin on each respective day the mined bitcoin is earned. Excludes bitcoin earned from profit sharing associated with a hosting agreement that expired in February 2024 at the Lake Mariner Facility.

(3) Excludes bitcoin earned from profit sharing associated with a hosting agreement that expired in February 2024 at the Lake Mariner Facility of 0 and 14 bitcoin for the three months ended September 30, 2024 and 2023, respectively, and 6 and 51 bitcoin for the nine months ended September 30, 2024 and 2023, respectively, and includes TeraWulf’s net share of bitcoin mined at the Nautilus Cryptomine Facility, based on the hashrate share attributed to the Company.

(4) Excludes energy expenses associated with a hosting agreement that expired in February 2024 at the Lake Mariner Facility and includes TeraWulf’s net share of energy expense at the Nautilus Cryptomine Facility, based on aggregate nameplate power consumption of deployed miners attributed to TeraWulf’s contribution to Nautilus.

Power prices are the most significant cost driver for our bitcoin mining operations, and energy costs represented 49.9% and 36.0% as expressed as a percentage of value of total bitcoin mined during the three and nine months ended September 30, 2024, respectively, and 33.2% and 29.7% during the three and nine months ended September 30, 2023, respectively. Power prices expressed as a percentage of value of total bitcoin mined during the three and nine months ended September 30, 2024 increased as compared to the same periods in 2023 primarily due to an approximate doubling in network difficulty and the bitcoin reward halving in April 2024, partially offset by increases in average operating hashrate and increases in average value of each bitcoin mined.

Energy prices can be highly volatile and global events can cause power prices to increase or decrease nationwide. Our wholly-owned Lake Mariner Facility in New York is subject to variable prices and market rate fluctuations with respect to wholesale power costs. Such prices are governed by market power prices and said prices can change hour to hour. While this renders energy prices less predictable, it also gives us greater ability and flexibility to actively manage the energy we consume with an eye towards increasing profitability and energy efficiency. Energy prices are also highly sensitive to weather events, such as winter storms and polar vortices, which increase the demand for power regionally. When such events occur, we may curtail our operations to avoid using power at increased rates or we may be curtailed under demand response programs in which we participate. The average power prices incurred at the Lake Mariner Facility and the Nautilus Cryptomine Facility was $0.038 and $0.039 per kWh during the three and nine months ended September 30, 2024, respectively, and $0.031 per kWh during the three and nine months ended September 30, 2023.

The management team makes real-time determinations on the need and timing during which we should curtail. If not otherwise curtailed under demand response programs, we curtail when power prices exceed the value we would receive for the corresponding fixed bitcoin reward. This means if bitcoin’s value decrease or energy prices increase, our curtailment will increase; likewise, when bitcoin’s value increases and energy prices decrease, our curtailment will decrease. The management team manages this decision on an hour-by-hour basis.

During the three and nine months ended September 30, 2024 and 2023, the Company curtailed operations at the Lake Mariner Facility due to weather events, energy price spikes, and demand response program participation. The Company records expected payments to be received for demand response programs as a reduction in cost of revenue, which amounted to $4.1 million and $7.3 million for the three and nine months ended September 30, 2024, respectively, and $1.7 million and $2.5 million for the three and nine months ended September 30, 2023, respectively.

The Company has purchased all miners with cash and has not used limited recourse equipment financing to complete its miner purchases. The Company has raised capital through both the issuance of equity and corporate level debt. These funds have been utilized to support operations, invest in our joint venture, and purchase miners and other fixed assets. Costs related to such issuances are not included in this analysis. Additionally, miner acquisition costs, or capital expenditures, are not factored into the above cost of mining analysis as capital expenditures do not impact the marginal cost of production of one bitcoin. Miner acquisition costs, or capital expenditures, are generally recorded at cost in property, plant and equipment in the condensed consolidated balance sheets. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the equipment: generally 4 years for miners and 5 years for computer equipment. Additionally, during the three and nine months ended September 30, 2024, the Company recorded accelerated depreciation expense of $0 and $5.1 million, respectively, related to certain miners of which the Company shortened their estimated useful lives based on replacement by April 2024. While we currently depreciate our miners over a 4-year period, given our historical low cost of power, it is possible the average actual useful life of our miners may exceed the depreciation period in certain circumstances. Nevertheless, if depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $28,827 and $20,477 per bitcoin mined in the three and nine months ended September 30, 2024, respectively, and $10,002 and $10,025 per bitcoin mined in the three and nine months ended September 30, 2023, respectively.

