TERAWULF INC. (WULF) FY 2024 MD&A

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the other Items included in this Annual Report on Form 10-K (the “Annual Report”) and with the accompanying consolidated financial statements and notes thereto included elsewhere in this report. All figures presented below represent results from continuing operations, unless otherwise specified. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Consolidated Financial Statements. Unless the context otherwise requires, references in this Annual Report to the “Company,” “TeraWulf,” “we,” “us” or “our” refers to TeraWulf Inc. and its consolidated subsidiaries. Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations may be deemed forward-looking statements. See “Forward-Looking Statements.”

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This MD&A generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included, and can be found in "Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

We are a vertically integrated owner and operator of next-generation digital infrastructure, purpose-built to support bitcoin mining and HPC workloads. With a strong commitment to sustainability, our operations are powered predominantly by zero-carbon energy, reinforcing our focus on environmentally responsible data center operations in the United States. By leveraging clean, cost-effective, and reliable energy sources, we aim to drive long-term efficiency and resilience within the digital infrastructure sector.

Our primary operations are centered at the Lake Mariner Facility, strategically located on the shores of Lake Ontario. Developed on the site of a decommissioned coal-fired power plant, this expansive facility is designed for scalable growth, with the ability to expand up to 500 MW in the near term and up to 750 MW with targeted transmission upgrades. Purpose-built to support both bitcoin mining and GPU-driven HPC workloads, the Lake Mariner Facility is well-positioned to meet the rising demand for compute-intensive applications. This dual-purpose strategy enhances operational efficiency, diversifies revenue streams, and strengthens our position in the evolving digital economy.

Bitcoin and Blockchain

Bitcoin, introduced in 2008, revolutionized digital finance by enabling a decentralized system for exchanging and storing value without reliance on traditional financial institutions. It operates on a public ledger known as the “blockchain,” which records every transaction transparently and securely. This decentralized structure eliminates the need for intermediaries, enhancing transaction efficiency while making the network resilient to censorship and fraud. Unlike fiat currencies, bitcoin is not controlled by any government or central bank, reinforcing its role as a scarce, independent store of value.

Bitcoin mining is the process of validating transactions and securing the network through proof-of-work consensus, where miners solve complex cryptographic puzzles to add new blocks to the blockchain. The network is maintained by a global pool of distributed nodes, ensuring transaction integrity and preventing double-spending. Key factors influencing mining economics include computing power, energy costs, and network difficulty, with miners competing to maximize their share of the total computational power (hashrate) deployed on the bitcoin network. As more miners participate, the network difficulty adjusts dynamically every 2,016 blocks (approximately every two weeks) to maintain a consistent block creation rate.

Bitcoin Reward Halving

Bitcoin’s supply issuance follows a predefined halving schedule, reducing the block reward by 50% approximately every four years. This mechanism enforces a controlled supply of bitcoin, contributing to its scarcity and long-term value proposition. The total bitcoin supply is capped at 21 million coins, and halvings will continue until this limit is reached.

The most recent halving occurred on April 19, 2024, reducing the block reward from 6.25 to 3.125 bitcoin per block. While the halving decreases the direct mining subsidy, transaction fees remain an additional source of miner revenue. This built-in supply constraint influences mining economics and often plays a role in bitcoin’s long-term price dynamics.

Business Strategy

Our strategy is centered on leveraging our owned and scalable digital infrastructure to drive revenue and profitability through both bitcoin mining and HPC hosting. As a vertically integrated operator, we own and control our infrastructure, allowing us to optimize efficiency, reduce costs, and maintain a highly competitive cost structure.

While bitcoin mining remains a core focus, we are strategically transitioning an increasing portion of the Lake Mariner Facility to support HPC hosting and colocation. This shift allows us to capitalize on the growing demand for AI, machine learning, and cloud computing workloads while further optimizing our power utilization and digital infrastructure.

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A key milestone in this transition occurred on December 22, 2024, when we signed a multi-year data center lease agreement with Core42, securing 72.5 MW of HPC hosting capacity at the Lake Mariner Facility for GPU compute workloads. This agreement includes an option to expand by an additional 135 MW through March 31, 2025, enabling total deployments to Core42 of up to 72.5 MW in 2025 and 135 MW in 2026. This development accelerates our HPC hosting expansion, positioning us at the intersection of energy and digital compute infrastructure. To support this expansion, we have expanded our digital infrastructure at the site, featuring advanced liquid cooling systems and Tier 3 redundancy. This infrastructure will be optimized for high-density compute workloads, reinforcing our ability to attract hyperscale and enterprise customers.

