TeraWulf Q3 2026 Earnings Call Transcript

TeraWulf (NASDAQ:WULF) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

TeraWulf announced significant milestones, including Google’s credit support for a $19 billion Anthropic lease and an EPC agreement with Fluor for a data campus development.

The company is progressing on its Justified data campus, with phased deliveries starting in late 2027, and expects project costs within $10-12 million per critical IT megawatt.

Financial highlights include a 97% increase in HPC lease revenue quarter-over-quarter and a substantial equity contribution for ongoing projects, with a focus on maintaining investment-grade credit support.

Lake Mariner is advancing, with CB3 and CB4 generating revenue, and plans to reach $700 million in annualized run-rate leasing revenue by Q1 2026.

TeraWulf emphasized its strategic focus on securing power, building infrastructure and protecting shareholder value through disciplined financial management and strategic partnerships.

Management highlighted the importance of disciplined capital allocation and the potential for equity unlocking from stabilized assets to support future growth.

Full Transcript

OPERATOR

Earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Larkin, Senior Vice President and Director of Investor Relations with TeraWulf. Thank you. You may begin.

John Larkin (Senior Vice President and Director of Investor Relations)

Thank you, Operator. Good morning and welcome to TeraWulf’s third quarter 2026 earnings call. Joining me today are our Chairman and CEO Paul Prager, our CTO Nazar Khan, and our CFO Patrick Fleury. Before we begin, 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. Words such as anticipate, expect, believe, intend, estimate, project, could, should, will, and similar expressions are intended to identify forward-looking statements. For a discussion of these risks, please refer to our filings with the SEC, available at sec.gov and in the Investor Relations section of our website.

We will also reference certain non-GAAP financial measures; reconciliations to the most comparable GAAP measures are available in our earnings release and filings. With that, I’ll turn the call over to our Chairman and CEO, Paul Prager.

Paul B. Prager (Chief Executive Officer)

Thanks, John, and good morning, everyone. On Wednesday, we announced two important milestones at Justified: Google’s credit support in connection with the financing of our $19 billion Anthropic lease and a definitive EPC agreement with Fluor for the development of the campus. I want to start there because those agreements directly address two of the biggest questions facing our sector today. How do you finance infrastructure of this scale efficiently?

And how do you manage the execution risk associated with building it? There has obviously been significant volatility across AI infrastructure. Investors are focused on higher financing costs, leverage, the amount of capital being deployed across the sector, and whether the returns ultimately justify that investment. Those are legitimate questions and we are highly aware of the environment. Credit spreads have moved and there is a significant amount of infrastructure financing coming to the market. At the same time, demand for compute remains extremely strong, deliverable power remains scarce, and our customers continue to make very substantial long-term commitments.

This brings me to our Justified data campus in Hawesville. We already have the equity required to fund the project. Google’s credit support materially strengthens the financing profile and we fully expect to fund the remaining capital requirement with project-level debt with contractual protections in place to preserve our returns. We have always believed in raising capital when you can, not when you have to. We did just that. We have the equity, we have the customer, and we have the credit support and a clear path to competitive long-term debt financing.

We structured this transaction from the beginning so that financing risk would not get pushed onto TeraWulf’s shareholders. We protect our economics; that is fundamental to how we operate. The Fluor agreement addresses the other side of the equation: execution. We know firsthand how difficult these projects are to build because we are doing it at Lake Mariner. We understand the labor, procurement, electrical infrastructure, cooling, commissioning, and customer coordination involved in delivering capacity at this scale. At Justified, we made a deliberate decision to pair that experience with one of engineering excellence and one of the strongest construction organizations in the world.

The definitive EPC agreement covers all three data center buildings and expands Fluor’s role from early engineering and pre-construction into engineering, procurement, construction, testing, and commissioning. It includes defined delivery milestones, open-book cost reporting, procurement oversight, and contractual cost and schedule protections, with guaranteed maximum pricing being established as engineering and procurement progress. That gives us substantially greater execution capacity without trying to build a global engineering and construction organization.

Within TeraWulf, construction is already progressing, pilings are underway, and we continue to target phased ready-for-service deliveries beginning in late 2027 and continuing through the second quarter of 2028. We also continue to expect project costs to remain within the approximately $10 to $12 million per critical IT megawatt range which we have previously discussed on a comparable basis. When you look at Justified today, we have a world-class customer in Anthropic, approximately $19 billion of contracted revenue, investment-grade credit support from Google, the equity required, an experienced EPC partner in Fluor, and a clear path to project-level debt financing. Of equal import, we also enjoy a fantastic regulatory framework. In Kentucky, Congressman Brett Guthrie stated this historic investment in Hancock County is a great example of what’s possible with a collaborative, community-first approach to data center development.

I am confident this project will serve as a national model for communities looking to grow their economies, participate in the industry of the future, and improve the well-being of their residents. Justified is not a theoretical development; it is contracted infrastructure that we are building to deliver. Lake Mariner is where you can already see that model working. CB3 is online and generating revenue. CB4 is moving into commercial operation, with the remaining data halls scheduled to come online sequentially through the end of the year. CB5 follows beginning in January with phased delivery targeted through the end of the first quarter. By the end of Q1, we expect approximately half of our contracted critical IT capacity to be operating and generating revenue, and we expect to exit the quarter with approximately $700 million of annualized run-rate leasing revenue.

That is an important milestone for TeraWulf. For the last several years, investors have largely been valuing what we were building. Increasingly, our investors will see these contracts convert into operating infrastructure, recurring revenue, and cash flow. And we continue to expect Lake Mariner to be delivered close to the midpoint of our original $8 to $10 million per critical IT megawatt cost guidance. We told investors what we expected it to cost and we are delivering against that expectation.

Nazar will give you more detail on both Lake Mariner and Justified in just a moment. But the larger point is simple. Contracted megawatts are becoming operating megawatts. Operating megawatts are becoming revenue, and revenue is becoming cash flow. That is execution. It is also important to understand the business we are building. TeraWulf is not a NEO cloud. We are an energy infrastructure company. We control the land and power, develop and operate the infrastructure, and lease that capacity under long-duration contracts. We do not own the GPUs. We do not take technology risk where the chip may win or may not in the next generation of AI. Our job is to secure scarce power, build high-quality infrastructure around it, contract that capacity with strong customers, finance it efficiently, and generate durable cash flow.