The estimation of asset useful lives requires management judgement, including consideration of historical operating data, which is limited in the industrial-scale bitcoin mining space given the advent of next-generation mining rigs primarily used by the Company’s bitcoin mining operations. Depreciation periods can be adjusted periodically if an event, regulatory action, or change in retirement patterns indicates an update is necessary. Additionally, management considers expected future energy market prices and conditions, operating costs, maintenance practices and capital investment requirements in determining the estimated useful lives of our equipment and reassesses the reasonableness of estimated useful lives whenever events or changes in circumstances warrant. When a determination has been made that an asset will be retired or extended before or after the end of its current estimated useful life, depreciation provisions will be accelerated or extended to reflect the shortened or lengthened estimated useful life, which could have a material unfavorable or favorable impact on future results of operations.

### Recent Developments

On October 2, 2024, the Company sold its entire 25% equity interest to Talen Member for $85.0 million in cash, subject to a customary working capital adjustment (the “Nautilus Sale”). In connection with the Nautilus Sale, Nautilus transferred to the Company all of Nautilus’ right, title and interest in and to all of its miners, including miners contributed by the Talen Member, as well as certain other related equipment owned by Nautilus. The Nautilus Sale included customary representations and warranties and customary covenants, including, among others, that the Talen Member will pay the Company 25% of the net proceeds received in excess of $300.0 million in the aggregate in any future sale of all or substantially all of the assets, or a majority of the equity interests of Nautilus.

On October 9, 2024, the Company terminated the Ground Lease and entered into a new lease with the same related party counterparty (the “New Ground Lease”) related to the Lake Mariner Facility which expanded the acreage of real property as compared to the Ground Lease for the purposes of cryptocurrency mining and HPC data center operations. The New Ground Lease includes fixed payments, including an annual escalation factor as well as the Company’s proportionate share of the landlord’s cost to own, operate and maintain the premises and has an initial term of 35 years, commencing on October 9, 2024, and will automatically renew for up to nine additional periods of five years each unless the Company provides written notice to terminate the lease at least six months prior to the expiration of the initial term or the then-current renewal term. Upon expiration of the New Ground Lease, the buildings and improvements on the premises will revert to the landlord in good order. As consideration for the termination of the Ground Lease and entering into the New Ground Lease, the Company issued 20 million shares of the Company’s Common Stock and paid $12.0 million in cash in October 2024.

On October 23, 2024, the Company’s board of directors approved a share repurchase program authorizing the Company to repurchase up to $200.0 million of the Company’s outstanding shares of Common Stock through December 31, 2025. As of the date of this Quarterly Report, the Company has repurchased 17,968,750 shares of its Common Stock for approximately $115.0 million.

On October 25, 2024, the Company completed a private offering of 2.75% Convertible Senior Notes due 2030 (the “2030 Convertible Notes”). The 2030 Convertible Notes were sold under a purchase agreement, dated as of October 23, 2024, entered into by and between the Company and Cantor Fitzgerald & Co. as representative of the several initial purchasers named therein (the “Initial Purchasers”), for resale to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The aggregate principal amount of notes sold in the offering was $500.0 million, which includes $75.0 million aggregate principal amount of notes issued pursuant to an option to purchase additional notes granted to the Initial Purchasers under the purchase agreement, which the Initial Purchasers exercised in full on October 24, 2024 and which additional purchase was completed on October 25, 2024.

The notes were issued at a price equal to 100% of their principal amount. The net proceeds from the sale of the notes were approximately $487.1 million after deducting the Initial Purchasers’ discounts and commissions and estimated offering expenses payable by the Company. The Company used approximately $60.0 million of the net proceeds from the sale of the notes to pay the cost of certain capped call transactions and plans to use the remainder for general corporate purposes, which may include working capital, strategic acquisitions, expansion of data center infrastructure to support high-performance computing activities and expansion of existing assets.

### The Business Combination

TeraWulf completed its business combination with IKONICS Corporation (“IKONICS”) on December 13, 2021 pursuant to which, among other things, the Company effectively acquired IKONICS and became a publicly traded company on the Nasdaq, which was the primary purpose of the business combination. The consideration in the Merger included, among other things, contractual contingent value rights (“CVR”) per a Contingent Value Rights Agreement (the “CVR Agreement”) pursuant to which each shareholder of IKONICS as of immediately prior to the Merger, received one non-transferable CVR for each outstanding share of common stock of IKONICS then held. The holders of the CVRs were entitled to receive 95% of the Net Proceeds (as defined in the CVR Agreement), if any, from the sale, transfer, disposition, spin-off, or license of all or any part of the pre-merger business of IKONICS. During the nine months ended September 30, 2023, the Company made payments of the CVR liability related to proceeds from sales of net assets held for sale of $9.6 million. Additionally, the Company made payments of the CVR liability of $1.4 million in November 2023 such that as of December 31, 2023, the Company had made all of the aggregate required distributions of $11.0 million of proceeds to the CVR Holders and the CVR Agreement was deemed terminated.