By prioritizing cost-efficient power utilization, sustainability, and scalable infrastructure, our strategy positions TeraWulf to maximize value creation while adapting to the evolving landscape of digital asset mining and AI-driven computing. Looking ahead, we remain focused on expanding our infrastructure, optimizing operations, and strengthening our competitive advantage in both bitcoin mining and HPC hosting.

Our Facilities

During the year ended December 31, 2024, we operated bitcoin mining activities at two data centers: the Lake Mariner Facility and the Nautilus Cryptomine Facility in central Pennsylvania. In October 2024, we sold our entire equity interest in Nautilus, allowing us to consolidate operations and reinvest in future infrastructure growth.

Lake Mariner Facility

Strategically located in Barker, New York, on the site of a former coal-fired power plant, the Lake Mariner Facility began operations in March 2022, designed to support sustainable bitcoin mining. As of December 31, 2024, the facility was operating 195 MW of bitcoin mining capacity, with an additional 50 MW under construction and expected to come online in the first half of 2025. Additionally, the Company is developing HPC data centers at the Lake Mariner Facility to provide HPC hosting services for Core42, supporting up to 72.5 MW of data center infrastructure dedicated to GPU compute workloads. This capacity is expected to come online throughout 2025. Core42 also has an option, exercisable through March 31, 2025, to secure an additional 135 MW of data center infrastructure at the Lake Mariner Facility.

The Company has a PPA with NYPA, securing 90 MW of high-load factor power to support its bitcoin mining operations. The PPA, executed in February 2022, has a ten-year term from the commencement of NYPA’s power delivery. The Lake Mariner Facility is built for scalable expansion, with the ability to grow up to 500 MW in the near term and potentially 750 MW with targeted transmission upgrades. Its strategic location and access to low-cost, predominantly zero-carbon energy make it a highly attractive site for both bitcoin mining and HPC workloads.

As of December 31, 2024, we owned approximately 62,000 miners, of which approximately 58,800 are operational at the Lake Mariner Facility with the remainder undergoing maintenance, awaiting disposal or on standby to replace miners under repair. These miners were comprised as follows:

As of December 31, 2024, our fleet of miners ranged in age from 0.1 to 2.6 years and have an average age of approximately 0.7 years. We do not have scheduled downtime for our miners; however, while we periodically perform unscheduled maintenance on our miners, such downtime has not been significant historically. When performing unscheduled maintenance, depending on the length of estimated repair time, we may replace a miner with a substitute miner to limit overall downtime. As of December 31, 2024, our fleet of miners at the Lake Mariner Facility had a range of energy efficiency from 15 to 23 joules per terahash (“j/th”) and has an average energy efficiency of 19.8 j/th.

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Nautilus Cryptomine Facility

The Nautilus Cryptomine Facility, located in Berwick, Pennsylvania, was a joint venture between TeraWulf and Talen Member. The Nautilus Cryptomine Facility was a 200 MW bitcoin mining operation, situated adjacent to the 2.5-gigawatt nuclear-powered Susquehanna Station and was the first bitcoin mining site powered entirely by behind-the-meter, zero-carbon nuclear energy, operating under a fixed-rate power contract of 2.0 cents per kilowatt-hour for a five-year term, with options for two three-year renewals.

Under the terms of the joint venture agreement, TeraWulf held a 25% equity interest in Nautilus, while Talen Member held a 75% equity interest, with ownership subject to adjustments based on capital contributions. TeraWulf began mining bitcoin at the Nautilus Cryptomine Facility in the first quarter of 2023, with an allotted 50 MW of operational capacity prior to divesting its interest in Nautilus in October 2024. While holding a 25% equity stake, TeraWulf’s share of mined bitcoin was determined by relative hashrate contributions. The Company had contributed approximately 1.9 EH/s of the facility’s total 5.2 EH/s capacity, representing approximately 35.7% of the total hashrate attributed to the Company. At the time of TeraWulf’s ownership, the Nautilus Cryptomine Facility deployed approximately 48,000 miners, of which 15,800 miners were attributed to TeraWulf’s contributions to utilize its 50 MW allotment.