We have been developing and financing large-scale energy infrastructure for decades. This is what we know how to do, and we are building a business, not collecting megawatts. Growth only matters if it creates cash flow and equity value for our shareholders. That discipline is particularly important in the current capital markets environment. Higher financing costs matter and we factor them into every new transaction. As construction costs, tariffs, financing costs have changed, our contract economics have changed with them.

We are not going to absorb financing risk that belongs somewhere else in the structure. And we are not going to accept a bad return simply to announce another lease. There is another side of that equation and that’s the cost of waiting for frontier AI companies investing billions of dollars in compute. Six months matter. Twelve months matters enormously. When time to market is critical, the value of real, deliverable power increases significantly. And that brings me to Muskie. We continue to be extremely excited about Muskie, and there is no doubt this site in Kentucky is far more valuable today than it was at the beginning of the week.

Muskie has scale, investment-grade utility partners in Kentucky Power and AEP, front-of-the-meter grid service, attractive power economics, and a highly supportive state and local environment. Most importantly, we now have a contracted path to the initial gigawatt of electric service — that is real deliverable power. A piece of land next to a transmission line is not a data center, and a queue position is not power. The questions we care about are straightforward.

When does the power actually show up? Who is responsible for building the infrastructure? What approvals are in place? What does the energy cost, and can the developer actually execute? At Muskie, we are working closely with Kentucky Power and AEP on opportunities to accelerate portions of the development schedule, including potentially pulling forward that second 500 megawatts. At the same time, our view of the ultimate scale of Muskie continues to increase, and the level of customer interest we are seeing reinforces that conviction.

We are in active discussions with a number of very high-quality prospective customers, and one of the questions we get asked is how we think about customer diversification. Diversification is clearly valuable. We understand the benefit of adding another large, high-quality customer to the portfolio, but you cannot look at diversification in a vacuum. There can be meaningful economic differences between leasing to a hyperscaler and leasing to a frontier model company. The credit profile may be different, the financing may be different, but the rent yield and return on our invested capital can also be materially different.

Team and culture matter as well when you are entering into a long-duration relationship. Alignment, speed of decision-making, and the ability to work through issues together can have a significant impact on execution and ultimately on returns. We weigh all of it. What is the rent? Who is the credit? What does it cost us to finance? How much capital do we have to put in? What protections do we have? What’s the duration of the deal, and ultimately what is the risk-adjusted return to our shareholders?

My job is to make the decision that creates the greatest risk-adjusted value for TeraWulf shareholders, and I take that seriously. Justified is a good example. We have a frontier AI customer with very attractive long-term lease economics paired with investment-grade credit support from Google. At Muskie, we have something equally valuable: scale, power, and time. That gives us options. It allows us to be patient and disciplined about the selection of a customer, the terms, the credit structure, and the economics, rather than feeling pressure to just sign the first available tenant.

I am not going to predict when we sign the next lease or who that customer might be, but I am highly confident that Muskie will deliver — highly confident in the level of customer interest and highly confident that we could structure a transaction that reflects the value of this important asset. Just as importantly, we are not going to sign a lease that forces us to issue equity at a valuation we do not believe reflects the value of the company. The commercial structure, customer economics, and financing plan — they have to work together. We will bring that home. Our objective is to structure a financing solution that recognizes the value we’ve created at Muskie, preserves attractive returns, and minimizes dilution to our shareholders. Development will be phased, capital will be raised and deployed alongside contracted demand, and we will remain intensely disciplined about protecting the balance sheet as we grow.

More broadly, we remain confident in our target of contracting an incremental 250 to 500 megawatts of critical IT capacity annually. And importantly, we believe that we can achieve that target with the portfolio we control today. We do not need to buy sites simply to make our pipeline look bigger. Any new opportunity has to have real power and compete for our capital and create value for our shareholders. Do we control the power? Can it scale? Can it be delivered when the customer needs it?

Can we finance it intelligently? And can we earn a compelling return? The same discipline applies to regulation and the communities where we operate. I have said publicly for years that not every data center should be built and not every site is appropriate. We welcome clear and durable frameworks. Good regulation creates certainty, protects communities, protects our project, and helps distinguish credible, well-capitalized projects from speculative ones.

That is consistent with how we have been developing these many years. So when I step back, I feel very good about TeraWulf today. At Lake Mariner, we are delivering. CB4 is coming online this quarter, and CB5 follows in the first quarter next year. Once the campus is fully ramped, we anticipate more than $700 million of annualized lease revenue, and we’re already planning the next opportunity for growth at Lake Mariner with a path to scale to approximately 750 megawatts to accommodate CB6. The infrastructure is in place, fully permitted, contracts signed, and the cash is flowing.

We are also in a professional and established regulatory framework where our management team has been operating for well over a decade. At Justified, we have a world-class customer in Anthropic and approximately $19 billion of contracted revenue. We have investment-grade credit support from Google, the equity required under our current plan, and a clear path to project-level debt financing. With Fluor as our EPC partner and guaranteed maximum pricing in place, we have the execution platform to deliver at scale, and we are doing it in Kentucky — in Kentucky, where we have found a highly constructive state and local environment that understands the economic and infrastructure opportunity these projects represent. Justified is permitted, contracted, financeable, and under construction.

And at Muskie, we have something increasingly scarce: scale, attractive power economics, and a real path to a very large block of deliverable power. We have an investment-grade utility partner in Kentucky Power and AEP, again a highly supportive state and local environment, and most important, a contracted path to an initial gigawatt of front-of-the-meter service. That support is real. The Beshear administration has publicly recognized TeraWulf’s commitments to pay the full cost of our power, protect ratepayers and the environment, contribute significant local and school taxes, and create jobs for Kentuckians, and has described Muskie as a project that will be positive for the community. We expect to pair that power with a high-quality EPC partner and guaranteed maximum pricing, giving us the same cost and execution discipline we have put in place at Justified.

That is a very strong hand. But megawatts alone do not create shareholder value. What matters is whether the power is real, whether the capacity is contracted, the credit behind those contracts, what it costs us to build and finance, and the returns that accrue to our shareholders. Demand is robust. Deliverable power remains scarce. We have the sites, we have the capital, we have the customers, and the management team that has demonstrated that we can execute. We are building generational infrastructure assets designed to stand the test of time.