### Results of Operations

The Company generates revenue in the form of bitcoin by providing hash computation services to a mining pool operator to mine bitcoin and validate transactions on the global Bitcoin network using application-specific integrated circuit computers owned by the Company. The earned bitcoin are routinely sold for U.S. dollars. The Company also earned revenue by providing miner hosting services to third parties. While the Company may choose to mine other digital currencies, it has no plans to do so currently.

The Company’s business strategy centers on growing revenue and profitability by enhancing the capacity and efficiency of our self-mining fleet while expanding our data center infrastructure to support HPC activities. We plan to strategically develop the infrastructure necessary for growth and profitability while pursuing adjacent high-value computing opportunities that leverage our power and mining expertise. We are confident that our expertise in power infrastructure and digital asset mining can be favorably applied to the design, development, and operation of large-scale data centers. These data centers are optimized for high-value applications such as cloud computing, machine learning, and artificial intelligence. We will actively seek opportunities to expand into these areas using our knowledge, expertise, and existing infrastructure wherever favorable market opportunities arise.

#### Revenue

The following table presents revenue (in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $27,059 | $18,955 | $105,066 | $45,944 |

Revenue for the three months ended September 30, 2024 and 2023 was $27.1 million and $19.0 million, respectively, an increase of $8.1 million. The increase in revenue was primarily attributed to an increase in the average price of bitcoin during the three months ended September 30, 2024 of $61,023 as compared to $28,129 during the same period in the prior year and an increase in mining capacity at the Lake Mariner Facility to approximately 195 MW as of September 30, 2024 as compared to 110 MW as of September 30, 2023. These increases were partially offset by decreases in the total bitcoin mined due to impacts of the halving in April 2024 and the increase in network hashrate, resulting in total bitcoin mined of 442 bitcoin during the three months ended September 30, 2024 as compared to 624 bitcoin during the same period in the prior year.

Revenue for the nine months ended September 30, 2024 and 2023 was $105.1 million and $45.9 million, respectively, an increase of $59.2 million. The increase was primarily attributed to an increase in the average price of bitcoin during the nine months ended September 30, 2024 of $60,022 as compared to $26,313 during the same period in the prior year and an increase in mining capacity at the Lake Mariner Facility to approximately 195 MW as of September 30, 2024 as compared to 110 MW as of September 30, 2023, partially offset by decreases in the total bitcoin mined due to impacts of the halving in April 2024 and the increase in network hashrate, resulting in total bitcoin mined of 1,754 bitcoin during the nine months ended September 30, 2024 as compared to 1,560 bitcoin during the same period in the prior year.

During the three and nine months ended September 30, 2024, revenue from hosting was $0 and $0.8 million, respectively, as compared to $1.8 million and $5.8 million during the three and nine months ended September 30, 2023, respectively, a decrease due to the expiration of the Company’s one data center hosting contract with a customer in February 2024.

#### Costs and Expenses

The following table presents cost of revenue (exclusive of depreciation) (in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue (exclusive of depreciation) | $14,660 | $8,268 | $42,986 | $18,383 |

42

Cost of revenue (exclusive of depreciation) for the three months ended September 30, 2024 and 2023 was $14.7 million and $8.3 million, respectively, an increase of $6.4 million. Cost of revenue (exclusive of depreciation) for the nine months ended September 30, 2024 and 2023, was $43.0 million and $18.4 million, respectively, an increase of approximately $24.6 million. Cost of revenues is primarily comprised of power expense and the increases were primarily due to the increase in mining and hosting capacity due to infrastructure constructed and placed in service between September 30, 2023 and September 30, 2024 and, to a lesser extent, slight increase in realized power prices during the three and nine months ended September 30, 2024 as compared to the same periods in 2023. The Company records proceeds related to participation in demand response programs as a reduction in cost of revenue in the period corresponding to the underlying demand response program period; the amount of aggregate proceeds received or expected to be received were $4.1 million and $7.3 million for the three and nine months ended September 30, 2024, respectively, and $1.7 million and $2.5 million for the three and nine months ended September 30, 2023, respectively. The Company is actively expanding its enrollment in such available programs in New York State.

The following table presents operating expenses (in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Operating expenses | $729 | $442 | $2,311 | $1,218 |
| Operating expenses – related party | 856 | 779 | 2,619 | 2,015 |
|  | $1,585 | $1,221 | $4,930 | $3,233 |

Operating expenses (including related party expenses) for the three months ended September 30, 2024 and 2023, were $1.6 million and $1.2 million, respectively, a net increase of $0.4 million primarily due to higher property insurance. Operating expenses (including related party expenses) for the nine months ended September 30, 2024 and 2023, were $4.9 million and $3.2 million, respectively, a net increase of $1.7 million primarily due to higher property insurance and miner repair costs as well as $0.5 million in operating expenses – related party increased due to increased staffing at the Lake Mariner Facility. These increases related to infrastructure constructed and placed in service between September 30, 2023 and 2024.

