WULF - NASDAQ

Greetings and welcome to the TeraWulf 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Assad, Director of Corporate Communications. Thank you. You may begin.

Thank you, operator. Good afternoon. Welcome to TeraWulf 's Second Quarter Earnings Call. With me today are Chairman and Chief Executive Officer, Paul Prager; and our Chief Financial Officer, Patrick Fleury. Before we get started, I'd like to remind everyone that our prepared remarks may contain forward-looking statements which are subject to risks and uncertainties, and we may make additional forward-looking statements during the question-and-answer session. When used on this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to TeraWulf or such forward-looking statements. Investors are cautioned that results may differ materially from those anticipated by TeraWulf at this time. In addition, other risks are more fully described in our public filings with the U.S. Securities and Exchange Commission, which may be viewed at sec.gov and in the Investors section of our corporate website at terawulf.com. Finally, please note that today's call will refer to certain non-GAAP financial measures. Please refer to our company's periodic reports on Form 10-K and 10-Q and on our website for a full reconciliation of these non-GAAP performance measures to the most comparable GAAP financial measures. An updated version of our new investor deck may also be found at terawulf.com. We'll begin today's call with prepared remarks from Paul and Patrick, and then we'll proceed to Q&A. It's my pleasure to now turn the call over to TeraWulf's CEO, Paul Prager. Paul?

