Q3 2024 TeraWulf Inc Earnings Call
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Speaker Change: Good afternoon and welcome to Tara Wolf's third quarter 2024 earnings call. At this time all participants are in lesson only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host, John Larkin, Senior Vice President, Director of Investor Relations. Please go ahead, sir.
John Larkin: Thank you, Operator. Good afternoon and welcome to TeraWolf's third quarter earnings call. Joining me today are Chairman and CEO, Paul Prager, and CFO, Patrick Fleury.
John Larkin: Before we get started, please note that our remarks today may include forward-looking statements. These statements are subject to risks and uncertainties and actual results may differ materially.
John Larkin: During this call we may use words like anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions which indicate forward-looking statements.
John Larkin: For a more comprehensive discussion of these and other risks, please refer to our filings with the SEC, available on sec.gov and in the investor section of our website at tarahwolf.com. We will also reference certain non-GAAP financial measures today.
John Larkin: Please refer to our 10-K and 10-Q filings and our website for full reconciliations to the most comparable gap measures.
Speaker Change: You can also find our updated investor deck on our website. We will start with prepared remarks from Paul and Patrick, followed by a Q&A session. I'll now turn the call over to Paul Prager, our CEO.
Paul Prager: Thank you, John, and good afternoon, everyone. We appreciate your joining us today as we discuss our third quarter results.
Paul Prager: To those new to Terrewolf, we are a leading energy and digital infrastructure company focused on utilizing predominantly zero-carbon energy to power our operations.
Paul Prager: Our management team has over 30 years of experience in energy infrastructure, with a proven track record in financing, designing, building, and operating power and power infrastructure projects.
Paul Prager: Our flagship Lake Mariner facility, located in upstate New York Zone A, is a prime example of a strategy in action.
Paul Prager: was situated only 35 miles from Niagara Falls in a region where over 90% of the energy comes from zero-carbon resources.
This strategic location
Paul Prager: combined with our access to scalable infrastructure and power, abundant land and reliable water resources, positions us uniquely in the market. We believe this focus on clean, cost-effective energy bodes well for the future.
Paul Prager: As we look ahead, we're confident in our approach. We see the industry increasingly aligning with our core strengths, namely low-cost sustainable energy and a commitment to operational excellence.
Paul Prager: The steps we took this quarter have set a strong foundation as we head into what we believe will be a pivotal year in 2025.
Let's talk about what we accomplished in the third quarter.
Paul Prager: We've been hard at work making substantial progress across our strategic, financial, and operational priorities.
To start, I want to highlight a major strategic transaction.
Paul Prager: In early October, we sold our 25% stake in the Nautilus Cryptomine joint venture to Talent Energy. The transaction, valued at $92 million, delivered a 3.4 times return on our investment.
Paul Prager: More importantly, this sale has streamlined our operations and gives us the flexibility to focus on expanding our high-performance computing capabilities at Lake Mariner. It's a win-win that sets the stage for what's next.
Paul Prager: Building on that momentum, we also secured a new long-term ground lease at Lake Mariner.
This isn't just a simple lease extension.
It's a game changer.
Paul Prager: We increased our total acreage by nearly 50% from 107 to 157 acres without any additional cost per acre.
Paul Prager: And crucially, we now have exclusive rights to up to 750 megawatts of infrastructure capacity and power, which positions us well to attract top-tier, high-speed compute clients looking for scale and reliability, and it's with us now.
Paul Prager: On the financial side, we had a strong quarter as well. In July, we cleared out legacy debt, freeing up capital that we're now deploying into our Wolf Compute business.
Paul Prager: This critical milestone comes at a perfect time as we gear for a significant expansion into the high-speed compute market in 2025.
Paul Prager: I'd also like to highlight a recent capital raise. In October, we successfully raised $500 million through an oversubscribed convertible bond offering.
Paul Prager: This influx of capital gives us the flexibility we needed to continue investing in both our Bitcoin mining operations and our growing HPC initiatives.
Paul Prager: Timing is everything and this capital positions us well to meet the demands of new tenants who need immediate access to power.
Paul Prager: We also took steps to return value to our shareholders. Our board approved a $200 million stock buyback program, and we've already repurchased $115 million worth of shares.
Paul Prager: We paired this with a cap-call transaction in the convertible offering to protect against dilution up to a share price of $18.40, underscoring our commitment to driving shareholder value.
Paul Prager: Operationally, we held our ground despite some tough market conditions, especially following the Bitcoin halving. Our cost to mine came in at approximately $54,000 per Bitcoin in the third quarter.
keeping us among the industry's lowest cost producers.
Paul Prager: This level of efficiency is a key part of a strategy, something we're continually focusing on improving.
Paul Prager: We're also excited about the upgrades underway in our mining fleet. We've ordered the latest Bitmain S21 Pro miners, which are set to arrive through early Q1 2025. These state-of-the-art machines will boost our efficiency and take our fleet performance to the next level.
Thank you.
Paul Prager: On the high-speed compute hosting front, we're making steady progress with the construction of our new HPC facilities.