Technology will surely evolve, customers may change, capital markets will move. But what we are doing today is fundamentally the same thing we were doing yesterday and the same thing we will be doing tomorrow: securing scarce power, building critical infrastructure around it, contracting it intelligently, and executing. That focus will never change. Our discipline will never change. And our commitment to protecting the balance sheet and creating long-term shareholder value — that will never change.

With that, I’ll turn it over to Nazar.

Nazar M Khan (Chief Operating Officer + CTO)

Thank you, Paul. I’ll focus on execution across Justified, Lake Mariner, and Muskie. Starting with Justified. Yesterday’s Fluor announcement is an important step in moving the campus from development into full-scale construction. Fluor has already been working with us on early engineering and pre-construction activities. The definitive EPC agreement expands that role across engineering, procurement, construction, testing, and commissioning for all three data center buildings. For a project of this scale, that matters. The challenge is not simply constructing the buildings.

Electrical systems, cooling infrastructure, utility systems, equipment, procurement, customer hardware, and commissioning all have to come together against one coordinated delivery schedule. Fluor brings deep engineering expertise, global procurement capabilities, access to skilled labor, and extensive experience executing large, complex infrastructure projects that complements the development and power expertise we have built internally and significantly expands our ability to execute at scale.

The agreement also gives us greater visibility into cost and schedule through defined milestones, open-book cost reporting, procurement oversight, and contractual performance protections, with guaranteed maximum pricing being established as engineering and procurement advances. Construction is progressing today, pilings are underway, and engineering and procurement continues to advance, and we remain on track for phase-ready-for-service deliveries beginning in late 2027 and continuing through the second quarter of 2028.

We also continue to expect project costs to remain within the approximately $10 million to $12 million per critical IT megawatt range we have previously discussed on a comparable basis. Turning to Lake Mariner, this is where you can see the execution capability we have built over the last several years. CB3 is fully online, operating, and earning revenue, a milestone for our contract with FluidStack. At CB4, tenant equipment is fully deployed and energized in DH4 and DH3, which are the first two data halls of four data halls in commercial operation and in rent. Commencement for those first two data halls in CB4 is expected shortly.

For the remaining two data halls in CB4, commissioning has already begun on DH2 and will start on DH1 in the middle of this month. These last two data halls are scheduled to come online in the balance of the fourth quarter. For CB5, commissioning activities are set to start this month to support a Q1 2026 commencement. Across all four data halls, CB4 and CB5 are copies of each other. The final commissioning and commencement of operations at CB4 positions us well to deliver CB5 in a similar manner in Q1 of 2026.

This phased approach is important because these buildings do not move from construction to full operation on a single date. Each data hall progresses independently through installation, startup, commissioning, customer equipment integration, and final acceptance. That allows us and our customer to bring capacity online progressively as each data hall is ready. There’s also significant alignment around these delivery dates. Lake Mariner represents the next major block of capacity in our end customer’s deployment plan, so TeraWulf, FluidStack, Google, and the broader project team are tightly coordinated around construction, commissioning, hardware delivery, and systems integration. From a cost perspective, we continue to expect the overall Wolf Compute development to be delivered close to the midpoint of our original $8 million to $10 million per critical IT megawatt guidance range.

At this stage, we have substantially greater visibility into the remaining labor, equipment, commissioning, and construction scope, which gives us increasing confidence in both the schedule and ultimate cost outcome. Finally, turning to Muskie, the key point from an engineering and development perspective is that the power plan is real and utility-supported. We are working with Kentucky Power and AEP on a defined path to large-scale front-of-the-meter service. The utility infrastructure, service arrangements, and development responsibilities are being advanced together rather than as separate work streams. We also continue to work closely with Kentucky Power and AEP on opportunities to optimize and potentially accelerate the development sequence, including the potential to pull forward portions of the second 500 megawatts into 2029.

More broadly, we believe data center demand will increasingly become an important catalyst for investment in transmission and generation infrastructure across the country. Muskie is a good example of where our long history in developing and operating power infrastructure gives us an advantage in working with utilities to develop practical solutions for very large loads. Across all three campuses, the objective is the same: take secured power and contracted customer demand, convert them into operating infrastructure safely, reliably, and efficiently.

Lake Mariner demonstrates that we can do it. Justified expands that execution capability to a much larger scale, and Muskie provides the next major platform behind it. With that, I’ll turn it over to Patrick to review the financial results for the third quarter.

Patrick Fleury (Chief Financial Officer)

Thank you, Nazar. The third quarter results reflect an increasing contribution from HPC lease revenue and disciplined execution at Lake Mariner. Following quarter-end, we entered into three transactions of significant financial importance. First, we amended the revolving credit facility, increasing the aggregate commitments from 250 million to 400 million with an incremental 150 million accordion feature for a total size of 550 million. Importantly, we also eliminated the 150 million LC supplement, making the entire revolver capacity available for letter of credit issuance.

Second, we secured a Google credit backstop for project financing in support of the 19 billion, 20-year lease with Anthropic at the Justified Data Center campus. And third, we entered into an EPC agreement with Fluor. Together, the Google credit support and Fluor EPC agreement materially advance both the financeability and execution certainty of Justified and position us well to complete the project-level debt financing. Our Wolf Compute 7 1/4 Senior Secured Notes issuance was the first financing of their kind in this sector and has since been followed by a number of similar public and private transactions.

The bonds have continued to perform well relative to peers, reflecting Google’s credit support, TeraWulf’s substantial equity contribution of approximately 30% of project costs, and our growing track record of execution at Lake Mariner. I’ll focus my remarks today on the third quarter results, our updated Lake Mariner capital outlook, and the liquidity available to fund our contracted projects and future growth. Revenue for the third quarter was 76.2 million compared with 44.8 million in the second quarter. HPC lease revenue increased 97% quarter over quarter to 63.0 million from 31.9 million and represented approximately 83% of total revenue. HPC revenue consisted primarily of 46.0 million of rent, 11.3 million of tenant fit-out revenue, and 5.4 million of power pass-through revenue. The CB3 lease commenced on July 13th, and our third quarter results reflect 102 critical megawatts operating and generating lease revenue at Lake Mariner.