In October 2024, TeraWulf sold its entire equity interest in Nautilus, allowing the Company to reallocate capital toward expanding its digital infrastructure at the Lake Mariner Facility and advancing its HPC hosting strategy. As part of the transaction, Nautilus distributed to TeraWulf all of its right, title, and interest in its miners, as well as certain other related equipment. Following the sale, TeraWulf deployed 12,300 S19 XP miners and sold or otherwise disposed of 35,700 miners as of December 31, 2024.

Bitcoin Mining - Combined Facilities

As outlined above, several factors influence our ability to mine bitcoin profitably, including bitcoin’s USD value, mining difficulty, global hashrate, power costs, fleet energy efficiency, and overall data center efficiency. Among these, energy efficiency is a critical driver of profitability, as power costs represent the most significant direct expense in bitcoin mining. We believe we operate a highly efficient mining fleet, optimized to maximize output while minimizing energy consumption. To assess operational performance and effectiveness, the Company tracks key metrics, which we believe are also valuable to investors for evaluating our progress and benchmarking against industry peers.

The table below presents our miner efficiency and computing power as compared to the global computing power as of December 31, 2024 and 2023:

(1) Results as of December 31, 2023 reflect hashrate of mining operations at the Lake Mariner Facility and TeraWulf’s net share of hashrate produced at the Nautilus Cryptomine Facility.

(2) Total global hashrate obtained from YCHARTS (https://ycharts.com/indicators/bitcoin_network_hash_rate)

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

(4) While nameplate inventory at the Lake Mariner Facility was 9.7 EH/s as of December 31, 2024 and was 5.5 EH/s for TeraWulf’s two facilities as of December 31, 2023, inclusive of gross total hosted miners, actual monthly hashrate performance depends on a variety of factors, including (but not limited to) performance tuning to increase efficiency and maximize margin, scheduled outages (scopes to improve reliability or performance), unscheduled outages, curtailment due to participation in various cash generating demand response programs, derate of ASICS due to adverse weather and ASIC maintenance and repair.

As of December 31, 2024, our operating hashrate represented approximately 1.4% of the total global hashrate, aligning with our share of global blockchain rewards. As of that date, this translated to approximately 6 bitcoin mined per day. To maintain profitability, we focus on optimizing operational efficiency and cost management, ensuring that our mining rewards consistently cover direct operating expenses.

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The table below presents the average cost of mining each bitcoin, including bitcoin mined at the Lake Mariner Facility and the Company’s net share of bitcoin mined at the Nautilus Cryptomine Facility, for the years ended December 31, 2024 and 2023 and the total energy cost per kWh utilized within the facilities.

(1) “Cost to mine one bitcoin” is a cash cost metric and does not include depreciation. Although the Company recognizes depreciation with respect to its mining assets, it does not consider depreciation in determining whether it is economical to operate its mining equipment. As a result, the Company does not consider the sunk costs or depreciation of past capital investments in its historical or forecasted breakeven analysis. If depreciation of our miner fleet were factored into the above cost of mining analysis, it would add $22,086 and $9,892 per bitcoin mined for the years ended December 31, 2024 and 2023, respectively, bringing the total “cost to mine one bitcoin” to $47,354 and $18,598 for the years ended December 31, 2024 and 2023, respectively.

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

(3) Excludes bitcoin earned from profit sharing associated with a bitcoin miner hosting agreement that expired in February 2024 at the Lake Mariner Facility of 6 and 64 bitcoin for the years ended December 31, 2024 and 2023, respectively, and includes TeraWulf’s net share of bitcoin mined at the Nautilus Cryptomine Facility, based on the hashrate share attributed to the Company.

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

Power costs are the most significant expense in our bitcoin mining operations, accounting for 40.1% and 29.4% of the total value of bitcoin mined for the years ended ended December 31, 2024 and 2023, respectively. The increase in power costs as a percentage of bitcoin mined in 2024 compared to 2023 was primarily driven by a near doubling of network difficulty and the bitcoin halving event in April 2024, which reduced block rewards. These impacts were partially offset by growth in our average operating hashrate and an increase in the average market value of each bitcoin mined.