Thank you, Jason, and good afternoon, everyone. We appreciate your attendance today as we review our second-quarter 2024 financial results. To start, let me provide an overview of who we are and highlight some key aspects of our business. For those new to TeraWulf, we are an energy and digital infrastructure company dedicated to utilizing predominantly zero-carbon energy to power our operations. Our two premier data centers are the Lake Mariner facility in upstate New York, which utilizes over 91% zero-carbon energy sourced from the grid, and the Nautilus Cryptomine in Pennsylvania, a joint venture with Talen that is directly powered by nuclear energy. We believe our strategic focus on scalable zero-carbon energy infrastructure gives us a unique and competitive edge. In our last earnings call, we identified a significant shift in the industry, emphasizing that low cost, clean energy, operational efficiency, and profitability are becoming more critical than simply scaling operations. This insight will frame our discussion today as we review our second-quarter results and strategic positioning. In the second quarter of 2024, we achieved several milestones that significantly strengthened our position as one of the most efficient public Bitcoin miners and digital infrastructure owners. First, we successfully completed the construction of Building 4 at Lake Mariner, pushing our total mining capacity to over 10 exahash per second. With a fleet efficiency of 23.7 joules per terrahash and industry-leading power costs projected at $0.035 per kilowatt hour for 2024, we have solidified our position as one of the sector's most efficient public miners. Second, we strategically amended our Bitmain purchase agreements to specify the delivery of S21 Pro miners. We opted to acquire approximately 5,000 of the 30,000 miners available under the option purchase agreement, monetizing our option at an attractive rate of $16 per terahash. Third, we made significant progress in our AI and high-performance computing initiatives, through the WULF Den project. We committed to purchasing a 128 GPU cluster from NVIDIA financed by an industry-leading OEM. This arrangement minimizes the equity required from the company, preserving capital for future strategic investments. And finally, we achieved a pivotal milestone by streamlining our capital structure, eliminating debt, and converting approximately $29 million out of $41 million lender warrants into common shares. This deliberate restructuring strengthens our balance sheet and positions us for sustained future growth. With that in mind, let me touch on our operational expansion. At Lake Mariner, we currently deploy approximately 200 megawatts of operational infrastructure for bitcoin mining, achieving industry-leading unit economics as disclosed in our updated Investor Presentation found on our website. We also have an additional 300 megawatts of near-term expansion capacity to meet the growing demand from HPC and AI data centers. Lake Mariner's location offers the ideal trifecta for scaling operations, low-cost power, ample land, and abundant water for cooling. At the Nautilus Cryptomine, we currently have 50 megawatts operational capacity for bitcoin mining. And earlier this year we announced plans to expand to 100 megawatts in 2025. Our partnership with Talen, underscored by the recent sale of the Cumulus Data portion of the campus to Amazon Web Services, highlights the strategic value of our direct connection to a baseload nuclear power station. Amazon's acquisition not only validates the importance of leveraging sustainable energy but also signifies the inevitable convergence of sustainable energy with the growing demand for high-performance computing. From day one, our model has been to strategically locate our operations where we have access to scalable, low-cost, predominantly zero-carbon power. Both of our sites embody this approach. Recently, market participants and analysts have emphasized the importance of bringing data center capacity to locations that have access to power. This has been our strategy for many years, bringing our operations to locations with access to predominantly zero-carbon generation resources. In addition to our current operations, we are exploring a pipeline of opportunities outside of the company, including certain properties owned by Beowulf Energy, a private company wholly owned by me. While our primary focus today is creating value with the organic scalability within TeraWulf, we are continuously assessing the contribution of additional assets. Any such contributions will be made in a fair and reasonable manner consistent with our Board and committee charters. Moving on to our financial performance, TeraWulf continues to leverage our low-cost infrastructure to drive profitability and create value for shareholders. Our commitment to shareholders has always been to deliver on our promises, and we've been successful in doing so quarter after quarter. In July, we fully repaid our debt well ahead of maturity and are now completely debt-free. This significant milestone not only strengthens our balance sheet but optimizes a strategic flexibility. This is particularly advantageous as we aim to deploy our Lake Mariner facility to support the surging demand for data centers driven by the proliferation of data-intensive applications such as artificial intelligence, machine learning, and big data analytics. In the second quarter, we achieved a GAAP gross profit margin of 61% and non-GAAP adjusted EBITDA of $19.5 million, translating to an EBITDA per exahash of approximately $2.4 million. Our SG&A expenses totaled $11.9 million and only $7.1 million, excluding stock-based compensation expense, materially lower than our peers. Looking ahead as Patrick will detail shortly, our growth plans for the remainder of 2024 are fully funded. This underscores our commitment to capital efficiency and ensures the continuation of our strategic initiatives without the need for additional equity financing in the near term. As regards dilution in the second quarter, we took advantage of the favorable stock price and market liquidity to safeguard our future valuation creation path and to facilitate our entry and growth in the HPC/AI sector in the most capital-efficient manner. These data points highlight TeraWulf 's competitive advantages. Low cost, zero-carbon power, access to some of the lowest cost predominantly zero-carbon energy in the industry, profitability, higher EBITDA per exahash than any other player in the space requiring less capital for growth. Efficiency, a lean team, and efficient management drive maximum profitability for shareholders, and scalable infrastructure for AI/HPC. Wulf has access to over 300 megawatts of infrastructure to scale into high-value and high-performance compute data centers. The true value in TeraWulf lies not only in the bitcoin we mine profitably but in the quality of our asset base and our ability to generate industry-leading profits while expanding into HPC/AI. Even in times of market volatility, as we all have experienced in the last week, our focus on maintaining robust infrastructure and profitable operations ensures sustainable growth and long-term returns. With that segue, I'd like to now address our strategic advancements in AI and HPC. WULF Compute is in the final stages of our 2-megawatt proof of concept project, the WULF Den, which is on track for completion in early September. This state-of-the-art project is designed to support the latest generation GPUs featuring advanced liquid cooling systems and high rack density. In addition, we are advancing the development of CB-1, a colocation project set to deliver 20 megawatts growth and 60 megawatts of critical computing power. This building will be tailored to support the next generation of GPUs and is projected to be operational by the end of the year. We are actively engaging with several colocation customers regarding the 300-megawatt expansion capacity at Lake Mariner. Our team is thoroughly evaluating each opportunity to maximize the potential of what we believe is one of the premier data center locations in the country. Our primary focus here is on securing the most suitable customers to achieve the highest possible valuation multiple for TeraWulf common shareholders, among whom management is one of the largest groups. As we look ahead, TeraWulf is at a pivotal moment as strategic positioning and substantial infrastructure scale offer significant opportunities for value creation. With our large-scale facilities, we are well-equipped to meet the growing demands of the data center market, positioning us to capitalize on emerging opportunities and drive substantial growth. We are excited about leveraging our infrastructure and expertise to enhance value for our stakeholders in the coming quarters. Now, I'll turn it over to Patrick to discuss our financial performance.