Paul Prager: We've completed construction of our 2.5 megawatt proof-of-concept project in the third quarter, and the 20 megawatt CB1 and 50 megawatt CB2 data centers are on schedule to be up and running in Q1 and Q2 of next year, respectively.
Paul Prager: We're in advanced discussions with potential tenants and expect to announce our first HBC hosting partner before the end of the year.
Looking ahead, we're doubling down on our core strategy.
Paul Prager: By locating our operations in regions with abundant, low-cost, predominantly zero-carbon power, we're positioned to thrive in a market where securing clean energy is becoming increasingly challenging.
Paul Prager: The recent regulatory shifts around data centers at nuclear power plants have underscored just how tough it can be to lock down large-scale carbon-free power.
Paul Prager: This is why our Lake Merida facility, with its direct grid connection and robust energy infrastructure, is peerless.
Paul Prager: We believe our energy assets are second to none, and we're laser-focused on leveraging these strengths to continue delivering value for our shareholders.
Speaker Change: I'll now turn it over to Patrick Fleury, who will walk you through the financials in more detail. Patrick.
Patrick Fleury: Thank you, Paul. As Paul stated, the third quarter and beginning of the fourth quarter was a busy time for Wolf with strong financial results, even in a challenging business environment, following the Bitcoin reward halving in April.
Patrick Fleury: In the third quarter of 2024, we self-mined 442 Bitcoin at Lake Mariner and our net share of Bitcoin mined at Nautilus was 113.
Patrick Fleury: for a total of 555 Bitcoin or about 6 Bitcoin per day, a 21% decrease over the 699 Bitcoin mined in 2Q24.
Patrick Fleury: Our GAAP revenues were down 24% quarter over quarter at $27.1 million in 3Q24 from $35.6 million in 2Q24.
Patrick Fleury: Are value per Bitcoin self-mined this quarter, a non-gap metric that includes Bitcoin mined at Nautilus?
Patrick Fleury: averaged $61,075 per bitcoin for a total of $33.9 million as detailed and defined in our monthly operating reports, press releases, and MD&A section of our 10-Q.
Patrick Fleury: As a reminder, there is a key difference between our GAAP financials and the monthly operating reports in 2024 guidance.
due to our 25% historical ownership in Nautilus.
Patrick Fleury: The revenue, cost of revenue, operating expenses, depreciation, and amortization at Nautilus are not consolidated into our GAAP financial statements.
Patrick Fleury: Instead, the financial impact of the Nautilus joint venture is reflected in the equity and net income or loss of investee net of tax line item on the GAAP income statement.
Patrick Fleury: This is the last quarter I'll mention this difference as we sold our 25% ownership in Nautilus for $85 million in cash, effective October 2nd, 2024.
Patrick Fleury: Our GAAP cost of revenue, exclusive of depreciation, for 3Q24 was $14.7 million, a 5% increase over $13.9 million in 2Q24.
Patrick Fleury: The quarter-over-quarter increase was due to a slight increase in realized power prices offset by demand response proceeds of $4.1 million in 3Q24 versus $1.9 million in 2Q24.
Patrick Fleury: Our power cost, or cost of energy per Bitcoin mined, a non-GAAP metric that includes Bitcoin mined at Nautilus, was $30,448 in 3Q24 compared to $22,954 in 2Q24.
Patrick Fleury: 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.
Patrick Fleury: As previously mentioned, these expected proceeds totaled $4.1 million in 3Q24 and $1.9 million in 2Q24.
Patrick Fleury: For 3Q24, we achieved an average power cost of $0.038 per kilowatt hour compared to $0.037 in 2Q24.
Patrick Fleury: Operating expenses decreased 5% quarter over quarter from $1.7 million in 2Q24 to $1.6 million in 3Q24.
Patrick Fleury: FG&A expenses decreased 4% quarter over quarter from $11.9 million in 2Q24 to $11.5 million in 3Q24.
Patrick Fleury: Adjusting for stock-based compensation, SG&A increased 28% quarter-over-quarter from $7.1 million in 2Q24 to $9.1 million in 3Q24.
Patrick Fleury: For our updated 2024 guidance in our 2Q24 slides, with our entry into high-power compute hosting and need for more staff, we anticipate approximately 30 million of sGNA in 2024.
Patrick Fleury: Depreciation increased slightly quarter over quarter from $14.1 million in 2Q24 to $15.6 million in 3Q24, which is the result of our continued infrastructure build-out.
Patrick Fleury: Gain on fair value of digital currency in 3Q24 was $0.9 million, whereas we incurred a loss of $0.7 million in 2Q24.
Patrick Fleury: Impairment of PP&E in 3Q24 was $0.4 million related to the expected sale of 1,200 miners for proceeds of $0.2 million.
Patrick Fleury: Gap interest expense in 3Q24 and 2Q24 was $0.4 million and $5.3 million, respectively, which includes cash interest expense and amortization of debt issuance costs and debt discounts related to the term loan financing.
Patrick Fleury: Cash interest paid during 3Q24 was only $0.7 million due to the full repayment of our debt on July 9th ahead of maturity.