Energy prices are highly volatile, influenced by global events that can drive nationwide fluctuations in power costs. At the Lake Mariner Facility, power costs are subject to variable market rates, which can change hourly based on wholesale electricity pricing. While this introduces some unpredictability, it also provides us with the flexibility to actively manage our energy consumption, optimizing for profitability and efficiency. Energy prices are also highly sensitive to weather conditions, such as winter storms and polar vortices, which can increase regional power demand and drive up costs. During such events, we may curtail operations to avoid consuming power at peak rates, or we may be curtailed under demand response programs in which we participate. For the years ended December 31, 2024, and 2023, the average aggregate realized power prices at the Lake Mariner Facility and Nautilus Cryptomine Facility were $0.043 and $0.032 per kilowatt hour, respectively.

Our management team continuously monitors market conditions to determine when and for how long to curtail operations. If curtailment is not mandated under demand response programs, we make real-time decisions to curtail mining whenever power prices exceed the value of the fixed bitcoin reward. As a result, curtailment increases when bitcoin’s value declines or energy prices rise, and decreases when bitcoin’s value appreciates or energy costs fall. These decisions are actively managed on an hour-by-hour basis to optimize profitability.

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During the years ended December 31, 2024 and 2023, we curtailed operations at the Lake Mariner Facility in response to weather events, energy price spikes, and participation in demand response programs. The Company records expected payments to be received for demand response programs as a reduction in cost of revenue, which amounted to $8.6 million and $3.5 million for the years ended December 31, 2024 and 2023, respectively.

The Company has purchased all miners with cash, without relying on limited recourse equipment financing for miner acquisitions. To support operations, invest in our joint venture, and purchase miners and other fixed assets, we have raised capital through both equity issuances and corporate-level debt. Costs related to these capital raises are not included in this analysis.

Miner acquisition costs, or capital expenditures, are not factored into the cost of mining analysis, as they do not impact the marginal cost of producing one bitcoin. Instead, these costs are recorded as property, plant, and equipment in the consolidated balance sheets. Depreciation of property, plant, and equipment is calculated using the straight-line method, with estimated useful lives of four years for miners and five years for computer equipment.

During the year ended December 31, 2024, the Company recorded an accelerated depreciation expense of $5.1 million related to certain miners whose estimated useful lives were shortened due to planned replacement by April 2024. While our standard depreciation period for miners is four years, historically low power costs may allow for a longer actual useful life in certain cases. However, if depreciation were included in the cost of mining analysis, it would add $22,086 and $9,892 per bitcoin mined for the years ended December 31, 2024 and 2023, respectively.

Estimating asset useful lives requires management judgment, particularly given the rapid evolution of next-generation mining rigs in industrial-scale bitcoin mining. Depreciation schedules may be adjusted if events, regulatory changes, or shifts in operating conditions indicate a need for revision. Management continuously evaluates factors such as future energy market conditions, operating costs, maintenance practices, and capital investment needs to ensure depreciation assumptions remain reasonable. When an asset’s estimated useful life is adjusted—either shortened or extended—depreciation provisions are updated accordingly, which could have a material impact on future financial results.

Recent Developments

In October 2024, the Company’s board of directors approved a share repurchase program authorizing the Company to repurchase up to $200.0 million of the Company’s outstanding shares of Common Stock through December 31, 2025. Subsequent to December 31, 2024 and through February 28, 2025, the Company repurchased 5,900,000 shares of its Common Stock for $33.3 million.

In December 2024, the Company entered into certain long-term data center lease agreements with Core42, a G42 company specializing in sovereign cloud, AI infrastructure, and digital services, to lease specified data center infrastructure comprising 72.5 MW of HPC hosting capacity at the Lake Mariner Facility to the customer to support the customer’s HPC operations (the “HPC Leases”). As of the date of this Annual Report, none of the HPC Leases had commenced and all are expected to commence at various dates in 2025, each having an initial term of ten years and granting the customer two five-year renewal options. Additionally, the HPC Leases provide Core 42 an option to expand near-term HPC hosting capacity by an additional 135 MW gross, which is equivalent to 108 MW of critical IT load, by March 31, 2025.

The HPC Leases provide for certain prepaid rent amounts (“Prepaid Rent”) representing the first 12 months base rent under each lease for a total of $90.0 million and shall be applied towards each month’s base rent for 24 months commencing on the respective commencement date of each lease until the Prepaid Rent is exhausted. As of the date of this Annual Report, the Company has received all $90.0 million of Prepaid Rent.

