MARA Holdings, Inc. (formerly Marathon Digital Holdings, Inc.) — 2021 Form 10-K
Business context and period: The filing covers the fiscal year ended December 31, 2021. Marathon’s primary business is Bitcoin mining; it also holds Bitcoin as a long-term investment. The company shifted toward an asset-light model, purchasing miners and relying on third-party hosting providers.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $150.5 million | $4.4 million |
| Cost of revenue | $33.7 million | $7.0 million |
| Gross profit and margin, derived | $116.8 million; 77.6% | Not meaningful: cost of revenue exceeded revenue |
| Operating loss | $85.1 million | $9.8 million |
| Net loss | $36.2 million; $0.36 per share | $10.4 million; $0.13 per share |
| Cash used in operating activities | $18.2 million | $7.8 million |
| Cash and cash equivalents at year-end | $268.5 million | $141.3 million |
| Working capital at year-end | $674.4 million | $285.0 million |
- Revenue rose 3,353% as the company deployed more than 30,000 mining machines and increased hash rate approximately 1,800%. Reported production increased from about 1.6 BTC per day in January to 15.6 BTC per day in December.
- Other operating expenses were $201.9 million, including $160.8 million of non-cash stock compensation and $29.6 million of Bitcoin impairment. Operating loss was also affected by $14.9 million of depreciation and amortization.
- Other income included a $73.8 million unrealized gain on the NYDIG investment fund. Income tax expense was $23.0 million, substantially related to deferred taxes. These items contributed to the net loss despite rapid revenue growth.
- Net cash used in investing activities was $891.9 million, principally reflecting miner purchases and deposits, property and equipment spending, a $150 million investment in the NYDIG fund, and a $30 million loan to hosting provider Compute North. Financing activities provided $1.04 billion, including proceeds from convertible notes and equity offerings.
- At year-end, total assets were $1.45 billion and stockholders’ equity was $683.0 million. Convertible notes had $747.5 million principal outstanding and a $728.4 million net carrying value. The notes bear 1% interest and mature in 2026; the initial conversion price was about $76.17 per share.
- The company reported approximately 8,115 BTC held, including 4,794 BTC in the NYDIG fund. Balance-sheet carrying value for digital currencies, including restricted BTC, was $123.2 million after cumulative impairment; the investment fund was separately carried at $223.8 million. Under the company’s accounting policy, Bitcoin impairment can be recognized when prices fall, but later price recoveries are not recorded unless the Bitcoin is sold.
Material changes and quarterly information
- Compared with 2020, annual revenue increased from $4.4 million to $150.5 million, while operating loss widened from $9.8 million to $85.1 million and net loss widened from $10.4 million to $36.2 million. Expansion-related stock compensation, Bitcoin impairment, and higher operating costs were significant factors.
- For the fourth quarter, the filing’s non-GAAP reconciliation reports GAAP operating income of $21.6 million and GAAP net income of $11.5 million, versus an operating loss of $5.0 million and net loss of $5.2 million in fourth-quarter 2020. Fourth-quarter revenue is not provided clearly in the supplied filing text. Management’s non-GAAP reconciliation reports fourth-quarter non-GAAP net income of $39.9 million; this measure excludes substantial expenses and should not be viewed as a substitute for GAAP results.
- Cash and working capital increased significantly, primarily after the company issued $747.5 million of convertible notes in 2021. Shares outstanding increased to 102.7 million at year-end, from 82.0 million a year earlier.
Outlook, risks, contingencies, and unusual items
- Management expected the planned fleet of approximately 199,000 miners to reach about 23.3 EH/s, with deployments potentially completed by early 2023. These are forward-looking targets, not guarantees. The company also targeted carbon-neutral mining operations by the end of 2022.
- Marathon contracted to purchase 78,000 Antminer S-19 XP machines for $879.1 million, with deliveries scheduled for 2022. It reported paying $307.7 million toward that contract by year-end. The contractual-obligations table lists estimated purchase agreements of $632.6 million and total estimated obligations of $1.42 billion, including debt; amounts and timing should be checked against the detailed agreements.
- The company had $30 million outstanding under an interest-only bridge loan to Compute North and had agreed to provide up to $67 million in total, subject to conditions. Compute North hosting expansion and construction timelines, electricity costs, and the Hardin facility’s reliability are important execution factors. Hardin operations had experienced periods below peak capacity and required planned maintenance outages.
- Bitcoin price volatility is a material earnings and liquidity risk. The company reported $29.6 million of Bitcoin impairment for 2021 and anticipated an approximately $21 million impairment charge for January 2022 price declines. It cautioned that Bitcoin holdings may be less liquid than cash and may not be saleable at reasonable prices during market disruption.
- Silvergate provided a revolving credit facility of up to $100 million, secured by Bitcoin and/or U.S. dollars. The company obtained a waiver and revised covenant terms after issuing the convertible notes; the revised maximum debt-to-equity ratio was 1.50:1.00, with a $25 million minimum-liquidity covenant. The facility was not drawn at year-end according to the supplied cash-flow data.
- The SEC subpoenaed the company and certain executives regarding the Hardin facility and related disclosures; the company said it was cooperating. A putative securities class action and a shareholder derivative action followed disclosures about that investigation. A separate Ho lawsuit remained pending, although several claims had been dismissed; the company stated the outcome could not be predicted.
- Management and the auditor identified a material weakness in IT general controls, including user access, segregation of duties, program changes, and controls over mining and revenue data. The auditor gave an adverse opinion on internal control effectiveness, while issuing an unqualified opinion on the financial statements. Management reported remediation efforts were underway and not yet complete.
- Additional unusual items include the $73.8 million unrealized fund gain, large stock-based compensation expense, significant impairment charges, and a $23.0 million deferred tax provision. The company also disclosed a subsequent 2022 at-the-market offering authorization of up to $750 million, which could dilute shareholders if used.
Most important facts for investors to verify
- Actual miner deliveries, deployment timing, realized hash rate, uptime, power costs, and progress toward the 23.3 EH/s and carbon-neutral targets.
- Bitcoin holdings, custody and loan arrangements, impairment accounting, and the distinction between reported carrying values and market values.
- Cash availability after committed miner purchases, hosting deposits and loans, and the $747.5 million convertible-note obligation; verify the detailed timing and scope of the disclosed $1.42 billion estimated contractual obligations.
- Whether the identified financial-reporting control weakness is remediated and whether revenue and digital-asset controls operate effectively.
- Developments in the SEC investigation and related litigation, as well as any effects on operations, financing, or disclosure obligations.