Patrick Fleury: In connection with this voluntary prepayment of debt, the company incurred prepayment fees of $0.9 million, wrote off unamortized debt discount of $3.3 million associated with the principal repaid, and recorded a loss on extinguishment of debt of $4.3 million.
Patrick Fleury: Other income of $0.4 million in 3Q24 reflects interest earned on cash held in our commercial banking account.
Patrick Fleury: In 3Q24, we reported a loss of $2.7 million in equity of investee net of tax as compared to income of $0.8 million in 2Q24.
Patrick Fleury: These amounts represent Terrell's proportional share of net income or loss of the Nautilus joint venture.
Patrick Fleury: Our gap net loss attributable to common shareholders for the third quarter was $23.0 million, compared to a net loss of $11.2 million in 2Q24.
Patrick Fleury: Our non-gap adjusted EBITDA for 3Q24 was $6.0 million compared to $19.5 million in 2Q24.
Thank you very much.
Patrick Fleury: Turning our attention to the balance sheet, as of September 30th, we held $24 million in cash, with total assets amounting to $405 million and total liabilities of $33 million.
Patrick Fleury: As disclosed on page 15 of our November investor deck, we achieved a marginal cost of production, including every cash cost in the company.
Patrick Fleury: of approximately 54,000 in 3Q24 and expect to achieve approximately 59,000 in 4Q24 and 47,000 in 1Q25.
Patrick Fleury: Regarding our anticipated operating performance in 4Q24, Lake Mariner will be taking a planned outage on minor buildings.
Patrick Fleury: 1, 2, and 4, which will impact approximately 5.2 ETH of mining capacity for approximately one week commencing mid-November, as we connect our ultra-high-voltage redundant power feeds
Patrick Fleury: from the grid to support our high-power compute data center infrastructure.
Patrick Fleury: The scope of the outage is focused on the high voltage connection and electrical infrastructure to enable delivery of redundant power supply to CB1 and CB2 in 1Q25 and 2Q25 respectively.
Patrick Fleury: On pages 12 and 13 of the November investor deck, you'll find our anticipated capital sources and uses bridge for 4Q24 and fiscal year 2025.
Patrick Fleury: Regarding our capital position and growth plans over this period, we are funded with over $380 million of unallocated excess cash in 2025.
Patrick Fleury: In October, we opportunistically executed a $500 million convertible financing, utilizing $60 million of net proceeds to purchase a capped call, and thereby neutralizing dilution from the offering until the stock price is 100% above the reference price of $6.40 per share, which is $12.80 per share.
Patrick Fleury: We also simultaneously repurchased $115 million of common stock for approximately 18 million shares. The impact of which results in no effective dilution from the convertible off rate until greater than $18 a share. A huge win for Wolf shareholders.
Patrick Fleury: As discussed on prior earnings calls, we are targeting a high-power compute customer contract with a one-year revenue prepay and expect to execute project financing for approximately 70% of the total project cost.
Patrick Fleury: In 4Q24 and into 2025, we expect the following approximate capital expenditures.
Number one.
Patrick Fleury: $400 million on Wolf Compute and related electrical infrastructure and upgrades at the site, including CB1 and CB2, both liquid-cooled, redundant, and high-power density infrastructure.
Patrick Fleury: expected to be substantially complete in first half 25, bringing our high-power compute co-location hosting capacity to 72 and 1 1⁄2 megawatts.
Number two, $23 million on construction of Building 5.
Patrick Fleury: a 50 megawatt Bitcoin mining building expected to be operational in 1Q25.
Patrick Fleury: And number three, $79 million on minor purchases for Building 5 and our fleet upgrade.
Thank you for watching!
Patrick Fleury: At Wolf, our financial objectives remain clear and simple. Maximize profits, secure long-term high-quality customers and high-power compute hosting, and create value for our shareholders.
Patrick Fleury: all while providing investors access through transparency and accountability. With that, I'll turn it back over to the operator, and we look forward to answering your questions.
and the United States.
Thank you.
At this time, we will be conducting a question-answer session.
Patrick Fleury: If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Patrick Fleury: You may press star and then 2 if you would like to remove your question from the queue.
Patrick Fleury: For participants using speaker equipment, it may be necessary to pick up your chancet before pressing the star keys.
Patrick Fleury: Again, if you would like to ask a question, please press star and then 1 now.
Speaker Change: The first question that we have comes from Lucas Pipes of B Raleigh Securities. Please go ahead.
Thank you very much, operator. Good afternoon, everyone.
Thank you.
Speaker Change: My first question is on slide 12, it shows the remaining spend at CB1, and I wondered how much of this capital has been spent to date on a gross dollar and dollar per megawatt hour basis.
Speaker Change: and how should we think about the first half of 2025 outlay with CB2 construction. Thank you very much.
Hey Lucas, it's Patrick. Thanks for your question.
Speaker Change: So on CB1, just you know, I guess maybe let's just start from the beginning So the Wolf Den of two and a half megawatts
That build cost was approximately $10 million.