The Business Combination

On December 13, 2021, TeraWulf completed its business combination (the “Merger”) with IKONICS Corporation (“IKONICS”), through which the Company effectively acquired IKONICS and became a publicly traded entity on Nasdaq, which was the primary objective of the business combination.

As part of the Merger consideration, IKONICS shareholders received contractual contingent value rights (“CVR”) under a Contingent Value Rights Agreement (the “CVR Agreement”). Each IKONICS shareholder as of immediately prior to the Merger received one non-transferable CVR for each share of IKONICS common stock held at that time. The CVR holders were entitled to receive 95% of the Net Proceeds (as defined in the CVR Agreement) from any sale, transfer, disposition, spin-off, or licensing of IKONICS’ pre-merger business assets.

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During the year ended December 31, 2023, the Company fulfilled its CVR obligations, making $11.0 million in payments related to proceeds from the sale of net assets held for sale. As of December 31, 2023, the Company had completed all required distributions to CVR holders, and the CVR Agreement was deemed terminated.

Results of Operations - Comparative Results for the Years Ended December 31, 2024 and 2023

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

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

Revenue

The following table presents revenue (in thousands):

Revenue for the years ended December 31, 2024 and 2023 was $140.1 million and $69.2 million, respectively, an increase of $70.9 million. The increase was primarily attributed to an increase in the average price of bitcoin during the year ended December 31, 2024 of $65,824 as compared to $28,788 during the same period in the prior year and an increase in mining capacity at the Lake Mariner Facility to approximately 195 MW as of December 31, 2024 as compared to 110 MW as of December 31, 2023, partially offset by decreases in the total bitcoin mined due to impacts of the halving in April 2024 and the increase in network hashrate, resulting in total bitcoin mined of 2,177 bitcoin during the year ended December 31, 2024 as compared to 2,168 bitcoin during the same period in the prior year.

During the years ended December 31, 2024 and 2023 revenue from bitcoin miner hosting was $0.8 million and $7.5 million, respectively, a decrease due to the expiration of the Company’s bitcoin miner hosting contract with a customer in February 2024.

Costs and Expenses

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

Cost of revenue (exclusive of depreciation) for the years ended December 31, 2024 and 2023 was $62.6 million and $27.3 million, respectively, an increase of approximately $35.3 million. Cost of revenues is primarily comprised of power expense and the increase was primarily due to the increase in mining capacity due to infrastructure constructed and placed in service between December 31, 2023 and December 31, 2024 at the Lake Mariner Facility and, to a lesser extent, an increase in realized power prices during the year ended December 31, 2024 as compared to the same period in the prior year. The Company records proceeds related to participation in demand response programs as a reduction in cost of revenue in the period corresponding to the underlying demand response program period; the amount of aggregate proceeds received or expected to be received were $8.6 million and $3.5 million for the years ended December 31, 2024 and 2023, respectively. The Company is actively expanding its enrollment in such available programs in New York State.

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The following table presents operating expenses (in thousands):

Operating expenses (including related party expenses) for the years ended December 31, 2024 and 2023 were approximately $7.6 million and $4.9 million, respectively, a net increase of $2.7 million. Operating expenses increased primarily due to higher engineering expenses of $0.4 million and property insurance of $0.7 million. Operating expense - related party increased primarily due to $0.4 million in rent expense and $1.1 million due to increased staffing at the Lake Mariner Facility. These increases related to infrastructure constructed and placed in service between December 31, 2023 and 2024.

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

Selling, general and administrative expenses (including related party expenses) for the years ended December 31, 2024 and 2023 were $70.6 million and $37.0 million, respectively, a net increase of $33.6 million. Selling, general and administrative expenses increased primarily due to increased expense during the year ended December 31, 2024 as compared to the same period in the prior year of (i) stock-based compensation of $25.2 million, (ii) employee compensation and benefits of $5.7 million, (iii) travel expenses of $0.6 million, (iv) legal and other professional fees of $1.4 million, (v) charity, sponsorships and investor relations of $1.1 million and (vi) other public company costs of $1.1 million, partially offset by decreases in insurance expense of $0.9 million. Selling, general and administrative expenses – related party decreased a net $1.3 million in fees paid under the Services Agreement with Beowulf E&D primarily due to performance milestone expense incurred during the year ended December 31, 2023 that were not incurred during the year ended December 31, 2024, offset by an increase in the base fee as well as increased travel expense of $0.6 million.