Completion of CB3 also satisfied the applicable conditions for 600 million of Google’s credit support to become effective, further strengthening the contracted revenue profile of the Lake Mariner buildout. Turning to operating results, cost of revenue exclusive of depreciation increased to 25.2 million from 12.4 million in the second quarter, primarily reflecting higher power costs and 10.1 million of tenant fit-out costs. Demand response proceeds, which are recorded as a reduction in cost of revenue, increased to 3.2 million from 2.8 million in the second quarter. Operating expenses increased to 39.5 million from 23.4 million as we continued scaling the platform ahead of additional HPC capacity entering service.

The increase primarily reflected 4.7 million of additional site-level expenses including security, labor, and pre-revenue operating costs, 12.3 million of site preparation and demolition costs associated with future development, and 1.3 million of amortization of deferred charges, partially offset by 2.6 million of lower minor equipment repair costs. Reported HPC leasing segment profit margin was approximately 17% during the quarter compared with our long-term target of approximately 85%.

Importantly, the reported margin includes 11.3 million of tenant fit-out revenue and associated costs, 11.1 million of pre-revenue and non-cash operating costs at Wolf Compute, and 18.0 million of development costs across our portfolio. Adjusting for those items and excluding approximately 5.3 million of power costs from both revenue and expense, HPC leasing segment profit margin was approximately 83%. We expect reported margins to move toward our long-term target as additional contracted capacity enters service, pre-revenue costs decline, and mature HPC lease revenue becomes a larger portion of the overall mix.

SG&A expense decreased to 57.1 million from 126.9 million in the second quarter. Excluding stock-based compensation, adjusted SG&A was 27.1 million compared with 28.6 million in the prior quarter. Depreciation increased to 29.6 million from 21.2 million in the second quarter, primarily reflecting additional HPC infrastructure placed into service at Lake Mariner. Interest expense was 53.6 million compared with 56.4 million in the second quarter, and we recognized interest income of 28.6 million in Q3 compared to 28.9 million in Q2.

Cash interest paid was 5.0 million compared with 125.7 million in the second quarter. GAAP net income attributable to TeraWulf was 709.9 million compared with a net loss of 939.9 million in the second quarter. The increase was primarily driven by the non-cash fair value adjustment associated with the Google warrants and the gain on sale of equity interest in the Abernathy joint venture. Non-GAAP adjusted EBITDA was negative 12.8 million compared with negative 18.3 million in the second quarter.

Turning to the balance sheet, cash and restricted cash totaled approximately 2.4 billion as of September 30th. At the parent level, we held approximately 1.1 billion of cash and restricted cash at quarter-end, with approximately 300 million of this cash used to collateralize LCs for the Muskie Data Campus. We expect this cash collateral to be replaced with LCs from our revolving credit facility in December when the CB4 lease commences and our revolving credit facility capacity increases from 150 million to 400 million.

We also expect to receive an incremental 150 million from the sale of the Abernathy JV on or before December 31, 2026, and another approximately 130 million on or before April 30, 2027, subject to the terms of the transaction. At Wolf Compute, we had approximately 1.2 billion of gross cash at quarter-end, or approximately 800 million after accounting for debt service reserves and interest during construction accounts. Approximately 2.9 billion of project capital expenditures have been completed, with approximately 1 billion remaining.

Approximately two-thirds of the remaining capital expenditures are committed, providing increased visibility into the remaining capital requirements. Our original cost guidance for Wolf Compute was 8 to 10 million per critical IT megawatt. We currently estimate total project costs at approximately 8.9 million per megawatt, well within that original guidance range. At the Justified Data Center campus, we have contributed approximately 550 million of equity as of September 30, representing a substantial portion of the equity contribution contemplated under our current project financing plan. Our near-term liquidity remains robust: over 1 billion of cash at TeraWulf parent and up to 400 million of revolving credit facility and LC capacity.

Based on our current plans and assumptions, our existing liquidity and expected Abernathy sale proceeds provide the capacity to fund our remaining Lake Mariner commitments, our remaining equity investment at Justified, interim letter of credit requirements at Muskie, all without accessing the equity capital markets. And as all contracted leases at Wolf Compute commence through the first quarter of 2027, we expect the project to generate significant cash flow, rapidly repay debt, and operate at moderate leverage.

That creates another important source of capital for TeraWulf. Unlocking equity from stabilized assets and recycling that capital back to the parent for future contracted growth will be a priority in 2027. Our financial approach for existing and future projects remains simple: sign a lease with an investment-grade tenant or backstop provider, lock in our build cost, and finance the spread. This is how large-scale, long-duration energy infrastructure has been contracted, built, and financed for decades. As the cost of capital increases, preserving that spread becomes even more important. We will remain disciplined about the relationship between our weighted average cost of capital and the yield on our leases, with the objective of ensuring that each incremental megawatt we contract creates value for shareholders.

In summary, the third quarter results reflect a financial profile increasingly driven by long-term contracted HPC revenue. The fourth quarter will accelerate that trend as CB4 begins phased lease commencement, adding up to 168 critical megawatts of contracted capacity at Lake Mariner, followed by CB5 in the first quarter. Cash flow is ramping. Approximately three-quarters of Wolf Compute capital expenditures were already behind us as of September 30th.

We have substantially greater visibility into the remaining capital requirement, and we have the liquidity to complete our contracted developments and fund the next phase of growth while remaining disciplined about the balance sheet. With that, operator, we are ready to take questions.

OPERATOR

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that analysts limit themselves to one question and a follow-up so that others have an opportunity to do so as well.

One moment, please, while we poll for questions. Our first question comes from Mike Grundel with Northland Securities. Please proceed with your question.

Mike Grundel (Analyst)

Thanks, guys, for all the color. A competitor earlier this week announced kind of a capital-light lease, very robust development yield, and kind of a modular construction approach. Is that something that might be on the table or a possibility for the Muskie site?

Paul B. Prager (Chief Executive Officer)

Hey Mike, listen, it looks like a great deal on a return basis, but I don’t really have the full picture on all the details. In our deals, we believe we are a strategic partner to our end user. We like to work closely with the end user and deliver creative ideas around delivery speed, design, financing, uptime, flexibility. Given capital requirements, we would fully expect to see an evolution of our deliverable. We’ve spoken to hundreds of our investors over the past three months and I consistently hear about terminal value.

