Marathon Digital Holdings, Inc. (NASDAQ:MARA) is a global leader in digital asset compute that develops and deploys innovative technologies to build a more sustainable and inclusive future. The company secures the world's preeminent blockchain ledger and supports the energy transformation by converting clean, stranded, or otherwise underutilized energy into economic value.
Business Overview
Marathon Digital Holdings, Inc. is one of the world's largest publicly traded bitcoin mining companies with operations in North America, the Middle East, and Latin America. The company's core business is utility-scale Bitcoin mining, which produces or "mines" bitcoin using one of the industry's largest and most energy-efficient fleets of specialized computers. As of March 31, 2024, the company had approximately 226,000 energized and operational mining rigs, capable of producing 27.8 exahashes per second with an efficiency of 25 joules per terahash, which the company believes to be amongst the most efficient in the industry.In addition to its core bitcoin mining operations, Marathon has expanded its business to include three key verticals: utility-scale mining, technological innovations, and energy harvesting. The utility-scale mining division focuses on large-scale global digital asset mining operations to enhance grid stability and the security of the Bitcoin blockchain. The technology division is dedicated to creating advanced hardware, software, and services that maximize energy efficiency, improve performance, and unlock new opportunities for digital infrastructure. The energy harvesting division supports the energy transformation by converting environmentally harmful waste energy, stranded clean energy, or otherwise underutilized sources of energy into economic value.
Recent Developments
Marathon has continued to focus on expanding its operational capabilities globally. In the first quarter of 2024, the company completed the acquisition of two operational bitcoin mining sites in Granbury, Texas and Kearney, Nebraska, totaling 390 megawatts of operational capacity, for a total consideration of $189.6 million. The company also acquired an additional 132-megawatt bitcoin mining site in Garden City, Texas for $87.3 million. These acquisitions have allowed Marathon to effectively double the size of its portfolio to 1.1 gigawatts of capacity, with 54% of that capacity now directly owned and operated.In addition to its strategic acquisitions, Marathon has also launched several new products and services to support the Bitcoin ecosystem. This includes the introduction of Slipstream, a direct Bitcoin transaction submission service designed to streamline confirmations of large or non-standard Bitcoin transactions, as well as the launch of the company's own firmware, controller board, and 2-phase immersion cooling system.
Financial Performance
Marathon reported record financial results in the first quarter of 2024, with net income of $337.2 million, or $1.26 per diluted share, compared to net income of $118.7 million, or $0.72 per diluted share, in the prior year period. This represents a 184% increase in net income year-over-year.The company's revenues for the first quarter of 2024 were $165.2 million, up 223% from $51.1 million in the same period last year. This increase was primarily driven by a $82.9 million increase in the average price of bitcoin mined, a $10.4 million increase in bitcoin production, and $20.8 million in revenues generated from providing hosting services as a result of the acquisition of GC Data Center Equity Holdings, LLC.
Cost of revenues, which includes mining and hosting services as well as depreciation and amortization, was $168.2 million in the first quarter of 2024, compared to $51.1 million in the prior year period. The increase was primarily due to the growth in the company's hash rate from the deployment and energization of mining rigs in existing and new hosting facilities, as well as the impact of the GC Data Center Equity Holdings, LLC acquisition.
Marathon's total margin, which is total revenues less total cost of revenues, was a negative $3.0 million in the first quarter of 2024, compared to nearly zero in the prior year period. The decrease was primarily due to higher costs associated with the growth in the company's hash rate and the impact of the GC Data Center Equity Holdings, LLC acquisition, partially offset by the increase in revenues.
General and administrative expenses, excluding stock-based compensation, were $21.4 million in the first quarter of 2024, compared to $11.4 million in the prior year period. The increase was primarily due to the increased scale of the business, including payroll and benefits, professional fees, and other third-party costs.
Marathon's adjusted EBITDA, a non-GAAP financial measure, was $528.8 million in the first quarter of 2024, compared to $144.5 million in the prior year period. The increase was primarily driven by the favorable fair value adjustments to digital assets of $488.8 million and higher bitcoin production.
Liquidity and Capital Resources
As of March 31, 2024, Marathon had $324.3 million in cash and cash equivalents and held approximately 17,320 bitcoin with a fair value of $1.2 billion on its balance sheet. The company's combined value of cash and cash equivalents and bitcoin was approximately $1.6 billion as of the end of the first quarter.Marathon has continued to fund its growth through the public capital markets, primarily through periodic equity issuances using its at-the-market facilities. In the first quarter of 2024, the company raised $489.3 million from at-the-market equity sales, which it intends to use for miners, acquisition of infrastructure, and other general corporate purposes.
The company expects to have sufficient liquidity, including cash on hand, cash received from sales of its bitcoin holdings, and access to public capital markets, to support its ongoing operations and growth initiatives. However, the company's liquidity outlook could be impacted by events that materially diminish its access to capital markets and/or the value of its bitcoin holdings and production capabilities.
Guidance and Outlook
Marathon is targeting 50 exahash of computing power by the end of 2024, up from 27.8 exahash as of March 31, 2024. The company has already secured 12 exahash of new miners arriving in early Q3 2024 to take advantage of its recently acquired and expanded capacity, with more miners coming to fill waiting capacity over the balance of the year.The company believes it is well-positioned to navigate the post-halving environment, with its focus on lowering costs through vertical integration, diversifying revenue streams, and leveraging innovative technologies. Marathon expects its marginal cost per coin to improve as it realizes synergies from its recent acquisitions, reenergizes production at its third-party hosted sites, and spreads its fixed costs over a larger 50 exahash capacity.
Risks and Challenges
While Marathon has demonstrated its ability to execute on its growth strategy, the company faces several risks and challenges, including:1. Volatility in bitcoin prices and the potential impact on the company's profitability and liquidity. 2. Increased competition and the potential for further consolidation in the bitcoin mining industry. 3. Operational challenges, such as equipment failures, power outages, and weather-related disruptions, that could impact the company's bitcoin production. 4. Regulatory changes or increased scrutiny of the cryptocurrency industry that could adversely affect Marathon's business. 5. Successful integration and optimization of its recent acquisitions to realize expected synergies and cost savings.