Depreciation for the years ended December 31, 2024 and 2023 was $59.8 million and $28.4 million, respectively. The increase was primarily due to the increase in mining capacity due to infrastructure constructed and placed in service between December 31, 2023 and December 31, 2024 at the Lake Mariner Facility. Additionally, during the year ended December 31, 2024, the Company recorded accelerated depreciation expense of $5.1 million related to certain miners of which the Company shortened their estimated useful lives based on anticipated replacement by April 30, 2024.

Gain on fair value of digital currency, net during the year ended December 31, 2024 was $2.2 million as a result of the Company adopting Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2023-08, Intangible – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), on January 1, 2024 which requires entities with certain crypto assets to subsequently measure such assets at fair value, with changes in fair value recorded in net income in each reporting period. Prior to the adoption of ASU 2023-08, the Company recorded impairment of digital currency of $3.0 million during the year ended December 31, 2023 representing the decline in bitcoin prices during the Company’s holding period of its bitcoin, which was not reversed during its holding period, and realized gain on sale of digital currency of $3.2 million during the year ended December 31, 2023 upon subsequent liquidation of bitcoin held. The Company elected to early adopt ASU 2023-08 effective January 1, 2024, resulting in a cumulative-effect change of $37,000 to increase the balance of digital currency with a corresponding decrease in the opening balance of accumulated deficit in the consolidated balance sheet as of January 1, 2024.

During the years ended December 31, 2024 and December 31, 2023, the Company recorded a loss on disposal of property, plant and equipment of $17.8 million and $1.2 million, respectively, related to disposals of miners and write-off of deposits on miners.

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Interest expense

Interest expense for the years ended December 31, 2024 and 2023 was $19.8 million and $34.8 million, respectively, a decrease of $15.0 million. Interest expense through July 2024 related primarily to the borrowings under the Loan, Guaranty and Security Agreement (the “LGSA”) with Wilmington Trust (the “Term Loans”), which had an original maturity date of December 1, 2024 and was fully repaid in July 2024 ahead of maturity. In October 2024, the Company completed a private offering of convertible senior notes due 2030 (the “2030 Convertible Notes”) which accrue 2.75% interest annually. The decrease in interest expense during the year ended December 31, 2024 as compared to the prior year is primarily due to early repayments of the Term Loans principal balance resulting in a decrease of amortization of debt issuance costs and debt discount of $8.1 million. Additionally, interest expense related to the stated interest rate decreased $9.4 million for the same reason, partially offset by $2.6 million of interest accrued during the year ended December 31, 2024 under the 2030 Convertible Notes and payable in May 2025.

Loss on extinguishment of debt

Loss on extinguishment of debt was $6.3 million for the year ended December 31, 2024 related to voluntary prepayments of the Term Loans in February and July 2024. The Company incurred prepayment fees of $1.3 million in connection with the voluntarily prepayments and derecognized unamortized debt discount of $5.0 million associated with the principal repaid. The Company made no prepayments on the principal balance of the Term Loans during the year ended December 31, 2023.

Income tax benefit

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

Equity in net loss of investee, net of tax

Equity in net income (loss) of investee, net of tax for the years ended December 31, 2024 and 2023 was $3.4 million and $(9.3) million, respectively, which represents TeraWulf’s proportional share of income or loss of Nautilus, which commenced operations in February 2023. The amount includes an impairment loss of $13.6 million for the year ended December 31, 2023 related to the distribution of miners from Nautilus to the Company whereby the miners were marked to fair value from book value on the date distributed. The impairment loss was the result of decreasing prices for miners between initial purchase and distribution.

Additionally the Company recorded a gain on sale of equity interest in investee of $22.6 million in the consolidated statement of operations for the year ended December 31, 2024 as a result of the sale of its entire 25% equity interest in Nautilus to the Talen Member in October 2024.