Speaker Change: The build cost for CB1 total is about $100,000. So that's a 20-megawatt building, so about $5 million per megawatt to build. And then the build cost for CB2, which is...
50 megawatt building is call it 250 to 300.
and the other one.
Speaker Change: and so about, you know, five and a half-ish million per megawatt.
Speaker Change: And so, you know, as you can imagine, Wolfenstein is operationally complete.
Speaker Change: CB1 is going to be complete operationally at the end of the first quarter, so that money is going out the door very quickly these days.
Speaker Change: CB2 will be operationally complete end of the second quarter. So there's just, there's a lot of capital moving out the door here over the next, you know, couple months.
Patrick, this is very helpful. Thank you.
Speaker Change: In terms of the first customer expected by year-end, I wondered if you could...
Speaker Change: give us a sense for the magnitude in terms of megawatts. How should we think about contract structure and other multiple counterparties that you're in discussions with for an anchor position? We're having mostly narrowed down here to maybe one party. Thank you. Thank you for any color.
Speaker Change: Paul, do you want to take that or would you like me to?
Why don't you start?
So, Lucas, I think we will likely have...
one or two customers for the 72.5 megawatts?
Those negotiations are very advanced. I think as we've said...
that, like I said, will cover
Speaker Change: all of our initial capacity through the first half of next year, and that will be one or two customers.
Speaker Change: Beyond that, I think we're being very careful. I mean, as we're all seeing, the market is incredibly dynamic, particularly with the FERC ruling from a couple of weeks ago. And we may have that same customer or customers.
Speaker Change: will most likely have options for additional capacity, but that will be options that have to be exercised by a date certain.
Speaker Change: along with a one-year revenue prepay that comes simultaneous with the option.
Speaker Change: that will then allow us to go get that project financing because we'll have an actual lease, we'll have a one-year revenue prepay.
Speaker Change: And then obviously, we're going to have existing buildings operating at the site, and as you know, it's always
Speaker Change: easier to get a project financing done when you can point to existing infrastructure that is operating.
Speaker Change: So that's the intention. And like I said, I think we're...
Speaker Change: just the scramble for power has only intensified since the FERC ruling and so we just want to make sure that you know all of our future capacity megawatts that we get the best deal. So I think that's where we stand. Paul, do you want to add anything?
Thank you.
Paul Prager: No, I think that's right, and I think, you know, I would want to underscore what Patrick just said in closing, which is that as a result of the recent FERC ruling, it's not clear to us that one can't assume that there'll be...
Paul Prager: better more enhanced contract terms and values. So I don't think that we need to rush beyond the initial 70
Paul Prager: 2 megawatts, but of course we're prepared to do that With the right customer as long as contract terms are in the interest of Russia air holders
Thank you.
Speaker Change: Paul, Patrick, this was very comprehensive. I really appreciate all the color and to you and the entire team, continued best of luck.
Thanks, Lucas.
and many more. Thank you. Thank you.
Speaker Change: Thank you. The next question we have comes from Mike Grondel of Northland Securities. Please go ahead.
Hey guys, thank you.
Speaker Change: You know, Patrick and Paul, on the demand environment, you know, it sounds very robust and it sounds to be intensifying. Any sense you can give us just on
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Speaker Change: I think there's, you know, there's some private deals that have been done and I think
Speaker Change: Pricing, you know, per kilowatt hour has increased on the margins. I think there were more parties prepared to meet the
Speaker Change: terms that Patrick outlined in response to Lucas and there are, there seems to be a greater interest to tie up as many megawatts as possible now.
Speaker Change: with one party as opposed to sort of look from multiple sites. So I think the FERC ruling has resulted in higher value sites and targets are going to see higher values.
Speaker Change: The National Security Council has been a part of the National Security Council.
Yeah, Mike, I would just add to that, too, right?
Speaker Change: Our site is a retired coal plant, so we're blessed with a lot of critical electrical infrastructure at the site, along with access to land, water, and
Speaker Change: The FERC ruling really puts a point on that, because if you are in PJM or if you have behind the meter generation, then you have to deal with FERC. At a site like ours, we don't.
Speaker Change: at sites in Texas, for example, because they're caught in Electric Island. They don't. So I think what we're seeing is certainly even just post the ruling.
Speaker Change: Sites that have access to a lot of power and land and water and are very sizable are Sort of moving up in the pecking order and getting a lot more attention
Got it. And then, Patrick, to you.
Speaker Change: I think it was on the last conference call you kind of began to outline how you guys were going to be able to do HPC.
Do you feel even better about that today?
Speaker Change: You know, what have you kind of learned through that process the last 90 days?
Speaker Change: Yeah, look, I would say it's nice to not be on an island.
Speaker Change: I think it's other people on this call, I'm sure, listening to...
Speaker Change: You know, Novogratz on the Galaxy call talk about how project financing is readily available, right? And there's other
Speaker Change: peers of ours that are in that market now too. So that market is getting much more developed. You know, as you know, we've always been saying that, you know, we've, that's been our plan from day one, but it's nice to see that market get more robust. But yeah, I mean, I think if you look on page 13 of our slide deck and, you know,
Speaker Change: We sort of go through painstaking detail on pages 12 and 13 to show you, but I hope page 13 hits people right on the forehead. I mean, we have a lot of unallocated cash.