Thank you, Paul. As Paul stated, the second quarter and beginning of the third quarter was a transformative time for Wulf. With strong financial results even in a challenging fundamental business environment, following the Bitcoin reward halving in April. In the second quarter of 2024, we self-mined 539 bitcoin at Lake Mariner and our net share of bitcoin mined at Nautilus was 160 for a total of 699 bitcoins, or about 7.7 bitcoins per day, a 34% decrease over the 1,051 bitcoins mined in 1Q ‘24. The hosting agreement at Lake Mariner terminated in February 2024 and as a result, we received zero and an additional 6 bitcoin in 2Q ‘24 and 1Q ‘24, respectively from associated profit sharing. Our GAAP revenues were down 16% quarter-over-quarter at $35.6 million in 2Q ‘24 from $42.4 million in 1Q ‘24. Our value per bitcoin self-mined in this quarter, a non-GAAP metric that includes bitcoin mined at Nautilus, averaged 65,984 per bitcoin for a total of $46.1 million as detailed and defined in our monthly operating reports, press releases, and MD&A section of our 10-Q. As a reminder, there is a key difference between our GAAP financials and the monthly operating reports in 2024 guidance. Due to our 25% ownership in the Nautilus JV, the revenue, cost of revenue, operating expenses, depreciation, and amortization at Nautilus are not consolidated into our GAAP financial statements. Instead, the financial impact of the Nautilus JV is reflected in the equity in net income or loss of investee net of tax line item on the GAAP income statement. Our GAAP cost of revenue exclusive of depreciation for 2Q ‘24 was $13.9 million, a 3% decrease over $14.4 million in 1Q ‘24. The quarter-over-quarter decrease was due to a 14% decrease in the average cost of power at Lake Mariner from $0.049 per kilowatt in 1Q ‘24 to $0.042 per kilowatt in 2Q ‘24 and the expected demand response proceeds of $1.9 million in 2Q ‘24 versus $1.3 million in 1Q ‘24. Our gross profit exclusive of depreciation, decreased by 23% quarter-over-quarter from $28 million in 1Q ‘24 to $21.7 million in 2Q ‘24. Our power cost or cost of energy per bitcoin mined, a non-GAAP metric that includes bitcoin-minded Nautilus, was $22,954 in 2Q ‘24 compared to $15,501 in 1Q ‘24. As a reminder, in our GAAP financials, unlike our monthly operating reports, the company records proceeds received and to be received for demand response programs as a reduction in cost of revenue. These expected proceeds total $1.9 million in 2Q ‘24 and $1.3 million in 1Q ‘24. As disclosed in our 2024 guidance, we expect to achieve an average power cost including demand response revenues and the impact of Nautilus's $0.02 power of $0.035 per kilowatt hour in 2024. For 2Q ‘24, we achieved an average power cost of $0.037 per kilowatt hour compared to $0.041 in 1Q ‘24. This is consistent with historical power price variability in upstate New York, where the Lake Mariner facility is located. Operating expenses were stable quarter-over-quarter at $1.7 million in 2Q ‘24 and 1Q ‘24. As disclosed in our 2024 guidance, we expect a $13.5 million of operating expenses in 2024, which includes operating expenses at Nautilus. Of the $13.5 million total anticipated for 2024, approximately 50% is expected to be incurred at Lake Mariner and 50% at Nautilus. SG&A expenses decreased quarter-over-quarter from $14.9 million in 1Q ‘24 to $11.9 million in 2Q ‘24. The decrease is almost entirely due to $6.9 million of stock-based compensation expense incurred in 1Q ‘24 versus $4.8 million in 2Q ‘24. Adjusting for stock-based comp, SG&A decreased 11% quarter-over-quarter from $8 million in 1Q ‘24 to $7.1 million in 2Q ‘24. As I've indicated previously, this decline is expected as SG&A spend is more heavily weighted to the first quarter of the year versus the following quarters. With our entry into HPC and AI and need for more staff, we are updating our 2024 SG&A guidance from $27.5 million to $30 million of SG&A in 2024, as indicated on page 14 of our August Investor Presentation available on our website. Depreciation decreased quarter-over-quarter from $15.1 million in 1Q ‘24 to $14.1 million in 2Q ‘24, which was the result of a quarter-over-quarter decrease of $2.5 million in accelerated depreciation related to certain miners, of which the company shortened their estimated useful lives based on expected replacement by April 30, 2024, partially offset by increased assets placed into service and depreciated as a result of our continued infrastructure buildup. Gain or loss on fair value of digital currency is a new income statement line item for us in 2024, given our early adoption of the new FASB accounting rule, which marks the company's bitcoin holdings to the fair market value as of the filing date with changes in fair value recorded in net income. In 2Q ‘24, we incurred a loss of $0.7 million, compared with a gain of $1.3 million in 1Q ‘24. It's critically important to note the six-month 2024 net gain of $0.6 million is substantially all realized, meaning it's realized cash in our bank account, not theoretical mark-to-market gains on paper, which many of our peers at HODL have reported. GAAP interest expense in 2Q ‘24 and 1Q ‘24 was $5.3 million and $11 million, respectively, which includes cash interest expense and amortization of debt issuance costs and debt discount related to the term loan