Non-GAAP Measure

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

We define Adjusted EBITDA as net loss adjusted for (i) impacts of interest, taxes, depreciation and amortization; (ii) stock-based compensation expense, amortization of right-of-use asset and related party expense to be settled with respect to common stock, all of which are non-cash items that the Company believes are not reflective of its general business performance, and for which the accounting requires management judgment, and the resulting expenses could vary significantly in comparison to other companies; (iii) one-time, non-recurring transaction-based compensation expense related to the 2030 Convertible Notes (iv) equity in net income (loss) of investee, net of tax, related to Nautilus and the gain on sale of interest in Nautilus; (v) other income which is related to interest income or income for which management believes is not reflective of the Company’s ongoing operating activities; (vi) loss on extinguishment of debt and net losses on disposals of property, plant and equipment, net, which are not reflective of the Company’s general business performance and (vii) loss from discontinued operations, net of tax, which is not applicable to the Company’s future

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business activities. The Company’s Adjusted EBITDA also includes the impact of distributions from investee received in bitcoin related to a return on the Nautilus investment, which management believes, in conjunction with excluding the impact of equity in net income (loss) of investee, net of tax, is reflective of assets available for the Company’s use in its ongoing operations as a result of its investment in Nautilus.

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

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

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

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Liquidity and Capital Resources

As of December 31, 2024, the Company had balances of cash and cash equivalents of $274.1 million, working capital of $229.6 million, total stockholders’ equity of $244.4 million and an accumulated deficit of $332.3 million. The Company incurred a net loss of $72.4 million for the year ended December 31, 2024. The Company began mining bitcoin in March 2022 and had 9.7 EH/s of operating capacity as of December 31, 2024. To date, the Company has relied primarily on proceeds from the sale of bitcoin, both self-mined and distributed from the joint venture which owned the Nautilus Cryptomine Facility, and its issuances of debt and equity to fund its principal operations.

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

Operating activities

Cash (used in) provided by operating activities for continuing operations was $(24.4) million and $4.2 million for the years ended December 31, 2024 and 2023, respectively, reflecting a decrease of $28.6 million. During the year ended December 31, 2024, the Company completed significant expansion of its bitcoin mining operations resulting in an increase in mining capacity at the Lake Mariner Facility to approximately 195 MW as of December 31, 2024 as compared to 110 MW as of December 31, 2023 which resulted in stable bitcoin earned during the period despite the impacts of the halving in April 2024. In addition, the average price of bitcoin increased during the year ended December 31, 2024 to $65,824 as compared to $28,788 during the same period in the prior year, resulting in an increase in revenue of $70.9 million. Power prices increased during the year ended December 31, 2024 as compared to prior year and cost of revenue (exclusive of depreciation) increased approximately $35.3 million for the year ended December 31, 2024 as compared to the prior year primarily due to the increase in mining capacity and the halving in April 2024. Additionally, prior to the repayment of the Term Loans in July 2024, the Company converted its bitcoin holdings nearly immediately to cash and the related proceeds from sales of digital currency were included within cash flows from operating activities in the consolidated statements of cash flows. Subsequently, proceeds from sales of digital currency of $67.4 million are included within cash flows from investing activities in the consolidated statements of cash flows for the year ended December 31, 2024 as the Company no longer converts bitcoin into cash on a nearly immediate basis.

Investing activities

Cash used in investing activities was $91.2 million and $78.0 million for the years ended December 31, 2024 and 2023, respectively. The Company invested $267.9 million and $75.2 million in the buildout of its facilities at the Lake Mariner Facility for the years ended December 31, 2024 and 2023, respectively, which included $69.2 million during the year ended December 31, 2024 related to infrastructure intended to support expansion into HPC leasing operations in 2025. Additionally, during the year ended December 31, 2023, the Company invested $2.8 million in its joint venture. During the year ended December 31, 2024, the Company received proceeds from the sale of its equity interest in the joint venture of $86.1 million, proceeds from the sale of property, plant and equipment of $23.3 million, and proceeds from sales of digital currency not converted nearly immediately into cash of $67.4 million.

Financing activities

Cash provided by financing activities was $335.2 million and $119.9 million for the years ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, the Company received proceeds from (i) issuance

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of convertible notes, net of issuance costs paid, of $487.1 million, (ii) issuances of Common Stock, net of issuance costs, of $188.7 million and (iii) warrant exercises of $4.8 million. The cash provided by financing activities during the year ended December 31, 2024 was partially offset by principal payments on long-term debt of $139.4 million, repurchases of treasury stock of $118.2 million, purchases of capped call instruments of $60.0 million and payments related to tax withholdings related to net share settlements of stock-based compensation awards of $23.7 million. During the year ended December 31, 2023, the Company received proceeds from (i) issuances of Common Stock, net of issuance costs, of $135.9 million (ii) proceeds from warrant exercises of $2.5 million, and (iii) issuance of convertible promissory notes of $1.3 million. The cash provided by financing activities during the year ended December 31, 2023 was partially offset by payments of contingent value rights liability related to the proceeds from sales of net assets held for sale of RM 101 of $11.0 million, principal payments on long-term debt of $6.6 million, and payments related to tax withholdings related to net share settlements of stock-based compensation awards of $2.0 million.