The following table presents selling, general and administrative expenses (in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $8,502 | $5,767 | $29,904 | $18,137 |
| Selling, general and administrative expenses – related party | 2,976 | 4,519 | 8,399 | 10,093 |
|  | $11,478 | $10,286 | $38,303 | $28,230 |

Selling, general and administrative expenses (including related party expenses) for the three months ended September 30, 2024 and 2023 were $11.5 million and $10.3 million, respectively, a net increase of $1.2 million. Selling, general and administrative expenses are comprised primarily of professional fees, legal fees, employee compensation and benefits, stock-based compensation to employees and consultants, insurance and general corporate expenses. The increase was primarily due to increased expense during the three months ended September 30, 2024 as compared to the same period in the prior year of stock-based compensation of $1.0 million, employee compensation and benefits of $0.4 million, and legal and other professional fees of $1.5 million. These increases were partially offset by decreased expenses during the three months ended September 30, 2024 as compared to the same period in the prior year of insurance expense of $0.3 million. Selling, general and administrative expenses – related party decreased $1.7 million primarily due to performance milestone expense under the Administrative and Infrastructure Services Agreement (the “Services Agreement”) with Beowulf Electricity & Data Inc. (“Beowulf E&D”).

Selling, general and administrative expenses (including related party expenses) for the nine months ended September 30, 2024 and 2023 were $38.3 million and $28.2 million, respectively, a net increase of $10.1 million. The increase was primarily due to increased expense during the nine months ended September 30, 2024 as compared to the same period in the prior year of stock-based compensation of $10.2 million, employee compensation and benefits of $1.0 million, travel expenses of $0.6 million and legal and other professional fees of $0.4 million. These increases were partially offset by decreased expenses during the nine months ended September 30, 2024 as compared to the same period in the prior year of insurance expense of $0.7 million. Selling, general and administrative expenses – related party decreased primarily due to performance milestone expense of $2.1 million under the Services Agreement with Beowulf E&D for the nine months ended September 30, 2023.

Depreciation for the three months ended September 30, 2024 and 2023 was $15.6 million and $8.2 million, respectively, an increase of $7.4 million. Depreciation for the nine months ended September 30, 2024 and 2023 was $44.9 million and $20.1 million, respectively, an increase of $24.8 million. The increases were primarily due to the increase in mining capacity due to infrastructure constructed and placed in service between September 30, 2023 and September 30, 2024. Additionally, during the three and nine months ended September 30, 2024, the Company recorded accelerated depreciation expense of $0 and $5.1 million, respectively, related to certain miners of which the Company shortened their estimated useful lives based on expected replacement by April 30, 2024.

Gain on fair value of digital currency, net during the three and nine months ended September 30, 2024 was $1.0 million and $1.6 million, respectively, as a result of the Company adopting Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2023-08, Intangible – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) on January 1, 2024 which requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income in each reporting period. Prior to the adoption of ASU 2023-08, the Company recorded impairment of digital currency of $0.9 million and $2.2 million during the three and nine months ended September 30, 2023, respectively, representing the decline in bitcoin prices during the Company’s holding period of its bitcoin, which was not reversed during its holding period, and realized gain on sale of digital currency for the three and nine months ended September 30, 2023 of $0.7 million and $1.9 million, respectively, upon subsequent liquidation of bitcoin held. The Company elected to early adopt ASU 2023-08 effective January 1, 2024, resulting in a cumulative-effect change of $37,000 to increase the balance of digital currency with a corresponding decrease in the opening balance of accumulated deficit in the condensed consolidated balance sheet as of January 1, 2024.

During the three and nine months ended September 30, 2024, the Company recorded an impairment loss of $0.4 million related to the expected sale of 1,200 miners for proceeds of $0.2 million which were classified as held for sale as of September 30, 2024 and included in other current assets in the condensed consolidated balance sheet.

During the three and nine months ended September 30, 2023, the Company recorded a loss on disposal of property, plant and equipment of $0.4 million related to disposals of miners.

Interest expense was $0.4 million and $10.3 million for the three months ended September 30, 2024 and 2023, respectively, a decrease of $9.9 million. Interest expense relates primarily to the borrowings under the Loan, Guaranty and Security Agreement (the “LGSA”) with Wilmington Trust (the “Term Loans”), which had an original maturity date of December 1, 2024 and was fully repaid in July 2024 ahead of maturity. Interest expense was $16.8 million and $25.5 million for the nine months ended September 30, 2024 and 2023, respectively, an decrease of $8.7 million. The decrease in interest expense for the nine months ended September 30, 2024 as compared to the same period in the prior year is primarily due to repayments of the Term Loans principal balance subsequent to September 30, 2023 resulting in (i) a decrease of amortization of debt issuance costs and debt discount of $3.4 million during the nine months ended September 30, 2024 as compared to the same period in 2023 and (ii) a decrease of $5.5 million in interest expense related to the stated interest rate, which remained unchanged.