We have a very strong view that our sites have strong terminal value, given a roughly five-year upgrade cycle, attractive power prices, and locations that allow for inference. Certainly the structure that Riot did is interesting, but it’s not currently our primary focus.

Patrick Fleury (Chief Financial Officer)

And if I can add, Mike, if I can add a few things. If you just look at the space, right, it’s kind of a function of what are you spending and what are you earning a return on. And so just from the outside looking in on that structure, they’re spending 2 million on kind of a powered land structure for 910 megawatts. And so they’re getting that. It’s not clear on how much of the next kind of 4 million bucket they’re earning on. And then, you know, if you compare that to a colo model, you know, as we mentioned earlier, we’re in that 10 to 12 million range per critical IT megawatt for delivering kind of a turnkey building at Muskie.

So we’re looking to kind of earn a return on that full 10 to 12 million. So I think it’s a function of both, you know, how much capital are you putting up, what does that capital cost, and what’s the spread you’re earning on it? We remain of the view that the model that we have kind of value-creates the most value per megawatt of, you know, power that we have available. And so kind of providing that full stack and, on a risk-adjusted basis, we think we kind of generate the most equity value per megawatt with the turnkey colo solutions that we’re going after.

Mike Grundel (Analyst)

Got it. That’s helpful, guys. And then maybe just as a follow up, how did you decide at the end of the day to use the Google backstop versus maybe just going direct with Anthropic. Can you talk about kind of what you think you’re going to benefit there from the Google backstop?

Patrick Fleury (Chief Financial Officer)

Yeah. Hey Mike, it’s Patrick. So as you know, credit has been from day one and remains our number one focus. Obviously Anthropic is a terrific client and we’re working across multiple sites in partnership with them. But you know, they are not public and they’re not investment grade yet. And as you know, that has been our number one focus. We have to have investment grade support so that the cost of capital is efficient for us and that we create durable equity value when we sign leases.

So that will be always first and foremost in our minds as we create value here.

Mike Grundel (Analyst)

Perfect. Good luck this fall and winter, guys.

OPERATOR

Our next question comes from Steven Galgola with KBW. Please proceed with your question.

Steven Galgola (Analyst)

Hey, thanks for the question, Nazar. You hit on this a bit in the prepared remarks, but can you just walk us through more? What gives you confidence in the 10 to 12 million per megawatt capex estimate for Hawesville, particularly given recent cost overruns across the industry and how far along, you know, is the design with Fluor and you know, how much of the cost is fixed today and who ultimately bears the risk of any overruns. Thank you.

Nazar M Khan (Chief Operating Officer + CTO)

Sure. So great question on CB. Sort of three buildings at Justified and so. And this is kind of on the Justified side or the Muskie side, Steven?

Steven Galgola (Analyst)

This is, I mean this was on the Justified side, but you know.

Nazar M Khan (Chief Operating Officer + CTO)

Yep. Yeah, so on the Justified site, we’re kind of at 90% on the engineering and the drawings and we expect to be at 100% by December 1st. So that then leads into the procurement. We are at over 80% today kind of on the long lead equipment and we’ll be at 100% by year end. So between the engineering, which we’ll have locked down here by the 1st of December, on the long lead equipment, which we will have locked down by the end of the year, we feel like we’re in pretty good shape overall, you know, kind of 80% of the scope under the Fluor agreement.

So that would be all the construction and long lead equipment will also kind of be buttoned down kind of by that, you know, by early December. So that’s what gives us kind of good visibility into both from what are we building and what is the cost of building what we’re building. So that’s where we sit today. And if you look at just where we are in total cost overall compared to Lake Mariner, you can see kind of a fairly meaningful change in what our cost per megawatt was there versus what we’re seeing kind of real time on Justified here.

So hopefully that gives a sense of the confidence around both kind of what we’re building through kind of completion of the design engineering as well as kind of procurement of all the long lead equipment required to support the project in terms of. And then just kind of the last piece you had there in terms of just kind of who kind of bears cost overruns, you know, there, you know, we’d mentioned in the prepared remarks, this is kind of a GMP, a gross max price structure.

And so there are components that, you know, either the subcontractors bear with respect to work that they’re doing or kind of the combination of it, all that Fluor bears together. So we have worked closely with Fluor to ensure that, you know, we are very well defined on what it is we’re building so that there’s clarity on the responsibility for the cost. And so through that GMP structure, that’s another layer of protection that we have as we roll forward.

OPERATOR

Our next question comes from Eric Lubchao with Wells Fargo. Please proceed with your question.

Eric Lubchao (Analyst)

Hi. Great. Thanks for taking the question, Patrick. I just wanted to explore. You talked about kind of protecting your spreads if you see a change in the cost of capital after you sign a lease. So maybe you could talk a little bit about mechanisms in the contracts to potentially rentalize if you do have to raise at a higher cost of capital, what protections you put in place both for the Hawesville site and then maybe on a go forward basis.

Patrick Fleury (Chief Financial Officer)

Yeah, look, the terms of our lease are confidential, so I can’t give you the details. But what I can tell you is a couple things. First, similar to our structure at Wolf Compute, Google has entered into agreements to backstop Anthropic’s obligations under the lease. Upon the lease commencing, Google’s credit support then protects against Anthropic default through one, a mandatory lease assumption, or two, a debt-reducing termination payment. So that’s the same structure as Wolf Compute, unlike our structure at Wolf Compute.

And as evident in all of our disclosures, TeraWulf is not granting Google any incremental upfront equity here. And the cost of Google’s credit support is recoverable from the tenant under the lease. In addition, Google’s credit support falls away when Anthropic achieves certain investment grade credit ratings. So that. Those are all the details I can give you today. The rest of the details will be public when we kick off the financing. But I think as Paul has said publicly, when we negotiate these leases, we seek to preserve our economics.

And so there are a number of ways to effectively do that. And I can assure you that we will keep doing that in future leases as well.

Eric Lubchao (Analyst)

Great. Thanks Patrick. And just a follow up, as you look at the range of options for Muskie, so far you guys have done deals with non-investment grade companies with backstops. Does the attractiveness of a direct IG lease currently in the current market? Is that more attractive today or how are you kind of thinking about the range of outcomes for tenant credit for Muskie?