Speaker Change: And so, if the market's not trading us at the right multiple, I think, you know, we've shown we've authorized the $200 million buyback, we've bought back $115 million of stock.
Speaker Change: This management team, board, and insiders own about 30% of the equity of the company.
So...
Speaker Change: Yeah, I mean, we're well on our way now with the convert and, you know, no effective dilution under $18 a share. So, yeah, I mean, I'm really excited.
Speaker Change: I think for a long time, as you know, I've been talking about being the first bitcoin miner to go the other way, to buy back stock or pay a dividend and start returning cash to shareholders.
Speaker Change: And I would just add, I think I am extremely proud of this team, you know, everyone from the site-level folks that are operating, to the management team, that we have broken that ceiling and are the first ones. And not only that, but you look at this quarter, we had a positive EBITDA quarter.
Speaker Change: I can name four or five of my peers that, you know, claim to be sort of industry leaders that are, quote, bigger and badder than we are, that all lost money on the EBITDA line mining Bitcoin this quarter.
Speaker Change: It's just not a viable long-term business, and I get Bitcoin's flying now, I get it, but you've got to make money in your underlying business, and we do.
Speaker Change: Hey Mike, just to get back to where the question was.
Speaker Change: Should get back to where the question started, though, I want to emphasize on the project finance side. You know, it is readily available, but it is heavily credit...
Speaker Change: Sip through all the customers to try and come up with
Speaker Change: What's the best possible determination from a credit and from contract terms so that we can enable that project financing?
Speaker Change: And so I think in the end, our investors will determine it was time well spent. But this is all about creating value for the shareholders, and project finance of high-speed compute and AI is the way to do it.
The National Security Council has been
Thanks guys.
Speaker Change: Thank you. The next question we have comes from Brett Knobloch of Council Fitzgerald. Please go ahead.
Speaker Change: Hi guys, thanks for taking my question. Maybe if we could start just on what you guys are currently expecting for the back half of next year. I'm going to say this knowing you guys still have a lot in your place with the 20 and 50 megawatt building.
Speaker Change: But should you want to start building called CD3, I would assume a lot of those long-lead items will need to be ordered somewhat shortly. Should we be peddling in anything for the back half of next year, or how are you guys just thinking about that now?
Thank you for watching!
Speaker Change: Yeah, look, good question Brett. I think we will provide 25 guidance, you know, when I think when we put our, file our 10k in February, but for now
Speaker Change: I would just say we have on page 17 what we're capable of delivering, but whether we do that will depend on our customers and how fast or slow they want to run. Because remember, it's not just...
Speaker Change: you know, what can we deliver? I mean, we can deliver that capacity, but it's a function of
Speaker Change: where is our customer with NVIDIA? Where are they on their capital raise? Where are they with their end market demand? So there's a lot of different factors that go into sort of how fast or slow.
The customers want to put up
Speaker Change: capacity but we can run as fast or as slow as they want. So I think you know page 17 shows what we're capable of doing and I think we'll be able to provide you with more color once we announce the customer contract and then once we provide guidance in February.
Speaker Change: Okay, now that's helpful. On the Wolf Den, what is the current game plan for using that given it is operational today? Is this something that could be generating revenue in the current quarter?
Speaker Change: Yeah, it's operational today, but what we've found is, and if you remember, initially,
Speaker Change: We were contemplating for a hot second, you know, to buy GPUs and put them in there ourselves.
Speaker Change: quickly garnered is all of our customers want all of our capacity.
So and we don't
Speaker Change: You know, we don't have the same cost of capital as...
Speaker Change: Amazon or Microsoft or Meta or Google or any of the hyperscalers. So we don't want to be in the GPU as a service business. That's not what we know best. We know energy, power, infrastructure. And so we didn't want to be competing with our customer. And they want all that capacity and the highest and best use of that.
Speaker Change: from a valuation perspective is to run it, you know, for our customers. So that's what we'll be doing and I think you'll see that capacity go to the customer or customers that I referenced before.
Speaker Change: Thanks, Todd. Maybe just one more. I know you guys are currently eminently waiting another 250-megawatt approval from the utility. I guess any update on timing for that? I mean, is that something that's needed before you can sign the customer contracts?
Speaker Change: So the short answer is no. The timing of that is...
Speaker Change: end of fourth quarter, beginning of first quarter. And like I said, we expect that capacity when you're looking at what we're bringing online by the middle of next year, we expect to be able to start pulling that energy the middle of next year.
and the
Perfect. Thanks. Really appreciate it guys. Thanks
Speaker Change: Thank you. The next question we have comes from Darren Aftai of Roth Capital Partners. Please go ahead.
Speaker Change: Hey, this is Dylan for Darren. Thanks for taking my questions. To start, when you look at some of the timelines on HBC, like how long is the delay between when you
Speaker Change: sort of finish the construction of these next two buildings and obviously you plan on announcing a customer by year-end and when they can sort of get GPUs in there and start charging revenue.
