MARA Holdings, Inc. (filed as Marathon Digital Holdings, Inc.) — Q1 2023 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2023, compared with Q1 2022. The company focused on bitcoin mining and related opportunities, with operations primarily in the United States and strategic joint ventures under development.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $51.1 million | $51.7 million; down $0.6 million |
| Cost of revenue | $51.1 million | $26.4 million |
| Total margin (revenue less cost of revenue) | Loss of $0.02 million | Income of $25.3 million |
| Operating loss | $3.9 million | $14.5 million |
| Net loss | $7.2 million; $0.05 per share | $12.9 million; $0.12 per share |
| Adjusted EBITDA (non-GAAP) | $18.6 million | $9.8 million |
| Operating cash flow | Use of $28.8 million | Use of $26.1 million |
| Investing cash flow | Use of $72.0 million | Use of $209.4 million |
| Financing cash flow | Source of $113.2 million | Source of $85.5 million |
Unless stated otherwise, dollar amounts are U.S. dollars. At March 31, cash and cash equivalents were $124.9 million, with no restricted cash. Current assets totaled $386.3 million and current liabilities $23.8 million. Notes payable were $733.3 million net of unamortized discounts (the notes’ principal was $747.5 million); the Silvergate term loan and revolving facility had been repaid or terminated. Stockholders’ equity was $545.9 million.
The company held approximately 11,466 bitcoin, carried at $189.1 million under its accounting policy; disclosed fair value was approximately $326.5 million. It sold 2,900 bitcoin for $62.6 million in the quarter. Bitcoin production was 2,195, up 74% from 1,259 in Q1 2022. Installed hash rate was 15.4 EH/s and energized hash rate 11.5 EH/s at quarter-end.
Material changes versus Q1 2022
- Production growth largely offset lower bitcoin prices: management attributed revenue movement to $38.5 million of benefit from higher production and $39.0 million of adverse impact from lower average bitcoin prices.
- Energy, hosting and other costs rose to $33.4 million from $12.5 million; depreciation and amortization rose to $17.7 million from $13.9 million. Consequently, reported total margin fell to approximately break-even from $25.3 million.
- Net loss improved by $5.6 million, but results included a $17.6 million realized gain on bitcoin sales and lower digital-asset impairment. Adjusted EBITDA also increased, with the filing attributing much of the improvement to realized gains and lower impairment; it is a non-GAAP measure.
- Common shares outstanding rose from 145.6 million at December 31, 2022 to 167.3 million at March 31, 2023. The company raised $163.3 million net through its at-the-market offering during the quarter.
- Vendor advances declined from $488.3 million to $57.5 million, substantially reflecting delivery of equipment: $442.4 million was reclassified from advances to property and equipment. Net property and equipment increased to $714.9 million.
Outlook, commentary, risks and unusual items
- Outlook: No specific numerical earnings or production guidance is provided. Management said it expects liquidity from cash, bitcoin sales and access to public capital markets to support operations and growth, and expects to continue using its ATM facility. It intends to sell bitcoin as needed for operating costs and general corporate purposes.
- Expansion: A 20%-owned Abu Dhabi joint venture was formed with FSI for two planned mining sites totaling 250 MW. Aggregate project capital contributions were described as approximately $406 million, subject to conditions, with contributions planned during 2023. The company recorded a $43.2 million investment in the venture in Q1. Garden City, Texas was installed but awaiting regulatory approval and not operational at quarter-end.
- Bitcoin and operating risks: Revenue, liquidity and asset values depend on bitcoin prices, production, global network hash rate and electricity/hosting costs. Under the company’s accounting policy, bitcoin impairment losses cannot be reversed if prices later recover. The filing also warns that further crypto-market disruption could impair mining equipment and deposits; it recorded $332.9 million of such impairments in Q4 2022.
- Liquidity and financing: Q1 operating and investing activities used $28.8 million and $72.0 million, respectively; equity issuance funded much of the cash outflow. Management’s liquidity outlook depends partly on capital-market access and bitcoin sales. The company reported $124.9 million of cash and no outstanding Silvergate credit facilities at quarter-end.
- Accounting and controls: Disclosure controls were not effective at March 31, 2023 because of material weaknesses involving GAAP application (including consolidation, digital-asset impairment, asset disposals and principal-versus-agent revenue), IT access/change controls and a manual revenue control. Remediation was ongoing, with no assurance it would succeed. The quarter included a $1.2 million out-of-period increase to digital-asset impairment, which management said was not material to prior periods.
- Regulatory and legal matters: On April 10, 2023, the company received an additional SEC subpoena concerning, among other matters, related-party transactions; it said it was cooperating. A March 2023 putative securities class action alleged fraud relating to announced accounting restatements. In the Compute North bankruptcy, the company has a $40 million unsecured claim; projected recovery for unsecured claims was 8%–65%, but the company said its actual recovery and timing were uncertain. A separate Ho lawsuit remained pending, with trial scheduled for January 2024.
- Other unusual exposure: The company reported that it had moved deposits away from Signature Bank and its successor after holding approximately $142 million there during the March banking disruption; it said it no longer had deposits at those institutions.
Important facts for investors to verify
- Whether mining expansion and rising production can improve margins given the near-zero Q1 total margin and sharply higher energy and hosting costs.
- Bitcoin holdings, sale pace and fair value relative to their lower accounting carrying value, and the effects of bitcoin-price movements on liquidity and impairment.
- Remaining ATM authorization, future equity issuance and dilution, and the company’s ability to fund the Abu Dhabi project and other growth commitments.
- Progress in remediating material weaknesses, the implications of prior accounting restatements, and developments in the SEC inquiry and related litigation.
- Actual recovery and timing of distributions on the Compute North claim, and the regulatory approval and operating timeline for the Texas site.