MARA Holdings, Inc. (Marathon Digital Holdings) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Financial statements are unaudited. The company’s business was focused on bitcoin mining and related opportunities.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $51.7 million | $9.2 million |
| Cost of revenue | $26.4 million | $2.4 million |
| Gross margin (revenue less cost of revenue) | $25.3 million; 49.0% | $6.7 million; 73.7% |
| Operating loss | $9.1 million | $47.1 million |
| Net income (loss) | $(13.0) million | $83.4 million |
| Adjusted EBITDA (non-GAAP) | $39.4 million | $6.1 million |
| Cash used in operations | $26.1 million | $3.1 million |
Revenue increased 465% year over year, primarily from higher mining activity, partly offset by lower revenue per bitcoin mined. The company mined 1,258.6 BTC, versus 191.8 BTC a year earlier. Cost of revenue rose with activity and higher depreciation and amortization. The gross margin percentage declined, reflecting lower revenue per bitcoin and higher cost per bitcoin.
GAAP net income swung to a loss largely because the investment fund’s fair value declined by $5.5 million, compared with a $131.8 million gain in Q1 2021. Q1 2022 also included $19.6 million of mined-digital-currency impairment, $0.9 million of patent impairment, and $2.8 million of interest expense. The prior-year result included substantial stock-based compensation, but also the large investment-fund gain. Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.
Financial position, cash flow, and funding
- Cash and cash equivalents were $118.5 million, down from $268.5 million at year-end 2021. Net cash decreased $150.0 million during the quarter.
- Investing cash outflow was $209.4 million, including $192.4 million of advances to mining-equipment vendors, $6.5 million of equipment purchases, and $10.5 million of equity investments. Financing provided $85.5 million, mainly from an at-the-market equity offering.
- Total assets were $1.54 billion; current assets were $592.6 million and current liabilities were $14.8 million. Current assets include bitcoin, an investment fund, and other items—not just cash.
- Vendor advances reached $594.2 million, up from $466.3 million at year-end, reflecting advance payments for mining equipment.
- Notes payable, net of unamortized discounts, were $729.4 million, primarily related to $747.5 million principal amount of 1.00% convertible notes due 2026. No borrowings were outstanding under the $100 million Silvergate revolving facility at March 31. Subsequent to quarter-end, the company drew $70 million on the facility.
- At March 31, the company reported approximately 4,579 self-mined BTC with a carrying value of $155.6 million and fair market value of approximately $208.8 million; its investment fund held approximately 4,794 BTC valued at $218.2 million. Self-mined bitcoin is carried at cost less impairment, while the fund is measured at fair value.
Changes, outlook, and risks
- Operating scale expanded materially year over year, while cash fell as the company made significant equipment-related advances and investments. The company issued approximately 3.0 million shares under its at-the-market program in Q1, generating $90.2 million net; the program authorized sales of up to $750 million.
- Management said it expected liquidity from cash, borrowing capacity, and, to a lesser extent, bitcoin holdings to support operations, and expected to fund growth through debt and equity markets. No specific revenue, mining, or earnings guidance was provided.
- The company, Beowulf, and Two Point One agreed to terminate the Hardin, Montana facility agreements effective August 15, 2022, and redeploy installed miners to renewable-power facilities by September 30, 2022. The company stated a goal of becoming carbon neutral by year-end 2022.
- Effective April 30, 2022, third-party miners were no longer permitted in the company’s mining pool; the company expected to become its sole participant and no longer incur pool-operator fees as the pool’s sole customer.
- Key operating exposures include bitcoin prices and impairment accounting, mining economics, access to cost-effective electricity and internet, equipment deployment, and financing availability. Management noted that power shortages, outages, or higher power costs could force reduced or suspended operations.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2022, for reasons described in the 2021 Form 10-K. The company reported adding a Chief Accounting Officer and other remediation measures.
- Legal matters include an SEC subpoena concerning the Hardin facility and related securities class-action and derivative suits. Management, after consulting counsel, said it did not expect the five disclosed matters to materially affect financial position, results, or liquidity. The Ho litigation remained pending; the company reported that several claims had been dismissed and that trial was set for May 26, 2022.
Important facts for investors to verify
- Whether the $70 million post-quarter revolver draw was followed by additional borrowing, and its interest cost and repayment terms.
- Timing, delivery, and deployment of mining equipment associated with the $594.2 million in vendor advances, and the company’s ability to finance planned growth.
- Bitcoin holdings, market values, impairment charges, and the differing accounting treatment of mined BTC and fund-held BTC.
- Execution of the Hardin exit and miner redeployment, progress toward the stated carbon-neutral goal, and access to reliable, economical power.
- Progress and effectiveness of internal-control remediation, and developments in the SEC inquiry and related litigation.