Speaker Change: Yes, so I think, and I apologize if I'm missing a question, I think we were asking is...
Speaker Change: You know, we're completing, Dylan, you know, the Wolf Den is operational complete. CB1, the 20-megawatt building, will be operationally complete, you know, end of first quarter. So, I think, realistically, you know, and you can see this on page...
on page 13 of our deck.
Speaker Change: But the cash from operations, the cash flow from operations in 2025, you know, we've assumed, you know, that CB1 and CB2 are operating for nine months and six months respectively, like revenue generating.
The National Security Council has been
Speaker Change: Got it, thanks. And then, I mean, considering the fleet upgrades you're doing on the 195 megawatts of Bitcoin mining, like, how do you think about the long-term economics of Bitcoin mining versus some of the negotiations you're having for HPC, especially if that might see more favorable contract terms for the next 100 megawatts or next 250 that you might have available long-term?
Thank you.
Speaker Change: Yeah, it's a great question. Look, I mean, we're power folks, so we think about everything on a dollar per megawatt hour. And if you think about...
Speaker Change: the midpoint of you know our data on page 16 you know that's roughly put like 1.5 million of revenue per megawatt is roughly equivalent to a hundred and fifty dollars a megawatt hour
and so
Speaker Change: You know that's a like we're saying 70% margin business, so you're making a margin of about you know 100 bucks a megawatt hour
Speaker Change: And so, you know, depending upon what type of miner you're mining with today, right, you can back into, you know, what your profit is on a dollar per megawatt hour basis. And I think the tough part about that, right, is
Speaker Change: People tend to look at Bitcoin in isolation, but you can't do that. You have to look at network hash rate as well, right? Which is why I think when you go look at, you know, whether people made money this quarter or not, like a lot of our peers didn't make money.
Speaker Change: And that's, it's not just, you know, you need Bitcoin price to increase at a higher rate than network hash rate. And so, I think that...
Speaker Change: It's tough to answer just given the volatility of Bitcoin price and network hashrate, but look, I think what we've said, certainly the next...
Speaker Change: 500 megawatts of expansion for us is in high-power computing AI and that will probably coincide with the next
Speaker Change: Having so we've got plenty of running room and then time to decide whether you know We keep mining Bitcoin or or not, but you know, we've got plenty of time to play that out
Great, thank you.
Thank you. Thank you.
Speaker Change: Thank you. The next question we have comes from Joe Flynn of Compass Point Research and Trading. Please go ahead.
Speaker Change: Hi, thanks for the question. And to piggyback off an earlier question, following the 250 megawatts of New York ISO approvals, how early do you expect to be in the queue to request the additional 250? And then it also looks like the Cayuga Lake requests have already been submitted, so if there's any color you could add there, that would be very helpful.
Thanks for watching!
Speaker Change: Yeah, Paul, I'll take that, then maybe you can add some color. So, hey Joe, so
Speaker Change: The short answer is, you know, that getting in the queue for the next $250,000 will depend upon...
Speaker Change: Again, how fast or slow our customers want to run with expansion.
Speaker Change: but that's a process that we're very familiar with at this point and you know so I just I don't know is the short answer yet but I if I had to guess my guess would be you know probably at some point next year we start that process again.
Speaker Change: Whether it's, you know, first half or second half, I'm not sure. It's just going to depend on the cadence of the build-out. And then with regard to Cayuga, look, that's a great asset similar to Lake Mariner. It is owned in a private company.
Speaker Change: But I don't know, Paul, if there's any other color you want to add.
Cayuga started this process to ensure that at some point...
Speaker Change: It can meet the needs of a company like Terrewolf, and if that's something that Terrewolf and their customers and shareholders, you know, think are in the best interest of our shareholders, then there'll be a process, you know, an independent...
Committee of the Board and
Speaker Change: you know, valuations and contract terms reviews by independent counsel for the independent committee and all that sort of good stuff. But Cayuga's not sleeping and they're doing what they need to do because time to power is the most critical thing for TeraWolf's customers and TeraWolf wants to ensure that they're doing what they need to do, and they're doing what they need to do
Speaker Change: that they can meet those needs by both, you know, the assets we currently have and the assets that are, that, you know, we're looking at as part of our development pipeline.
Great, I appreciate the call, Eric. And then, um...
Speaker Change: Patrick, on Figure 13, you talk about the $387 million of unallocated cash following the prepay and project financing. Do you see an opportunity to be kind of opportunistic with the remaining buyback there and just go forward? Do you expect the process of adding additional megawatts to be a CapEx component that you guys are going to take care of up front? Or do you think the remaining, kind of call it $250 million, would be primarily project finance, like, funding?
first, and then
You know, collate the additional.
shareholder return opportunities.
Thank you.
Speaker Change: Yeah, great question Joe. So we're going to try in the future
Speaker Change: But I mean, I guess as I look at next year, I think what we'll probably do is middle of the year.