Patrick Fleury (Chief Financial Officer)

Yeah, again, I think reiterating what I said, particularly in a market like this, but I want to go back because we have put this front and center since day one. Right. We are a capital markets business. We cannot be dependent on another company that is a capital markets dependent business without an investment grade credit rating. So all of our leases will be either backed by investment grade tenants or have investment grade tenants as the primary lessee because that is the only way to effectively finance these projects.

In addition, our projects will have a healthy equity layer. You know, I would point out again, Wolf Compute was the first of its kind in the space and there’s about 25 bonds on my Bloomberg screen. And Wolf Compute, other than one bond, trades the absolute best. And that’s a combination of the fact that we have an investment grade tenant and that TeraWulf has put in a significant, very significant close to 30% equity check into that business and that we are executing.

So again, I think those are the themes that you will see time and time again from us. We are not going to deviate from that.

Eric Lubchao (Analyst)

Thank you.

OPERATOR

Our next question comes from Jed Doerschmaier with William Blair. Please proceed with your question.

Jed Doerschmaier (Analyst)

Hi, thanks. Thanks for taking my question. I guess first one maybe a compliment. I mean, you guys have kind of, you know, forged a pathway that, you know, historically actually looks like one of the few that’s kind of, you know, narrowly avoided some of the pitfalls of or challenges in the market. And Meta actually put out an interesting post last night that kind of, you know, differentiated the difference between or differentiated between campaigning and governing.

And so my first question to Paul, I’m just curious, you know, there’s a lot of fear and rhetoric in the markets right now. I’m just curious how you see things playing in terms of governing functions associated with around data center and you know, a lot of the noise that’s in the market. And then I have a follow up,

Paul B. Prager (Chief Executive Officer)

You know, if you take a look in the markets where we’re active, right. In New York, Lake Mariner, again fully permitted. We’re familiar with the regulatory framework there. We operated a coal fired power plant there for 20 years. We shut that down, mitigated it in partnership with the state, put up a data center that’s very well received, brought a lot of jobs, tax revenue to the state. What the governor did there I thought was sensible. She didn’t look at coming up with a ban on data centers.

She looked at coming up with a framework on how we could work with future data centers. And we weren’t impacted by that. As you know, we were already permitted and we weren’t interacting with the DEC for that site. But she put it in the hands of her professionals and I think they’ll come back with something that’s very sensible. As I said in my prepared remarks, you know, good regulation is a very good thing. It protects our investment and it shows the projects that make sense from the ones that probably don’t. In Kentucky, there’s a state where again, it’s a Democratic state. Governor Beshear has got real national prominence, loves the facility. In my prepared remarks, we quoted his office on how he thinks about TeraWulf, he thinks we’re the model for how data centers ought to be developed on a nationwide basis.

Listen, I think there are some states that haven’t thought about how data centers should proceed to the level that people in, for instance, Kentucky and West Virginia have. And I think that it may take a little bit of time, but data centers can be developed really in concert and partnership with the community. They’re big drivers for the economy. They’re of utmost importance from a national security perspective and it affects our everyday quality of life in a really positive and constructive way.

So, you know, I think there’s, you know, as CEO, I’m not supposed to comment on the markets, but certainly there’s a lot of concern and fear out there. But I think when you really get down to it, you gotta, you gotta be located in the right places. They have to have clarity on what permitting is like. They have to have a skilled labor force. They have to have good energy policies. And that’s been the focus for us. We didn’t, we, you know, we didn’t focus on Kentucky by accident.

You know, it was all, it was a really thoughtful and well considered development effort and that’s what you’ll continue to see in our development efforts in our pipeline.

Jed Doerschmaier (Analyst)

That’s helpful. Thanks, Paul. And then Patrick, just as my follow up, you know, I look at the same Bloomberg screen in terms of the debt and you know, you and one other are the only two green on that. I am curious as you do have, I know you guys are not in Neo cloud, but as you look at the depths that’s trading of some of the neoclouds and others in the stack, you know, they’ve gone into that junk range and I’m curious whether or not you think that, you know, a clearing event would be, you know, is, is a necessary evil to kind of, you know, reset here or what your thoughts are on the, on the credit side?

Patrick Fleury (Chief Financial Officer)

Yeah, look, I think there’s a lot of clearing events in the market right now. The election was one of them. Anthropic’s IPO is another one. So yeah, I think, as a 20-year credit distressed analyst on the buy side, this is natural for the markets, right? And not only that, but you have a lot of issuance, all competing, whether it’s the hyperscalers, the U.S. Treasury. So I think what you’re seeing in the credit markets is pretty natural. They haven’t frozen up; they have just moved spreads higher because you have to induce new capital to come into that market, and to do that you’ve got to move spreads higher.

So that’s again why we come back to: it is absolutely critical to have an investment-grade tenant so that we preserve that spread between our WACC and our yield on cost. And again, that is something that is fundamental to our business. If you look, as I said in my remarks, at how every single piece of long-lived, long-term energy infrastructure in this country has been built—that’s how it’s been done, whether it’s nukes, refineries, gas plants, LNG facilities.

And so we will continue to prosecute that as we move forward. Thanks, Kat.

OPERATOR

Our next question comes from Stephen Bird with Morgan Stanley. Please proceed with your question.

Stephen Bird (Analyst)

Hey, thanks so much for taking my question. A lot has been addressed. I just wanted to hit on, I think, a misconception that we sometimes hear which relates to equity overhang in the event of signing really attractive deals. And I know you all have thought about many options and I think maybe the market doesn’t fully appreciate just how many options there are to think about funding your overall capital needs. So I just wanted to go back to that topic and make sure we really address that.

Patrick Fleury (Chief Financial Officer)

Yeah, hey Steven, it’s Patrick. I’ll take a cut at that and then Paul or Nasser can clean up here. But look, there’s a lot of options in this playbook for equity, right? There is a prepayment from a customer, there are customers buying equity at higher prices, there is leverage in the system, which I mentioned in my remarks. I mean WULF Compute, when it comes online, is significantly under-levered vis-à-vis other public and private companies out there.