Loss on extinguishment of debt was $4.3 million and $6.3 million for the three and nine months ended September 30, 2024, respectively, related to voluntary prepayments of the Term Loans in February and July 2024. During the three and nine months ended September 30, 2024, the Company incurred prepayment fees of $1.0 million and $1.3 million, respectively, to voluntarily prepay $56.0 million and $74.5 million of the Company’s Term Loans, respectively, and the derecognition of unamortized debt discount of $3.3 million and $5.0 million associated with the principal repaid, respectively. The Company made no repayments on the principal balance of the Term Loans during the three and nine months ended September 30, 2023.

Income tax benefit was $0 for the three and nine months ended September 30, 2024 and 2023. Based upon the level of historical U.S. losses and future projections over the period in which the net deferred tax assets are deductible, at this time, management believes it is more likely than not that the Company will not realize the benefits of the remaining deductible temporary differences, and as a result the Company has recorded a full valuation allowance against its gross deferred tax assets as of September 30, 2024 and December 31, 2023.

#### Equity in net income (loss) of investee, net of tax

Equity in net income (loss) of investee, net of tax for the three and nine months ended September 30, 2024 was $(2.7) million and $3.4 million, respectively as compared to $0.9 million and $(12.6) million for the three and nine months ended September 30, 2023, respectively, which represents TeraWulf’s proportional share of income or losses of Nautilus, which commenced principal operations in February 2023. For the three and nine months ended September 30, 2023, the amount also includes an impairment loss of $0 and $13.6 million, respectively, on the distribution of miners from Nautilus to the Company whereby the miners were marked to fair value from book value on the date distributed. The impairment loss was the result of decreasing prices for miners between initial purchase and distribution.

### Non-GAAP Measure

To provide investors with additional information in connection with our results as determined in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), we disclose Adjusted EBITDA as a non-GAAP measure. This measure is not a financial measure calculated in accordance with U.S. GAAP, and it should not be considered as a substitute for net income, operating income, or any other measure calculated in accordance with U.S. GAAP, and may not be comparable to similarly titled measures reported by other companies.

We define Adjusted EBITDA as net loss attributable to common stockholders adjusted for (i) impacts of interest, taxes, depreciation and amortization; (ii) preferred stock dividends, stock-based compensation expense and related party expense to be settled with respect to common stock, all of which are non-cash items that the Company believes are not reflective of its general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) equity in net income (loss) of investee, net of tax, related to Nautilus; (iv) other income which is related to interest income or income for which management believes is not reflective of the Company’s ongoing operating activities; (v) loss on extinguishment of debt, which is not reflective of the Company’s general business performance and (vi) loss from discontinued operations, net of tax, which is not be applicable to the Company’s future business activities. The Company’s Adjusted EBITDA also includes the impact of distributions from investee received in bitcoin related to a return on the Nautilus investment, which management believes, in conjunction with excluding the impact of equity in net income (loss) of investee, net of tax, is reflective of assets available for the Company’s use in its ongoing operations as a result of its investment in Nautilus.

Management believes that providing this non-GAAP financial measure allows for meaningful comparisons between the Company's core business operating results and those of other companies, and provides the Company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time. In addition to management's internal use of non-GAAP Adjusted EBITDA, management believes that Adjusted EBITDA is also useful to investors and analysts in comparing the Company’s performance across reporting periods on a consistent basis. Management believes the foregoing to be the case even though some of the excluded items involve cash outlays and some of them recur on a regular basis (although management does not believe any of such items are normal operating expenses necessary to generate the Company’s bitcoin related revenues). For example, the Company expects that share-based compensation expense, which is excluded from Adjusted EBITDA, will continue to be a significant recurring expense over the coming years and is an important part of the compensation provided to certain employees, officers, directors and consultants. Additionally, management does not consider any of the excluded items to be expenses necessary to generate the Company’s bitcoin related revenue.

The Company’s Adjusted EBITDA measure may not be directly comparable to similar measures provided by other companies in the Company’s industry, as other companies in the Company’s industry may calculate non-GAAP financial results differently. The Company’s Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP and should not be considered as an alternative to operating loss or any other measure of performance derived in accordance with U.S. GAAP. Although management utilizes internally and presents Adjusted EBITDA, the Company only utilizes that measure supplementally and does not consider it to be a substitute for, or superior to, the information provided by U.S. GAAP financial results. Accordingly, Adjusted EBITDA is not meant to be considered in isolation of, and should be read in conjunction with, the information contained in the Company’s condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP.