Speaker Change: will take ourselves out of effectively equity funding Wolfden, CB1, and CB2. So that's on page 13 or sorry on page
Speaker Change: Yeah, sorry, on page 13, that's the big blue $260 million project financing bar. So that's financing those three buildings.
Speaker Change: for the future going forward, like I said, as customers execute.
Speaker Change: options for additional capacity. The way we're setting that up is, you know, at the time of the execution of the option, they're required to make a one-year revenue prepay, which will allow me to go do the project financing up front.
Speaker Change: so I won't have to equity fund it, so that would mean, you know, that full $387 million is fully, you know, unallocated and available. That's the goal.
and many more. Thank you. Thank you.
Great, thanks.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Thank you. The next question we have comes from Brian Dodson of Clear Streets. Please go ahead.
Speaker Change: Thanks very much for taking my question. So your comments regarding continuing progress toward an HPC contract this year, very encouraging. You know, you mentioned that you were in advanced discussions. Were those parties able to view your Wolfden proof-of-contact facility and what was their feedback, if any?
Thanks for watching!
Hi, this is Paul.
Speaker Change: The customers that we have engaged with in advanced discussions have all been to the site, have all seen what we've done there, and have had advanced discussions on the operation and construction level with members of Terrel Wolf.
Speaker Change: To be honest, they were uniformly pleased with what we've got there. It was a difference, I think, with one of the customers. It's all about where they want to put the cooling. Do they want to put it in the rack? Do they want to put it in the building?
Speaker Change: That drives cost, so that led to more discussions, but people were really, they loved the site and they wanted as much of it as they could.
Great, thanks for that color.
Speaker Change: And I guess as a second question, you know, there's been obviously a lot of discussion in the industry regarding the recent election and administration change in Washington. Is there anything that you'd like to add to that discussion? And what do you think clearer regulation could do for the industry over the next several years?
Sure, I'll start if that's okay Patrick.
Speaker Change: You know, we want to think about it in two ways.
Speaker Change: The first, going back to the question just asked about Patrick about, you know, three-and-a-half years, you know, post-having, how do we think about...
you know, Bitcoin mining versus using...
Speaker Change: those megawatts that are currently allocated to Bitcoin mining to high-power compute? And the answer is, we still have plenty of runway, as Patrick said, before we have to make that conclusion. For the meantime, Bitcoin is really performing very well.
and we'll just have to see where Bitcoin goes.
Speaker Change: as we think about it, but again, the higher the price...
Speaker Change: The higher the hash rate, the higher the expense it is to buy machines out of Bitmain.
Speaker Change: So, I think there are other questions that we'll want to consider at the time. I think we'll see a different...
Speaker Change: C.A.I. company as opposed to a company that also has Bitcoin mining.
Though now, under a new administration, investment in Bitcoin miners
Thank you.
Speaker Change: may be perceived differently by both investors, banks, stuff like that. From a regulation perspective,
Listen, the last time President Trump was in office...
There was a difference in
in the regulatory bodies.
Speaker Change: and the time it took to get things done in the real estate and power side. We're energy infrastructure folks here.
Speaker Change: quality energy infrastructure projects to get up and running with greater agility and maybe with a little less operating burden. But I think the important elements of regulation
Speaker Change: Like, you know, with respect to the environment, they'll stay because it's in the best interest of everybody.
Speaker Change: And it's why we've stayed focused on locating our facilities where there was, you know, 91%, you know, green energy as a resource.
You know, nuke is a ways off and
Speaker Change: The time to power is everything right now for the customers that we're speaking to.
Speaker Change: You know regulation is only part of the puzzle in terms of meeting the need for energy infrastructure
Thank you.
Speaker Change: Thank you. The next question we have comes from John Tadaro of Freedom and Company. Please go ahead.
John Tadaro: Hey guys, two questions for you around basically the leak that's coming up. First off, that slide that you've referenced where I think it's 1.3 to 1.8 million per megawatt in the economics
John Tadaro: I believe you've had that for a while, so just wondering if given the demand we're hearing from you and peers Is there's potential to kind of walk that up and then second
John Tadaro: are kind of the key economics around this lease already agreed to? What are the kind of the sticking points if there are any? Are we kind of in the home stretch just trying to get a little bit sense of timing around that?
Speaker Change: Yeah, I'll address that first. So, John, on page 16, you know, we've had this deck, this page in our deck.
Since May
Speaker Change: We did make some small tweaks to it, you'll notice if you look carefully, but anything that we didn't tweak means we didn't tweak it. So, it exists on page 16 in its full glory, and then I'm not going to answer any of the second part of your question due to material non-public information concerns.
Speaker Change: But you guys are still I guess expecting kind of before year-end and is there just kind of a degree of confidence we can get around that?
[inaudible]
Speaker Change: And I would tell you that, you know, terms and all that's fungible, but again...