financing. However, cash interest paid during 2Q ‘24 was $2.5 million, down over 33% from $3.7 million in 1Q ‘24. This decrease is the result of repayment of $30.2 million of debt in 2Q ‘24 and $33.4 million in 1Q ‘24. As detailed in our press release on July 9th in debt footnote of our 10-Q, we repaid the remaining $75.8 million of debt with approximately $19.8 million of excess cash flow sweep as defined in our credit agreement and $56 million of equity proceeds from our ATM facility. In connection with the voluntary prepayment of $56 million of debt in July, a third-quarter 2024 event, the company incurred prepayment fees of $0.9 million, wrote-off unamortized discount of $3.3 million associated with the principal repaid, and recorded a loss on extinguishment of debt of $4.2 million. In 2Q ‘24, we reported $0.8 million in equity and net income of investee, net of tax, as compared to $5.3 million in 1Q ‘24. These amounts represent TeraWulf's proportional share of net income of the Nautilus joint venture. Let's take a moment to review in detail how Nautilus impacts our GAAP financial statements and non-GAAP adjusted EBITDA. Please refer to the hypothetical quarter on the Nautilus illustrative P&L and financial statement impact, page 10, of our August investor deck to follow along. We run approximately 1.85 exahash of total capacity at Nautilus and paid $0.02 for 50 megawatts of power, assuming 98% uptime, a 610 network hash rate, and 60,000 bitcoin price, this results in quarterly revenue of $7.4 million. Cost of revenue excluding depreciation of $2.2 million and therefore gross profit of $5.2 million. Subtracting quarterly and other operating expenses of $1.7 million, which as discussed previously is approximately $6.75 million annually, results in operating profit of $3.5 million. This would effectively be the net distribution of bitcoin to Wulf from Nautilus and the figure we add back in the non-GAAP adjusted EBITDA calculation. Including quarterly depreciation of $5.6 million, results in equity and net loss of investee, net of tax of negative $2.1 million, which is what would appear on our GAAP income statement and be stripped out of our non-GAAP adjusted EBITDA calculation. Our GAAP net loss for the second quarter was $11.2 million, compared to a net loss of $9.9 million in 1Q ‘24. Our non-GAAP adjusted EBITDA for 2Q ‘24 was $19.5 million compared to $32 million in 1Q ‘24. Now, turning our attention to the balance sheet. As of June 30, we held $104 million in cash with total assets amounting to $480 million and total liabilities of $93 million. Pro forma for our debt repayment on July 9, our adjusted cash and bitcoin balance was $28.4 million. Our net working capital as of June 30 was a positive $18.5 million. As disclosed on page 14 of our August investor deck, we achieved a marginal cost of production, including every single cost in the company of $41,587 per bitcoin in 2Q ;24, and expect to achieve approximately $40,000 per bitcoin in second half '24. Regarding our capital position and growth plans for the remainder of 20 ‘24, we are fully funded. On page 12 of the August investor deck, you'll find a capital sources and uses bridge for Q2 '24, as well as our expectations for second half '24 on page 13. We are now debt-free and in poll position to maximize the value of our assets as we diversify into HPC and AI. Let me take a moment to point out a few key items in the second half '24 capital budget on page 13. We expect the following approximate capital expenditures in second half '24. Number one, $8 million on WULF Compute's 2 megawatts HPC/AI WULF Den, which includes the purchase of 128 NVIDIA H100 GPUs consisting of direct liquid-to-chip cooling with backbone of a full cluster of which approximately 50% of the purchase price is being financed by a large OEM partner. Two, $14 million on LMD Site Electrical to allow expansion to 500 megawatts. Three, $23 million on construction of Building 5, a 54-megawatt bitcoin mining building expected to be substantially complete by year-end 2024. And four, $30 million on construction of WULF Compute's CB-1, a liquid-cooled, redundant, and high power density 20 megawatt HPC/AI infrastructure expected to be substantially complete by year-end. The $30 million spend constitutes Wulf's equity contribution for the 20-megawatt building and we expect to finance the remaining 70% in the project finance market. As discussed on our 1Q ‘24 earnings call, updated on page 15 of our August investor deck, and as a peer public co-location company has announced, we are targeting a customer contract with a one-year revenue prepay, which would return Wulf's $30 million equity contribution. Given the quality and quantity of customer interest in our assets, we are comfortable paying this forward so we can deliver sizable HPC/AI capacity by year-end 2024 with additional rapid growth in 2025. At Wulf, our financial objectives remain clear and simple. Maximize profits, secure long-term high-quality customers in HPC and AI to minimize Wulf's future equity needs, and return value to shareholders while providing investors access through transparency and accountability. With that, I'll hand it over to the operator and look forward to answering your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Mike Grondahl from Northland Securities. Please go ahead.