The following table is a reconciliation of the Company’s non-GAAP Adjusted EBITDA to its most directly comparable U.S. GAAP measure (i.e., net loss attributable to common stockholders) for the periods indicated (in thousands):

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net loss attributable to common stockholders | $(23,033) | $(19,371) | $(44,100) | $(63,692) |
| Adjustments to reconcile net loss attributable to common stockholders to non-GAAP Adjusted EBITDA: |  |  |  |  |
| Preferred stock dividends | 300 | 272 | 878 | 796 |
| Loss from discontinued operations, net of tax | — | 68 | — | 106 |
| Equity in net (income) loss of investee, net of tax | 2,679 | (850) | (3,363) | 12,613 |
| Distributions from investee, related to Nautilus | 3,395 | 6,739 | 22,482 | 11,682 |
| Income tax benefit | — | — | — | — |
| Other income | (339) | (59) | (1,286) | (113) |
| Loss on extinguishment of debt | 4,273 | — | 6,300 | — |
| Interest expense | 409 | 10,251 | 16,779 | 25,535 |
| Depreciation | 15,643 | 8,224 | 44,864 | 20,085 |
| Amortization of right-of-use asset | 252 | 249 | 755 | 750 |
| Stock-based compensation expense | 2,408 | 1,413 | 14,181 | 4,023 |
| Related party expense to be settled with respect to common stock | — | 2,085 | — | 2,502 |
| Non-GAAP Adjusted EBITDA | $5,987 | $9,021 | $57,490 | $14,287 |

### Liquidity and Capital Resources

As of September 30, 2024, the Company had cash and cash equivalents of $23.9 million, a working capital balance of $0, total stockholders’ equity of $372.6 million and an accumulated deficit of $303.1 million. The Company incurred a net loss attributable to common stockholders of $44.1 million for the nine months ended September 30, 2024. The Company began mining bitcoin in March 2022 and had 10.0 EH/s of operating capacity across the Lake Mariner Facility and the Nautilus Cryptomine Facility as of September 30, 2024. To date, the Company has relied primarily on proceeds from sale of bitcoin, both self-mined and distributed from the joint venture which owns the Nautilus Cryptomine Facility, and its issuances of debt and equity to fund its principal operations.

The principal uses of cash are for the operation and buildout of mining facilities, debt service and general corporate activities and, to a lesser extent in 2023, investments in Nautilus joint venture related to mining facility buildout and general corporate activities. Cash flow information is as follows (in thousands):

| Cash provided by (used in): Operating activities: | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Continuing operations | $18,302 | $(6,915) |
| Discontinued operations | — | 283 |
| Total operating activities | 18,302 | (6,632) |
| Investing activities | (82,396) | (44,237) |
| Financing activities | 33,593 | 49,141 |
| Net change in cash and cash equivalents | $(30,501) | $(1,728) |

46

Cash provided by (used in) operating activities was $18.3 million and $(6.6) million for the nine months ended September 30, 2024 and 2023, respectively. The $24.9 million increase in cash provided by operating activities from continuing operations was primarily driven by the increase in mining capacity at the Lake Mariner Facility and increases in the average price of bitcoin, partially offset by increased network hashrate and the effects of the halving in April 2024.

Cash used in investing activities for continuing operations was $82.4 million and $44.2 million for the nine months ended September 30, 2024 and 2023, respectively. The Company invested $114.3 million and $41.4 million in the buildout of its mining facilities at the Lake Mariner Facility for the nine months ended September 30, 2024 and 2023, respectively. Additionally, during the nine months ended September 30, 2023, the Company invested $2.8 million, on a net basis, in its joint venture. Furthermore, the Company received $31.9 million of proceeds from sales of digital currency not converted nearly immediately into cash during the nine months ended September 30, 2024.

Cash provided by financing activities for continuing operations was $33.6 million and $49.1 million for the nine months ended September 30, 2024 and 2023, respectively primarily related to proceeds from issuances of Common Stock, net of issuance costs, of $192.9 million and $60.2 million for the nine months ended September 30, 2024 and 2023, respectively, which included proceeds from warrant issuances of $4.2 million and $2.5 million, respectively. In addition, for the nine months ended September 30, 2024, the Company made principal payments on long-term debt of $140.7 million and payments of $16.8 million related to tax withholdings related to net share settlements of stock-based compensation awards. For the nine months ended September 30, 2023, the Company received proceeds from issuance of a convertible promissory note of $1.3 million, and made payments of contingent value rights liability related to proceeds from sale of net assets held for sale of $9.6 million.