So there’s also, as I think you pointed out in a recent research report, infrastructure funds that are chomping at the bit to buy equity in stabilized assets at the project level at significantly higher multiples than where any of us trade today. So there are a lot of tools in our toolbox. And as Paul said in his remarks, we will not sign one of the biggest leases that the company has ever signed and be forced to dilute our shareholders at these levels.

We just will not do it. And so my job is to make sure that every single tool in the toolbox is available to us, that we are looking at all of them. And that’s what we’re doing. Paul, Nasser, I don’t know if you want to add anything.

Paul B. Prager (Chief Executive Officer)

I would only want to add that our customers are entirely sensitive to that, and they work with us when we’re negotiating with them to ensure we can preserve our economics and preserve the spread for shareholder value. It’s really that simple.

Patrick Fleury (Chief Financial Officer)

Yeah. And Steven, just to add to what Paul just said, if you look at the customers, and you can see this in the public companies and you can see it now in Anthropic in their S-1, they are making tremendous amounts of profit. So it’s easy for us to have a logical discussion with them on an open-book basis as to: here is our cost of capital, here’s my cost of equity, here’s my cost of debt depending upon what the lease looks like and who the investment-grade support is on the lease.

And then the simple discussion we have is, look, we’re just trying to keep a spread between the yield on cost on the lease and our WACC. And I think when you go with that open book to any hyperscaler or any frontier AI lab, it’s a very easy, logical discussion to explain to them that you want to preserve that, that you don’t want that to be at. So that is the approach we take with every single one of our customers, whether it’s hyperscalers that we’re talking with or frontier labs or otherwise.

That’s our goal. That’s how we create durable equity value, and we will look to preserve that, and we will get lease protections that allow us to preserve that. Very clear. That’s all I have. Thank you so much.

OPERATOR

Our next question comes from Nick Giles with B. Riley Securities. Please proceed with your question.

Nick Giles (Analyst)

Yeah, thanks, operator. Good morning, guys. You talked about working with Kentucky Power to potentially pull forward the second 500 megawatts. I was just curious if there’s any upfront investment that may be required on TeraWulf’s part or, you know, what’s ultimately being contemplated there. Is it something from a generating perspective or infrastructure upgrades? Just more color would be great.

Nazar M Khan (Chief Operating Officer + CTO)

It’s Nazar here. So we have a 500-megawatt ESA signed under an existing tariff with Kentucky Power. The first 500 megawatts starts delivering in 2028. We then went back to Kentucky Power to say, hey, you know, we’re building a substation here that has the capacity for a gigawatt. How do we get our hands on the next 500? And that next 500 megawatts requires new generation. And as time goes on here, I think more broadly, if you look across the country, power that’s going to be available ’29, ’30 and beyond will likely require some sort of new generation and transmission to support that.

And so Kentucky Power has a project called Big Sandy. It’s a 760-megawatt CCGT that they’ve been working to try to figure out how to get into their system. So we worked an arrangement with them where we will be filing here with the Kentucky PSC in the next few weeks to get approval for the construction of that 760-megawatt CCGT. The load that we will have will be a gigawatt; it will be greater than the total capacity of that plant. And so that’s kind of that second 500 megawatts that will be a filing in front of the PSC here shortly.

We’re expecting approval by mid-2027. And importantly within that structure, it is a clear line between what Kentucky Power is going to be spending and what we are going to be paying to use that power. And so included within that structure are kind of two important components. One is an incremental $100 million residential credit embedded within the agreement that will be paid out over 10 years of the contract. And the second is that the interest during construction for the power plant, which will go from 2027 once the approval comes in through the delivery of the power generation facility in 2031—there’s interest that accrues during construction—and so that will be factored into our rates.

And if you think about our load profile, we’re ramping up in 2029 for that second 500 megawatts, 2028 for the first 500 megawatts, so there’s an overlap between us taking power, a mix from the grid, and then bridging to the 760-megawatt CCGT on the back end. So I think it again illustrates our ability to understand how to be a catalyst to bring this generation on. We think we’ve structured a very reasonable and fair agreement with Kentucky Power that allows Kentucky Power to draw a straight line from the costs that they’re incurring versus what we are paying.

And therefore, that’s going to give us this full gigawatt of power prior to the end of 2029 in a market that’s tight on power availability.

Nick Giles (Analyst)

Thank you so much for all that detail. That’s super clear. Just a quick follow-up. Separately, what should we be modeling just from a number of megawatts billing as we look to Q4 here and then as we kind of exit the first quarter?

Patrick Fleury (Chief Financial Officer)

Yeah, so—hey Nick, it’s Patrick. I think what you’re asking is with regard to CB4 and CB5. I think exiting fourth quarter, we’ll have CB4 online, so that’s an incremental 168 megawatts. We have 102 critical megawatts running there today earning rent. So exiting fourth quarter, another 168. Exiting first quarter next year, CB5 online—so another 168—and then Hawesville starts to come online late ’27 into ’28. And I think you can kind of think about that as ratable—ratable megawatts, kind of CB1, CB2, CB3 again late Q4, and then CB2, CB3, first half of ’28.

Nick Giles (Analyst)

Awesome. Okay, thanks guys.

OPERATOR

Our next question comes from Michael Rollins with Citi. Please proceed with your question.

Michael Rollins (Analyst)

Thanks and good morning. Curious if you could speak more to the current pricing environment. And as there’s all these cross currents on constraints in certain markets, what are you seeing in terms of just the overall yields you can achieve, how sensitive those yields or spreads are to changes in the rate environment? And if there’s anything else in terms of escalators or other pricing dynamics that are evolving that we should all be mindful of. Thanks.

Paul B. Prager (Chief Executive Officer)

I appreciate the question. Try not to focus on where the current market pricing is and focus on building shareholder value. We’re doing just that. And in fact, as Patrick said, we’re able to, as we move forward, protect the economics of our deals in our contract with our customer so that the only risk we’re really taking is on execution. I talked about in my remarks how we mitigate that risk by being on top of it. Separately, in the new Project Hawesville, we signed Fluor as our EPC with the GMP; we would expect to do the same thing at Musket. We’ll have an EPC contract with the GMP. Highly credible folks. And then on the debt side, as Patrick has indicated, we absolutely require investment-grade support. Otherwise, that customer is not going to be of real interest to us. This is a business about financing efficiently. And so between the terms of the deal, where we protect our economic spread, and our execution skill set and the investment-grade support on the debt, we think we have a lock on creating shareholder value.

