MARA Holdings, Inc. (formerly Marathon Digital Holdings, Inc.) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 8, 2023. Unaudited results. Dollar amounts below are in millions unless stated otherwise. 2022 comparative results were restated.
Business context
The company mines bitcoin and pursues related Bitcoin ecosystem opportunities. It reported nearly 180,000 mining rigs in operation at quarter-end and expanded U.S. operations and its Abu Dhabi joint venture. The ADGM venture began mining during Q3; MARA holds a 20% interest.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $97.8 | $12.7 | $230.7 | $89.3 |
| Operating loss | $(15.6) | $(44.0) | $(35.7) | $(262.6) |
| Net income (loss) | $64.1 | $(72.5) | $37.8 | $(302.4) |
| Net income (loss) per diluted share | $0.35 | $(0.62) | $0.21 | $(2.76) |
| Cash used in operating activities | Not provided quarterly | Not provided quarterly | $(224.5) | $(83.7) |
Q3 revenue rose about 671%, chiefly from higher bitcoin production and prices; nine-month revenue rose about 158%, as increased production more than offset lower bitcoin prices. Production was 3,490 bitcoin in Q3 (37.9 per day), including 23 earned by the investee, and 8,610 for the nine months.
Cost of revenue exceeded revenue: GAAP total margin was a loss of $15.3 in Q3 and $26.0 for the nine months. Management’s non-GAAP total margin excluding depreciation and amortization was positive $38.2 and $82.5, respectively. Adjusted EBITDA, also non-GAAP, was $43.7 for Q3 and $87.9 for the nine months. These measures exclude specified costs and gains and should not be viewed as substitutes for GAAP results.
Q3 net income included an $82.6 gain on extinguishment of debt; accordingly, reported profit did not reflect positive operating income. Nine-month net income also benefited from a $72.7 net gain on digital assets and lower digital-asset impairments than in 2022. Nine-month impairment of digital assets was $26.4 versus $156.5 in the prior-year period.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $101.2; digital assets were carried at $286.8. The company held about 13,716 bitcoin, with reported fair value of approximately $369.8. Its carrying value is subject to impairment accounting, and prior impairment losses cannot be reversed.
- Current assets were $432.6 versus current liabilities of $38.2. Total assets were $1,383.8 and stockholders’ equity was $1,020.0.
- Convertible notes, net of unamortized discounts, were $325.3. In September the company exchanged $416.8 principal amount of notes for 31.7 million common shares. The Silvergate term loan and revolving credit facility were repaid or terminated in March 2023.
- Nine-month operating cash outflow was $224.5, investing cash outflow $0.4 and financing cash inflow $213.6. Financing included $265.8 net proceeds from ATM share sales; operating cash use included the noncash accounting adjustment for bitcoin mining revenue.
- The company sold 7,054 bitcoin during the first nine months for $179.5 in proceeds, recognizing $70.7 of gains. Management expects to continue selling bitcoin as needed to fund operating costs and general corporate purposes.
Material changes, outlook and risks
- Installed hash rate reached 23.1 EH/s and energized hash rate 19.1 EH/s at quarter-end; average operational hash rate during the quarter was 12.1 EH/s. The filing cautions these indicators do not guarantee production.
- Management stated it expects available cash, bitcoin sales and access to capital markets to provide sufficient liquidity for ongoing operations. It provided no specific financial guidance. It expects bitcoin holdings generally to increase, but says holdings and their dollar value will fluctuate.
- A new ATM program of up to $750 million was announced October 24, 2023. No shares had been sold under it as of November 8. The prior ATM program generated $265.8 million net proceeds during the first nine months, with further shares sold through October 23 to complete that program.
- Risks include bitcoin price and production volatility, higher electricity costs, access to capital markets, and the possibility of further impairments. The company hedged a portion of bitcoin holdings during Q3; gains and losses from hedging will affect earnings.
- Management identified material weaknesses in internal controls over financial reporting, including GAAP application, IT access and change controls, and a manual revenue control. Controls were reported ineffective at the reasonable-assurance level; remediation is ongoing, with no assurance it will succeed. The filing also describes prior accounting restatements.
- Legal and regulatory matters include a putative securities class action and derivative suits related to the restatement announcement, an SEC subpoena concerning the Hardin facility and related-party transactions (the company says it is cooperating), and the pending Ho litigation. The company’s $40 million unsecured claim in the Compute North bankruptcy remains unpaid; recovery amount and timing are uncertain, and expected recovery on preferred equity is zero.
Most important facts for investors to verify
- How much of reported earnings and adjusted EBITDA came from the debt-extinguishment gain, bitcoin gains, and other nonrecurring or noncash items.
- Whether mining expansion translates into sustained production and cash generation, given the gap between energized and average operational hash rate and the negative operating cash flow.
- Bitcoin holdings’ market value, the accounting carrying value and impairment exposure, and the effects of ongoing bitcoin sales and hedging.
- Future dilution and capital needs under the new $750 million ATM program, alongside the remaining convertible-note obligations.
- Progress in remediating material weaknesses, developments in the SEC inquiry and shareholder litigation, and actual recoveries from Compute North.