#### Contractual Obligations and Other Commitments

As of September 30, 2024, the Company has one Future Sales and Purchase Agreement (the “March 2024 Bitmain Purchase Agreement”) with Bitmain Technologies Delaware Limited (“Bitmain Delaware”) which, as supplemented, provides the Company has the right, but not the obligation, to purchase up to 7,020 PH (approximately 30,000 miners) of S21 Pro miners, pursuant to certain payment timing conditions, by December 31, 2024 for a purchase price of $112.3 million (“Bitmain Call Option”). As of September 30, 2024, the Company had paid Bitmain Delaware $11.2 million, calculated as 10% of the purchase price (the “Call Option Fee”). The Call Option Fee shall be applied to the settlement of future down payments of purchases under the Bitmain Call Option, in whole or in part in proportion to the ratio of quantity to be purchased to the maximum PH available under the Bitmain Call Option. In May 2024, the Company exercised an option pursuant to the Bitmain Call Option to purchase 5,000 S21 Pro units and paid Bitmain Delaware an additional $16.8 million for these units. In October 2024, the Company exercised an option pursuant to the Bitmain Call Option to purchase 10,600 S21 Pro units and paid Bitmain Delaware an additional $35.7 million for these units. In October 2024, the Company entered into an agreement to sell 3,200 S21 Pro units to a third party for a purchase price of $12.0 million.

The Company was a counterparty to the Amended and Restated Talen Joint Venture Agreement dated August 27, 2022 (“A/R Joint Venture Agreement”). Under this A/R Joint Venture Agreement, as of September 30, 2024 the Company had invested $102.7 million on a net basis and has right-sized its equity ownership interest to 25% of the joint venture. On October 2, 2024, the Company sold its entire 25% equity interest to the Talen Member for $85.0 million, subject to a customary working capital adjustment (the “Nautilus Sale”).

#### Financial Condition

The Company incurred a net loss attributable to common stockholders of $44.1 million and generated cash flows from continuing operations of $18.3 million for the nine months ended September 30, 2024. As of September 30, 2024, the Company had balances of cash and cash equivalents of $23.9 million, a working capital balance of $0, total stockholders’ equity of $372.6 million and an accumulated deficit of $303.1 million. The Company had 10.0 EH/s of operating capacity across the Lake Mariner Facility and the Nautilus Cryptomine Facility as of September 2024. To date, the Company has relied primarily on proceeds from sales of bitcoin, both self-mined and distributed from the joint venture which owns the Nautilus Cryptomine Facility, and its issuances of debt and equity to fund its principal operations. Subsequent to September 30, 2024, the Company completed (i) a private offering of the 2030 Convertible Notes for an aggregate principal amount of $500.0 million and (ii) the sale of the Company’s 25% equity interest in Nautilus for cash proceeds of $85.0 million, the proceeds of which, together with continuing cash flows from operations, are expected to fund strategic development of future infrastructure necessary for growth and profitability in bitcoin mining and data center hosting of HPC workloads.

### Critical Accounting Estimates

The above discussion and analysis of the Company’s financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

See Note 2 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q and Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 for a summary of the Company’s significant accounting policies.

#### Digital currency

Digital currency is comprised of bitcoin earned as noncash consideration in exchange for providing hash computation services to a mining pool as well as in exchange for data center hosting services. From time to time, the Company also receives bitcoin as distributions-in-kind from its joint venture. Digital currency is included in current assets in the condensed consolidated balance sheets due to the Company’s ability to sell it in a highly liquid marketplace and because the Company reasonably expects to liquidate its digital currency to support operations within the next twelve months.

In December 2023, the FASB issued ASU 2023-08 which requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income in each reporting period. The Company elected to early adopt ASU 2023-08 effective January 1, 2024. The Company measures digital currency at fair value as of each reporting period in accordance with ASC 820 based on quoted prices on the active trading platform that the Company normally transacts and has determined is its principal market for bitcoin (Level 1 inputs), based on all information that is reasonably available. Since bitcoin is traded on a 24-hour period, the Company utilizes the price as of midnight UTC time, which aligns with the Company's revenue recognition policy. Gains and losses from the remeasurement of digital currency are included within gain on fair value of digital currency, net in the condensed consolidated statements of operations. The Company sells bitcoin and gains and losses from such transactions, measured as the difference between the cash proceeds and the cost basis of bitcoin as determined on a first-in-first-out basis, are also included within gain on fair value of digital currency, net in the condensed consolidated statements of operations.

Prior to the adoption of ASU 2023-08, the Company accounted for digital currency as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently if events or changes in circumstances indicate it is more likely than not that the asset is impaired. Impairment exists when the carrying amount exceeds its fair value. The Company elected to bypass the optional qualitative impairment assessment and to track its bitcoin activity daily for impairment assessment purposes. The Company determined the fair value of its bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement (“ASC 820”), based on quoted prices on the active trading platform that the Company normally transacts and has determined is its principal market for bitcoin (Level 1 inputs), based on all information that was reasonably available. The Company performed an analysis each day to identify whether events or changes in circumstances, principally decreases in the quoted price of bitcoin on the active trading platform, indicated that it was more likely than not that its bitcoin were impaired. For impairment testing purposes, the lowest intraday trading price of bitcoin was identified at the single bitcoin level (one bitcoin). The excess, if any, of the carrying amount of bitcoin and the lowest daily trading price of bitcoin represented a recognized impairment loss. To the extent an impairment loss was recognized, the loss established the new cost basis of the asset. Subsequent reversal of previously recorded impairment losses was prohibited.