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

Yes. Paul, I think you're aligned to me. Do you want to take that or do you want me to?

Sure. Mike, we're very active. Listen, I can tell you that we're talking to a range of customers and a variety of customer class, if you will. We're talking to a couple of the hyperscalers. We're talking to end users. We're talking to enterprise customers of our OEM. And I think that what's exciting to people is the immediacy that we're able to meet their goals. As you know, that we've advertised that we'll have megawatts available by year-end, and we've given a very, very programmatic schedule for folks in '25. So I think the interest is at the beginning, at the tip of the iceberg, not even close to sort of the end of it. I think that the market is continuing to evolve, and a lot of folks are talking to the hyperscalers about what their needs are. And a lot of people don't want to be working with hyperscalers, so they want direct access. But we are engaged daily on this, and for us, I think it's very, very important, Mike, that we make the right decision and have a customer that's the right credit quality. We don't want to go out there with -- if you will, somebody that isn't somebody that we could scale with over time or that we think won't be around in a year or two. So I can only tell you that we're very excited about the prospects. We're very excited about the potential customers we're speaking to. But they're coming in all shapes and sizes. And again, our primary concern is credit quality and value, ultimately to our shareholders in the deal that we strike. I think most of all, that should be indicated by the fact that we're funding this $30 million here. I think that should indicate to you real confidence on our part.

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

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

Yes. Look, Mike, as you know, I always tend to answer things too honestly. So I would just say, look, I'm the CFO, right? My job is to get the numbers right and get things financed and financially engineered. I think for me, we have a -- I won't use the word, but we have a [Indiscernible] team. And I got to tell you, like being on the phone with some of the largest and most accomplished data center folks in the world and having our team impress those people, I mean, that to me has honestly surprised me the most. Because, again, I mean, we're really good at what we do, but we're getting into a bit of a new lane here, and we've been studying it extremely hard. So I think to add some fuel to Paul's fire in the customer side, I mean, the customer conversations are red hot, our phones are ringing off the hook and I think our team is really doing an incredible job.

I guess, for me, what I've learned most in terms of over the course of the last 90 days is how different the requirements are for each one of these customers. And yet the one uniform thing that's missing, as sophisticated as these customers are, is a lack of familiarity with power and energy infrastructure. And as we have these discussions and they've advanced, it's been great to watch these potential customers appreciate how important solving the energy infrastructure problem is, and the value of partnership in getting that endeavor completed. So I think we're spending a lot of time educating these folks about energy infrastructure, how we do it, how we suggest they do it. They're teaching us a lot about their requirements. And so I think it's pretty fascinating. And for me, it's far more than -- it's not fascinating because so it's interesting. It's fascinating because I believe that it will [Indiscernible] TeraWulf to be an important company, I think, as we continue to expand into HPC/AI, given the backbone of the energy infrastructure that we have.

Sure. Hey, thanks a lot, guys.

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

Hi. Thanks for the question. To kind of piggyback off the earlier question, I was wondering if would you expect to have a 20-megawatt customer by year-end, and with the forward guidance on the building build of co-location, Building 2 in future capacity, is this kind of a build it and they will come situation, or would you expect to have customers secured beforehand? Thanks.