Speaker Change: Our focus is on a fantastic quality credit that will enable us to go out and project finance CB1 and CB2 and so And so while there may be a ton more people Looking for power. I think we're limiting our focus to the customers that
Speaker Change: We think are real thoughtful. We think could provide the requisite guarantees. We think would be known to the market or quickly can educate the market as to their financial credibility and and they could meet
Speaker Change: While we may be able to have multiple customers on site, I think from a scale perspective and just in building the relationship with a data center customer, it would be ideal if we could work with a couple, maybe two or three and not more.
You know
Speaker Change: I could take a an easy shot here and tell you anytime you have lawyers involved, things take longer than you hope, but we have lawyers involved and we will have a customer by your end.
Got it. Great. Well, thank you guys. Appreciate it.
Speaker Change: Thank you. The next question we have comes from Kevin Cassidy of Rosenblatt Securities. Please go ahead.
Kevin Cassidy: Yes, thanks for taking my question. And just just for clarity, the redundant power that you're bringing in, is that only for the co-location area?
Yeah, so...
Speaker Change: Kevin, I'm going to answer that question, and then I'm going to double back with my operations team and make sure I got it right, but I'm fairly certain I do, which is the site. Yeah, right now we have redundant power, believe for all 250 megawatts, but as the site expands.
Kevin Cassidy: That redundant power, I think, will likely remain principally focused on the high-power compute hosting buildings. We don't need necessarily redundant power for Bitcoin mining. I mean, our site has literally only gone dark.
Kevin Cassidy: once in the last 45 years, in 2003, in the Great Blackout. So I'm not overly concerned about redundant power at the Bitcoin mining facilities, but most certainly are...
Kevin Cassidy: High Power Compute customers are, which is understandable, so the redundant power will be principally focused on those operations.
Kevin Cassidy: And please remember that the principals both on-site and in management here at Terrewolf operated that as a power plant for a real long time prior to shutting down.
Kevin Cassidy: mitigating in a deal with the state. So we're pretty familiar with with how that site works.
Kevin Cassidy: And again, we think Bitcoin is a really flexible load. High-speed compute and AI is not, and our customers don't want to be as flexible, though they're willing to be far more flexible than I think the data centers of old.
will have that redundancy there for them.
Speaker Change: Okay, great. Thanks for clearing that up. And then also when you sold Nautilus, you've got a lot of mining machines. Are those being installed in at Lake Marin or are you going to sell those?
Thanks for watching!
Speaker Change: So both is the short answer, Kevin. So I think in our deck we put on page seven. So we did sell the majority of the miners.
from Cumulus.
Speaker Change: for about $10.5 million that's been realized and sold. And then we did change out some of the XPs. And you can see the sort of movement on page eight of our deck, like what we took out, what we installed.
Speaker Change: But we just are trying to get a more efficient fleet. So the miners that were more efficient, we took. The miners that were less efficient, we sold and monetized for cash.
Okay, great. Thanks.
Speaker Change: The National Security Council has been a part of the United States.
Speaker Change: Thank you. The final question we have comes from Bull Papa Nastassio of Stifle. Please go ahead.
Speaker Change: Yeah, good evening gentlemen, and thanks for taking my questions. Patrick, I appreciate the comparative analysis that you provided between Bitcoin mining economics and the core scientific deal. Curious if you can share some general thoughts on how demand for power capacity has trended as your discussions with the hyperscaler have become more and more advanced.
Speaker Change: How sustainable is this level of demand for power that's set to come online in 2026 and onwards? Can the engine keep running at the same cadence?
Speaker Change: Yeah, Paul, do you want me to take that or do you want to take it?
I'm happy to I mean
Speaker Change: Listen, there's significant growth expected. You know, McKinsey said data center demand would triple by 2030, driven predominantly by the high-speed computer workloads, which are projected to grow from 40 to over 70% of our total power capacity by 2030. I mean, historically, power demand has grown at 1% per year. I'm now seeing 5% annual growth.
Speaker Change: This highlights, if anything, the growing scarcity of power. I'm not, you know, as I said earlier...
Speaker Change: Gas plants, four years. Four years, if you think about it today, and you're ready to roll. Snooks, long ways off. So, I think that the demand is real. I think it's the beginning, not the end. I think it's the tip of the iceberg, if you will. Particularly as the...
enterprise customers choose to come online.
So, um...
Speaker Change: I think TeraWolf is very well positioned because of the site we have and the experience of the team as energy infrastructure developers. So I'm very constructive with respect to TeraWolf in this power-hungry environment.
Thank you.
Speaker Change: Ladies and gentlemen, we have reached the end of our question and answer session. I would now like to turn the call back to Paul Prager for closing comments. Please go ahead, sir.
Paul Prager: Sure. Thank you, operator. Before we close today's call, I just want to leave you all with a few final thoughts.
Paul Prager: Tara Wolf is clearly leading the charge with top-tier assets, industry-best unit economics, and unrivaled skill ability in our owned infrastructure.
Paul Prager: As a significant shareholder myself, I am fully aligned with our commitment to accretive growth and maximizing value for our shareholders.
Paul Prager: We are optimistic about what lies ahead. We're confident in our strategy to deliver sustainable growth.
Paul Prager: I thank you all for participating this evening and for your continued trust.
Speaker Change: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
The National Security Council has been
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