MARA Holdings, Inc. (then Marathon Digital Holdings, Inc.) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Figures are unaudited. The company’s principal business was Bitcoin mining and related treasury investments in Bitcoin.
Financial performance and position
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $29.3 million | $38.5 million | $0.3 million / $0.9 million |
| Operating income (loss) | $4.6 million | $(42.4) million | $(1.8) million / $(2.9) million |
| Net income (loss) | $(108.9) million | $(25.5) million | $(2.2) million / $(3.2) million |
| Net loss per share, basic and diluted | $(1.09) | $(0.26) | $(0.13) / $(0.26) |
| Net cash from (used in) operating activities | Not presented for quarter | $(6.8) million | $(2.1) million |
| Net cash from (used in) investing activities | Not presented for quarter | $(272.5) million | $(4.7) million |
| Net cash from financing activities | Not presented for quarter | $308.5 million | $6.9 million |
Q2 gross margin, calculated as revenue less cost of revenue, was approximately 76%; six-month gross margin was approximately 76%. Cash and cash equivalents were $170.6 million at June 30, compared with $141.3 million at December 31, 2020. Working capital was $488.3 million. Total liabilities were $3.3 million; the balance sheet showed no outstanding loan balance. Stockholders’ equity was $580.5 million.
At June 30, the company reported $28.97 million of mined digital currencies, net of impairment, and a $166.9 million investment fund holding Bitcoin. Management described total digital assets of $195.9 million, including cumulative mined-currency impairment of $11.7 million. The fund’s six-month fair-value gain was $16.9 million, while the income statement reported a $114.9 million fund fair-value loss for Q2.
Material changes versus 2020
- Mining revenue rose sharply as the company deployed miners; management attributed the increase to about 15,595 miners deployed and a 1,031% increase in hash rate during the first half.
- Six-month mining revenue increased to $38.5 million from $0.9 million. The company reported mining about 846 Bitcoin in the first half of 2021, versus 104 in the first half of 2020.
- Six-month operating costs grew substantially, including $51.9 million of non-cash stock-based compensation and $11.7 million of cryptocurrency impairment. Q2 impairment was $11.1 million.
- Q2 net loss was dominated by the $114.9 million fair-value loss on the NYDIG fund investment. Results also reflect accounting that allows mined digital currencies to be written down for impairment but not subsequently written up.
- Cash increased primarily alongside significant equity financing: the company raised $250 million gross in a January registered offering and reported $324.8 million of total first-half equity-offering proceeds before offering costs. Shares outstanding increased to 99.6 million from 82.0 million at year-end.
Outlook, commitments, risks, and other items
- Management stated that existing cash was expected to fund operations for at least the next 12 months. No specific earnings or revenue guidance was provided.
- The company had ordered 100,500 miners under purchase agreements at June 30. It had received 18,702 purchased miners by that date; management reported approximately 19,749 active miners and 2.13 EH/s subsequent to quarter-end. Significant miner payments and deliveries remained scheduled.
- For a 70 MW Hardin, Montana facility, the company said it had paid approximately $33 million in build-out costs. It agreed to power pricing of $0.028/kWh under a long-term agreement.
- A May 2021 hosting letter of intent with Compute North covered 73,000 miners, staged from October 2021 to March 2022. Terms included an 18-month bridge loan of up to $67 million and up to $14 million in expedite fees; $8 million of expedite fees had been paid by June 30. The filing also disclosed an August 2021 agreement to buy 30,000 additional miners for $120.7 million.
- Bitcoin price volatility, mining economics, impairment accounting, security and custody of digital assets, delivery and hosting execution, and substantial equipment and infrastructure commitments are important risks. Management noted that COVID-19’s effects remained uncertain but did not then expect a material long-term impact.
- The Michael Ho lawsuit remained pending, with trial scheduled for March 3, 2022; the company said the outcome could not be predicted. The separate Feinberg litigation dismissal was affirmed on appeal in April 2021.
- Management assessed disclosure controls and procedures as effective at June 30 and reported no material quarter changes to internal control over financial reporting.
Important facts for investors to verify
- Reconcile the Q2 $114.9 million fund fair-value loss with the reported $16.9 million first-half gain and the fund’s $166.9 million June 30 carrying value.
- Confirm Bitcoin holdings, valuation, custody arrangements, and impairment exposure; the filing reports approximately 5,784 Bitcoin in the June 30 digital-asset balance and approximately 6,378 Bitcoin held as of August 13, 2021.
- Track miner purchase payment obligations, delivery schedules, active fleet and hash rate, and execution of the Compute North hosting and bridge-loan arrangements.
- Assess dilution and recurring stock compensation: shares outstanding rose to 99.6 million, and first-half stock-based compensation was $51.9 million.
- Review the pending Ho litigation and the company’s actual liquidity and cash needs against its stated 12-month funding outlook.