Yes. Look, Brett, it's Patrick, I'll answer that. I mean, look, I would just say we put a slide in the deck that updates on timing and we're having constant discussions wherever folks are looking for hundreds and hundreds of megawatts of capacity. So I would say, as Paul echoed, we are really, every day, everyone on the team focused on making sure we've got the right customer or group of customers to achieve the maximum valuation multiple. And so if that takes a little bit longer than expected, then it does. But I think there's a balance here of, we know power is in short supply, we have it, and then we also know folks are scrambling for it. So I think, I'm not going to answer directly your timing question, but there is kind of a sweet spot, as we all know over the coming months, and that's what we're trying to align with.

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

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

All right. Thanks.

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

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

Yes, that's exactly right, Darren. I think it's -- and again, on the -- as we talked about buying these GPUs, and you can see -- as we've kind of laid out on page 15, that is not our core business, but it is a show me story. And some of the folks that were in negotiations with want to come on-site, want to see that we can run the greatest and latest technology. And so that's our commitment there. But again, these are single-digit millions of dollars, right, that we're spending on that business -- on the sort of GPUs as a service business if you will. And our major and main focus remains colocation.

Great. And then just one more. I noticed in the release you guys talked about Building 5 is having optionality for either BTC or HPC. I guess, like, when it's complete, is it -- what's the calculus from your perspective that determines which way you go there? Thanks. A - Patrick Fleury Yes. Look, I think, as we've said before, there's other -- it's not just a capital allocation decision for us. So we have contractors and subs that have been on this site for three years and they've built Building 1, Building 2, Building 3, Building 4. Now they're moving to Building 5. So part of that is, we're competing with Buffalo Bills stadium, for example. So we need to keep those contractors and subs on-site working. So we're moving ahead with Building 5. Yes, Building 5 does have some optionality. You know, should we land a customer very, very soon where we could pivot that building, but just order a magnitude? Right, we're talking about call it around $25 million to build that whole building. And roughly 50% of that can be repositioned as high-power compute AI infrastructure. So, Darren, it's small dollars to kind of keep our people at the site, keep them working so that we've got runway for the next two, three years to build out hundreds of megawatts. So that kind of comes into the calculus as well. And again, to kind of pivot, you're talking about sort of 50% of that CapEx that's reusable. Does that make sense?

That's helpful. Thank you.

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

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

Yes. Hi, Nick. So it's a good question. So, yes, it's roughly $5 million. As you can see on page 15, we did update our build cost per megawatt to $6 million to $8 million. Generally speaking, that's specific for our site. And what I mean by that is if you were to add, for example, backup diesel reciprocating generators, which we're not planning to do, that would cost you at least another $2 million per megawatt. And so again, our site is very unique in that it's a former pole plant, right retired and reclamated. So we have grid infrastructure in place that you typically would not build for a data center. For example, we have 2, 3, [45] (ph) KV lines that come into our substation and multiple transformers. So what that means is unlike a sort of typical data center that has one line coming in, if we lose one of those lines because the transformer goes down, we just move to the other line. And so when you think about that redundancy, I mean, really, you're talking about you're only going down in a blackout, which happened once in the last 60 years, right? And so that again makes our site very unique and our build cost unique to this specific location.

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

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

Got it. Got it. Well, appreciate all the detail. And Patrick, to you and the team, continued best of luck.

Thanks, Nick.

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

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

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

Yes, I think we've discussed this before, Brett. Hey, you know, the priority is absolutely terrible, and they have a call on the opportunity to expand, and obviously, processes are involved, right? You got to figure out what's fair. You got to go to your audit committee, you got to get a fairness opinion, you got to do all the stuff. But at the end of the day, we're going to be most responsive to customer demand and not assume -- we don't want to assume a whole lot of risk here until we've decided the customer path, but we're not going to run out of the opportunity to access power anytime in the very near future or further out. I mean, TeraWulf has what it needs and obviously to take that site and to continue on at it makes sense because of scale, familiarity with the site, and familiarity with the stakeholders there, which includes some state agencies. So we're most excited about Lake Mariner and our build costs there and our continuing ability to grow the usefulness of that site.

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

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

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

Thanks, Brett.