#### Long-lived Assets

Property, plant and equipment are recorded at cost, net of accumulated depreciation. Judgment is necessary in estimating the Company’s various assets’ useful lives. This includes evaluating the Company’s own usage experience with its currently owned assets, the quality of materials used in construction-related projects and, for its miners, the rate of technological advancement and market-related factors such as the price of bitcoin and the bitcoin network hashrate, which impact the value of the miners. Depreciation is computed using the straight-line method over the estimated useful lives of the assets (generally 5 years for computer equipment and 4 years for miners). Leasehold improvements and electrical equipment are depreciated over the shorter of their estimated useful lives or the lease term. Changes in depreciation and amortization, generally accelerated depreciation, are determined and recorded when estimates of the remaining useful lives or residual values of long-term assets change.

The Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted cash flows expected to be generated by the asset. Significant judgment is used when estimating future cash flows, particularly the price of bitcoin and the network hashrate. Any impairment loss recorded is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. Should our estimates of useful lives, undiscounted cash flows, or asset fair values change, additional and potentially material impairments may be required, which could have a material impact on our reported financial results.

#### Stock-based compensation

The Company measures stock-based compensation cost related to share-based payment awards at the grant date of the award, based on the estimated fair value of the award. For restricted stock units (“RSUs”) with time-based vesting, the fair value is determined by the Company’s common stock price on the date of the grant. For RSUs with vesting based on market conditions (“PSUs”), the effect of the market condition is considered in the determination of fair value on the grant date using a Monte Carlo simulation model. Stock-based compensation expense for PSUs is recorded over the derived service period unless the market condition is satisfied in advance of the derived service period, in which case a cumulative catch-up is recognized as of the date of achievement. Stock-based compensation for PSUs is recorded regardless of whether the market conditions are met unless the service conditions are not met. The Company accounts for forfeitures as they occur. The Company uses significant judgment in determining the likelihood of meeting milestones and market conditions. Inputs into valuation models such as Monte Carlo simulations include both the Company’s and guideline public company historical and expected annual volatility and, depending on the inputs selected, the Company could calculate significantly different estimated grant date fair values, materially impacting the valuation of our stock-based awards and the stock-based compensation expense we recognize in future periods.

#### Income Taxes

The Company accounts for income taxes pursuant to ASC 740, *Income Taxes (“*ASC 740”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset will not be realized. The Company follows the provision of ASC 740 related to accounting for uncertain income tax positions. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. The tax benefits recognized in the condensed consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the Company’s balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The most critical estimate for income taxes is the determination of whether to record a valuation allowance for any net deferred tax asset, including net loss carryforwards, whereby management must estimate whether it is more likely than not that the deferred tax asset would be realized.

## Controls and procedures

As filed, 1,346 characters.

### Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of such period, are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act are:

- Recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and
- Accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2024 that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 4,028 characters.

Our business faces many risks. Before deciding whether to invest in our Common Stock, in addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which is incorporated herein by reference. If any of the risks or uncertainties described therein actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected. This could cause the trading price of our Common Stock to decline, resulting in a loss of all or part of your investment. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations.

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and our Quarterly Reports on Form 10-Q, except for the risk factor noted below.

### We are and may continue to be subject to short selling strategies.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the price of the stock to decline, may short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects to create negative market momentum and generate profits for themselves after selling a stock short. These short attacks have, in the past, led to selling of shares in the market.

We are, and may in the future may be, the subject of unfavorable allegations made by short sellers. For example, in August and October of this year, short sellers published reports that contained certain allegations against us that we believe to be misleading. Any such allegations may be followed by periods of instability in the market price of our shares of common stock and negative publicity. We may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law or issues of commercial confidentiality. In addition, any related inquiry or formal investigation from a governmental organization or other regulatory body, including any inquiry from the Securities and Exchange Commission (the “SEC”) or the U.S. Department of Justice, could result in a material diversion of our management’s time and could have a material adverse effect on our business and results of operations. Such a situation could be costly and time-consuming and could distract our management from operating our business. We recently received an inquiry from the SEC relating to the allegations in the recent short seller reports relating to the sources of electricity used in our operations and the proportion of energy attributable to zero-carbon energy sources and, while we believe those allegations to be misleading, we cannot predict the impact that the SEC’s inquiry will have on our business and results of operations. SEC investigations are generally fact-finding inquiries and do not necessarily mean that the SEC has concluded that we have violated the federal securities laws or that the SEC has a negative view of the Company. We intend to cooperate fully. Even if such allegations are ultimately proven to be groundless, allegations against us could adversely impact our business, and cause downward pressure and increased volatility in the price of our shares of common stock.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001083301-24-000147. Last ingested by Listed: Nov 6, 2026, 16:44 ET. No prices; not investment advice.