And that’s what we do. It’s really that simple. We do it every single day. That is our exclusive focus.

OPERATOR

Our next question comes from Michael Funk with Bank of America. Please proceed with your question.

Michael Funk (Analyst at Bank of America)

Yeah, guys, thank you for the question. So you were commenting on the call about unlocking value from stabilized assets that come online. I think I understand your point there. But there’s also a lot of vehicles in market today looking to buy stabilized assets. Would you consider selling stabilized assets to recycle that capital back into new development?

Patrick Fleury (Chief Financial Officer)

Yeah, look—hey, it’s Patrick. Thanks for the question. Look, our business is to build and own these long term. But as I’ve seen in other infrastructure assets throughout the country—I mean, for example, one that resonates with me was when Blackstone bought into FirstEnergy’s transmission business—the classic example of an infrastructure fund buying into an operating business at a significant multiple that proved out equity value at the parent. So that has been done time and time again throughout different energy infrastructure businesses in the U.S., both public and private.

So, yeah, is that a possibility if the market continues to trade all of us that are building data centers for NVIDIA, AMD, Amazon, Google, Microsoft, others to put their chips in? Yes. But I think first and foremost, our number one priority again is executing, getting the buildings up and running, getting them online, converting that into cash flow, and then repeating that process in a financially efficient way.

Paul B. Prager (Chief Executive Officer)

I mean, we’re fortunate to have Anthropic as such a great customer. They’re very socially conscious. They want to participate and contribute to the community. You know, we do too in many respects. These are communities where employees live and work and will be living and working in operating facilities for the next 20 years. So I think the answer is both parties should look at this. We have always looked at it. We have historically looked at it. We have focused on teachers, kids, education, first responders.

I think Anthropic as a customer has, you know, it’s a very profound focus for them. I think it is for many of the hyperscalers as well. So I think you’ll see the opportunity to come up with contributive host arrangements or host agreements throughout. But I know when we went to Kentucky, you know, without having to sort of commit to anything in particular, we were already there in Hawesville. We got a great, you know, we gave the fire department, you know, a great new engine. The fire chief called me personally, was all excited about how much that helped his community and his team. And so I think the answer is we should all be responsible to participate in the communities where we live, our employees live, and we’re establishing businesses that we think are going to be legacy assets for generations.

So that’s the way we approach it.

OPERATOR

Our next question comes from Brett Knobloch with Cantor Fitzgerald. Please proceed with your question.

Brett Knobloch (Analyst)

Hi, guys. Thanks for taking my question. Kind of on the backstop nature of this market. Congrats on getting the Google backstop. I’m curious what your sense is for—it feels like every data center project out there needs a backstop by one of the hyperscalers. What is their appetite to continuing to do this? And at what point does that appetite slow down? And how are you guys thinking about a market in which an IG backstop won’t be there? Thank you.

Patrick Fleury (Chief Financial Officer)

Yeah. Hey, Brett, Patrick. Good question. So look, I mean, as you hear from everybody, not just TeraWulf, but semiconductor companies, hyperscale, you know, demand is robust, right, and adoption continues. So look, I think what you’re seeing from us again is version 2.0 of the wrap shows that hyperscalers are willing to put their balance sheet to work. But at some point it’s like whether you’re learning to ride a bike with training wheels or you’re raising your kids, you know, when they get 18, they got to leave the nest and fly, right?

And so that’s—you look at version 2.0 of our wrap, right in the details, you know, Google is there, and then once Anthropic achieves a certain investment grade rating, that wrap falls away. So I think you’ll see that more commonly through all of the hypers, because, again, their job is to help the ecosystem grow. But then once it gets to a point where those companies can stand on their own and they’re strong investment grade, then that support should fall away and their balance sheet, you know, is left for their own use because they all need it. So I think that’s the way at least we’re seeing the space mature, which is very logical and is something that we welcome.

Brett Knobloch (Analyst)

Understood. Perfect. Thank you, guys.

OPERATOR

Our next question comes from Darren Efty with Lucid Capital Markets. Please proceed with your question.

Darren Efty (Analyst)

Yeah, good morning. Thanks for taking my questions. First, just can we get an update on Chesapeake and where the regulatory approvals stand?

Paul B. Prager (Chief Executive Officer)

Sure. Chesapeake, as you know, is under purchase and sale agreement. We have most of the regulatory approvals in hand. I think there are a couple outstanding, one of which is the saco. But there are conditions precedent to close there that have yet to be fulfilled by the seller. And those conditions are important to us. And if those conditions are met, great. And if not, you know, that would be a bummer. But we’re not going to bring in anything into our pipeline that we don’t think will make a lot of sense, be able to be absolutely accretive, and be a promising data center development.

So we love the state. Governor Wes Moore has put out some pretty, I think, progressive notions on how data centers can contribute. It’s also, you know, in the middle of a transmission superhighway. But there are conditions precedent to close, and when they’re fulfilled, we’ll be ready to roll. And if they are not fulfilled? Well, we’ll have to rethink that.

Darren Efty (Analyst)

Great. And then just one more, just kind of given the changes in the political landscape, and who knows what assets are available and maybe a bit frozen in the future. Like, what’s your kind of view on the shape of lease rental rates over the next coming, call it 12, 24 months? Thanks.

Paul B. Prager (Chief Executive Officer)

Listen, I got to focus on what’s in my portfolio. And as I said in my prepared remarks, what we have today is a lot more valuable than it was last week. And I think one of the reasons for that is the tremendous demand there is in the market for power now, for prompt power. So, you know, I can speak to the fact that, you know, the phone’s been ringing off the hook with respect to what we have at Muskie. And so I think—I don’t know if leverage is the right word—but I feel really good about our side of the table in negotiations with potential customers with respect to where we will end up on that facility.

Equally, I think one has to be thoughtful about where they develop. We always have. As you know, we built energy infrastructure for the last 25 years. So we’ve always gone to places where we thought we could navigate the politics and the regulatory framework. That hasn’t changed. And so I think you’ll continue to see us do just that in the areas as we build out our pipeline.

Darren Efty (Analyst)

Appreciate it, Paul.

OPERATOR

We have reached the end of our question and answer session, which now concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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