[Operator Instructions] The next question is from Bill Papanastasiou from Stifel. Please go ahead.

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

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

Okay, awesome. I see that now. And just secondly, now that the term loans have been extinguished, how should we think about dilution going forward to fund bitcoin mining and their aggressive HPC/AI growth strategy? Thanks.

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

Sure.

I mean, look, Bill, I think, there is a lot of different places to take that question. But as you know, I think we have among the largest, insider Board management team ownerships of the stock. So, we've always been very conscious about dilution. We've also been willing to use it when it makes sense. And so I think paying down the debt and then positioning us to really expand into high-power computing AI, our team's view was that is a very productive and accretive use of dilution. But I think now, right, if we can get the financial engineering correct with the right customer, then we have a free cash flow positive bitcoin mining business, which by the way if you look on page 11, is among the most profitable of any of our peers. Then -- to put a nice quote in there, it's not the size of the dog in the fight, it's the size of the fight in the dog. I mean, we're small compared to these other folks that are trying to build exahash to the moon and we're generating more profit. And that's important because if we can get the financial engineering correct, like one of our peers has done in the high-power computing AI business, then we have a business that's generating positive free cash flow while we build out a massive high-power computing AI business. So that is the goal. And if you kind of read between the lines, that would mean very little incremental dilution. So that's what we're trying to achieve whether we get there or not, and how quickly, I can't answer that today, but that is the goal. Paul, do you want to add anything?

Yes, just two things. Listen, we made the decision to issue equity to pay down debt on the back of two things. One, we were uncomfortable how having the debt would affect our flexibility if we wanted to make a deal in the HPC/AI space. And we didn't want the tail to be wagging the dog. I mean, the value proposition from HPC/AI is, you know, it's just a whole different magnitude. So we felt it was critical to pay off the debt. In retrospect, we're delighted that we paid off the debt given the volatility that the mining space has gone through. But more importantly, given the opportunity set that we've become aware of in the HPC/AI world, and to have the time to thoroughly review each one of the HPC/AI customer candidates to review their credit, to be thoughtful about how long will they be in the business and what commitments we should expect from them and they could honor. I think that's a luxury that we would not have, had we still had the lenders sitting out there. So I get it. We had to dilute a little bit, but it was accretive, it was conscious, it was intentional. I think I'm so proud of the team for being committed to do that because I think having a company that's debt-free and the opportunity to have free cash flow at the levels that we do, and having the time to be able to come up with the right HPC/AI customer conclusion, as opposed to sort of just raise and marry the first girl who asked us out on a date. We ended up in a whole different place. So that was our thinking and I believe ultimately it was in the absolute best interest of our shareholders.

Appreciate the color. Congrats again on the quarter.

Thank you.

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

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

Yes, good question, Kevin, it's Patrick and thanks for joining the call. So again, that's part of the customer. As Paul likes to say, the sort of get-to-know-you process, right? I mean, a lot of customers, as you know are very well funded, but if they're not in the right queue with NVIDIA, then it doesn't matter. So I think as part of that diligence process, for example, we are in touch with NVIDIA regularly because you think about, again what's in the public company, what's in the private company. Some other stuff we look at like -- we have close to 1,000 gigawatts of power -- so, excuse me -- 1,000 megawatts of power. So from a GPU perspective, I mean, that moves the needle for NVIDIA. That's $30 billion of GPUs. So, yes, I think that is certainly one very important aspect of the diligence process that we are in touch with when we're talking to customers.

Yes, I would like to add just a little bit to that. I can't speak for NVIDIA, but it would appear to us talking to them and to their customers, it appears to us that they are keen to have allocations to customers other than the hyperscalers. And as such, and therefore diversify their customer base, right? So it makes sense. So I think that it won't be an issue to have a customer if it's not a hyperscaler, that if you will, has an allocation. I think the second thing is, and this is great for the team here, is that I think NVIDIA is basically telling people, hey, if you want your allocation, show me where you're going to put them. Show me that you have the power. And so that's creating some real energy on the part of potential customers to strike a deal, because they move up, if you will, in their supply queue on their side of the equation when they have access to megawatts. So I think that is a good healthy pressure that we can be the beneficiaries of -- as long as we think they're the right partner, have the right culture, and could ultimately scale with us.

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

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

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