Financial Condition

The Company incurred a net loss of $72.4 million and reported cash used in operating activities of $24.4 million for the year ended December 31, 2024. As of December 31, 2024, the Company had balances of cash and cash equivalents of $274.1 million, working capital of $229.6 million, total stockholders’ equity of $244.4 million and an accumulated deficit of $332.3 million. The Company had 9.7 EH/s of operating capacity at the Lake Mariner Facility as of December 31, 2024. To date, the Company has relied primarily on proceeds from sales of bitcoin, both self-mined and distributed from the joint venture which owned the Nautilus Cryptomine Facility, and its issuances of debt and equity to fund its principal operations. Subsequent to December 31, 2024, the Company received $90.0 million of Prepaid Rent under its HPC Leases which shall be applied towards each month’s base rent for 24 months commencing on the respective commencement date of each lease until the Prepaid Rent is exhausted.

Critical Accounting Estimates

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

See Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for a summary of the Company’s significant accounting policies.

Digital currency

Digital currency is comprised of bitcoin earned as noncash consideration in exchange for providing hash computation services to a mining pool as well as consideration for bitcoin miner hosting services. From time to time, the Company also receives bitcoin as distributions-in-kind from its joint venture.

Bitcoin are accounted for as intangible assets with indefinite useful life and is included in current assets in the consolidated balance sheets due to the Company’s ability to sell it in a highly liquid marketplace and because the Company reasonably expects to liquidate its bitcoin to support operations within the next twelve months. The Company elected to early adopt ASU 2023-08 effective January 1, 2024, which requires digital currency to be valued at fair value each reporting period in accordance with ASC 820 with changes in fair value recorded in net income. Gains and losses from the remeasurement of digital currency are included within gain on fair value of digital currency, net in the consolidated statements of operations. The Company sells bitcoin and gains and losses from such transactions, measured as the difference between the cash proceeds and the cost basis of bitcoin as determined on a first-in-first-out basis, are also included within gain on fair value of digital currency, net in the consolidated statements of operations.

Prior to the adoption of ASU 2023-08, bitcoin was assessed for impairment annually, or more frequently if events or changes in circumstances indicate it is more likely than not that the asset is impaired. The Company elected to bypass the optional qualitative impairment assessment and to track its bitcoin activity daily for impairment assessment purposes. The Company performed an analysis each day to identify whether events or changes in circumstances, principally decreases in the quoted price of bitcoin on the active trading platform, indicated that it was more likely than not that its bitcoin were impaired. For impairment testing purposes, the lowest intraday trading price of bitcoin was identified at the single bitcoin level (one bitcoin). The excess, if any, of the carrying amount of bitcoin and the lowest daily trading price of

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bitcoin represented a recognized impairment loss. To the extent an impairment loss was recognized, the loss established the new cost basis of the asset. Subsequent reversal of previously recorded impairment losses was prohibited.

Bitcoin earned through mining activities is recorded as an adjustment in the consolidated statements of cash flows, reconciling net loss to cash flows from operating activities. Bitcoin received as distributions-in-kind from equity investees is disclosed in supplemental noncash investing activities.

Prior to the repayment of the Term Loans in July 2024 (see Note 9), bitcoin sales proceeds were included in cash flows from operating activities, as bitcoin was converted into cash immediately during that period. Following repayment of the Term Loans, bitcoin sales proceeds are now classified under cash flows from investing activities, as the Company no longer converts bitcoin into cash immediately upon mining.

Long-lived Assets

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

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

Stock-based compensation

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

Income Taxes

The Company accounts for income taxes pursuant to ASC 740, Income Taxes (“ASC 740”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred tax asset will not be realized. The Company follows the provision of ASC 740 related to accounting for uncertain income tax positions. When tax returns are filed, it is more likely than not that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740, the benefit of a tax

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position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the Company’s balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The most critical estimate for income taxes is the determination of whether to record a valuation allowance for any net deferred tax asset, including net loss carryforwards, whereby management must estimate whether it is more likely than not that the deferred tax asset would be realized.