MARA Holdings, Inc. (then Marathon Digital Holdings, Inc.) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results. The company focused on bitcoin mining and related opportunities.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $24.9 million | $29.3 million | $76.6 million | $38.5 million |
| Net loss | $191.6 million | $108.9 million | $204.6 million | $25.5 million |
| Loss per share, diluted | $1.75 | $1.09 | $1.93 | $0.26 |
| Adjusted EBITDA (non-GAAP) | Loss of $147.2 million | Loss of $105.1 million | Loss of $137.6 million | Income of $30.1 million |
Q2 total margin, defined by the company as revenue less energy, hosting and other costs and depreciation and amortization, was a loss of $16.5 million, versus income of $22.3 million a year earlier. Six-month total margin was $8.9 million, down from $29.1 million. Revenue fell 15% in Q2 as lower revenue per bitcoin outweighed 8% higher bitcoin production; first-half revenue rose as production increased 132%, partly offset by lower bitcoin prices. The company produced 707 bitcoin in Q2 and 1,966 in the first half.
Digital-asset valuation effects were significant: the company recorded $127.6 million of bitcoin impairment in Q2 and $147.1 million in the first half, plus a $79.7 million Q2 and $85.0 million first-half loss in fair value of bitcoin held in its investment fund. The company transferred approximately 4,769 bitcoin out of the fund in June; thereafter, those holdings were accounted for as digital currencies subject to impairment rather than fund assets measured at fair value.
Cash, liquidity and debt
- Cash, cash equivalents and restricted cash totaled $89.7 million at June 30, down $178.9 million from year-end 2021. Operating cash use was $40.8 million; investing cash use was $334.0 million; financing provided $196.0 million.
- Investing cash use included $394.0 million of vendor advances, partly offset by $87.2 million of equipment-sale proceeds. Advances to vendors were $800.2 million at quarter-end, compared with $466.3 million at year-end. A $46.6 million vendor advance payable was paid in early July.
- At June 30, the company had $35.0 million drawn on its revolving credit line. Convertible notes had a $730.3 million carrying value, net of unamortized discounts; their stated principal was $747.5 million.
- Bitcoin holdings were approximately 10,055 BTC, carried at $190.4 million versus an estimated fair market value of $198.9 million. Approximately 2,820 BTC were restricted as collateral for revolving borrowings.
- After quarter-end, Silvergate agreements dated July 28 provided for a revolving facility of up to $100 million and a term facility of up to $100 million, including an initial $50 million draw and a potential delayed $50 million draw. Both are bitcoin-secured and carry minimum adjusted net worth and liquidity covenants of $350 million and $25 million, respectively. The revolving facility’s availability and terms depend in part on collateral value.
Material changes, outlook and risks
- Q2 results included a $58.2 million pretax gain on equipment sold for $87.2 million. The final equipment shipment was sold in July for $43.6 million, with a further $28.8 million pretax gain.
- Hardin, Montana operations were affected by maintenance problems and a June storm that damaged the power facility. The company accelerated its exit, terminating its power purchase agreements on July 28; related prepaid service costs and infrastructure depreciation were fully expensed by July 31. The company said servers were being inventoried for removal, sale or redeployment.
- Deployment delays at the King Mountain, Texas site also weighed on production. Following a July regulatory decision, approximately 69,000 mining machines there began coming online on August 5, 2022.
- Management expected sufficient liquidity for ongoing operations and identified cash, Silvergate borrowing capacity, its ATM equity facility and bitcoin holdings as potential liquidity sources. It expected additional miners and hosting capacity to come online from late 2022 through approximately mid-2023. These are forward-looking plans, not guaranteed results; the filing gives no formal earnings or revenue guidance.
- Key risks include bitcoin price volatility and impairment, access to affordable power and reliable internet, power outages, hosting and deployment delays, and the possibility that lower bitcoin prices reduce borrowing capacity against pledged bitcoin. The company also planned to continue seeking debt and equity capital.
- Management reported disclosure controls and procedures were not effective at June 30, 2022, for reasons described in its 2021 Form 10-K. The company added an assistant controller in July and said remediation work was ongoing.
- Legal matters include an SEC subpoena concerning the Hardin data-center disclosures, a putative securities class action and consolidated shareholder derivative actions. The company said it was cooperating with the SEC and believed the five disclosed matters would not materially adversely affect its financial position, results or liquidity. The Ho litigation remained pending, with trial set for February 2023.
Most important facts for investors to verify
- Whether mining deployments and hosting capacity met the stated schedules, particularly at King Mountain and the Texas and North Dakota facilities.
- How bitcoin prices, impairment accounting and collateral requirements affected reported results and available borrowing capacity.
- Whether vendor advances of $800.2 million convert into equipment and operating capacity on expected terms and timing.
- Actual funding, utilization, collateral requirements and covenant headroom under the post-quarter Silvergate facilities.
- Progress in remediating the disclosed ineffective controls, and developments in the SEC inquiry and related litigation.
- Subsequent cash needs, equity issuance and dilution under the ATM agreement; the company had sold 10.6 million shares for $161.0 million net through June 30.