Correspondence 0001493152-24-007044 from MARATHON DIGITAL HOLDINGS, INC. (MARA) (CIK 0001507605) (MARA)
MARATHON DIGITAL HOLDINGS, INC. (MARA) (CIK 0001507605)
Date: Feb. 16, 2024 · CIK: 0001507605 · Accession: 0001493152-24-007044
AI Filing Summary & Sentiment
File numbers found in text: 001-36555
Referenced dates: February 2, 2024
Letter
Securities and Exchange Commission Division of Corporation Finance Stephen Krikorian Form 10-K for the Fiscal Year Ended December 31, 2022 Form 10-Q for the Quarterly Period Ended September 30, 2023 File No. 001-36555
Re: Marathon Digital Holdings, Inc.
Dear Ms. Walsh and Mr. Krikorian:
This letter constitutes the response (“Response”) of Marathon Digital Holdings, Inc. (the “Company”) to your comment letter dated February 2, 2024 (the “Letter”) to the Chief Financial Officer of the Company, relating to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”) and the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (the “2023 10-Q”). Unless otherwise indicated, capitalized terms used herein have the meanings ascribed to them in the 2022 10-K and/or 2023 10-Q. For ease of reference, we have copied each comment verbatim from your Letter and have placed our response immediately below each comment.
Form 10-Q for the Quarterly Period Ended September 30, 2023
Notes to Condensed Consolidated Financial Statements
Note 4 - Revenue From Contracts With Customers, page 11
1. As it relates to your pool operator activities, we note your statement that, “The Company’s ongoing major or central operation is to provide bitcoin transaction verification services to the bitcoin network…” Please revise to indicate, if true, that you also provide these services to the transaction requestor, in addition to the bitcoin network.
Response: The Company acknowledges the Staff’s comment that in addition to providing verification services to the bitcoin network, we also provide these services to the transaction requestor. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
2. As it relates to your pool participant activities, we note that your reference to “…to provide computing power…” is too general to distinguish whether you provide a good or service and too general to describe the nature of such good or service. Please revise to clarify, if true, that as a pool participant in mining pools not operated by you that you provide a service of performing hash calculations for pool operators.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
3. Your statement that “The Company currently mines in a self-operated pool” appears to be inconsistent with your disclosure that a pool in which nonconsolidated entities participate does not exist subsequent to May 2022 and, for the period from September 2021 to May 2022, appears to conflate your pool participation activities and your pool operator activities. That is, as it relates to the activities of what you call “a self-operated pool” for all periods, including from September 2021 to May 2022 when nonconsolidated entities participated in your mining pool, it appears that your consolidated financial statements would depict you providing a transaction verification service, not a service of providing hash calculations. Please tell us if our understanding is correct. If our understanding is correct, reconsider the use of this phrase or make appropriate clarifying revision.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
4. Revise the table so that “Operator - block reward” revenue is not characterized as revenue from contracts with customers. Refer to ASC 606-10-50-4.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
5. We note your disclosures related to your Operator revenue policy indicating that a contract is deemed to exist at the point in time that the performance obligation is satisfied. Please further revise your disclosure to include your assertions that, if true:
● the transaction requestor and the bitcoin network each have a unilateral enforceable right to terminate their respective contracts at any time without penalty;
● for each of these respective contracts, contract inception and completion occur simultaneously upon block validation; that is, the contract begins upon, and the duration of the contract does not extend beyond, the validation of an individual blockchain transaction; and
● each respective contract contains a single performance obligation to perform a transaction validation service and that this performance obligation is satisfied at the point-in-time when a block is successfully mined.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
6. Revise your Operator revenue policy to clarify, if true, that the transaction price is fixed as of the inception of each individual contract, contract inception occurs at the same point in time you validate a block, and that you measure such noncash consideration at the point in time the Company successfully validates a block, which is contract inception.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
7. Consider clarifying the statement within the first sentence of the Participant revenue policy that references “only when the Company-operated mining pool is not available.” We note this statement appears to be referring to the Company’s business practice, rather than describing its accounting policy; however, as it relates to business practice, it is not clear what “not available” means and the frequency of this occurrence. We also note that a Company-operated pool does not exist after May 2022.
Response: The Company acknowledges and agrees with the Staff’s comment. We have removed the reference “only when the Company-operated mining pool is not available” and focused on the accounting policy when we are a participant in third-party pools. From a business practice perspective, we primarily operate as a pool operator and participate in third-party pools when our own pool is not available due to maintenance and other temporary factors. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
8. For your Participant revenue policy, we note the revised description of your performance obligation in response to prior comment 4. As previously requested, please further revise your disclosures throughout the policy to consistently describe the nature of your performance obligation. That is, revise references to computing power or hash rate to more accurately describe the performance obligation as a service to perform hash calculations for the pool operator. Please make similar revision to references in your Pool Operator policy in which you state that you engaged unrelated third-party mining enterprises (“pool participants”) to “contribute computing power” and to “contribute their hash rate.” In addition, in the 5th paragraph of your Participant revenue policy, please reconsider the appropriateness of referring to this as the “primary” output of your ordinary activities, considering you also generate revenue as a pool operator.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
9. In your Participant revenue policy, as previously requested, please revise to provide a more precise description of the payout formulas and identify the formula inputs that create variability for each component of the payout formula (i.e., block reward, transaction fee, and pool fee rate). Also, please describe the measurement period for the underlying variables used to calculate the payout (e.g., for the 24-hour period beginning at midnight UTC daily). Also, ensure your disclosure articulates the difference between PPS and FPPS payout methodologies. For example, revise to clarify that, under FPPS, transaction fees are also earned in addition to the block reward. In addition, in your description of rewards paid only when the pool successfully mines a block, replace your references to computing power in describing your fractional share with more precise terms.
Response: The Company acknowledges and agrees with the Staff’s comment. Please see attached exhibit to this letter of our revised revenue recognition policy footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
10. Please refer to the second paragraph in your Participant revenue policy and revise your disclosure to address the following:
● Clarify, if true, that contract inception occurs once your performance of hash calculations commences. That is, clarify, if true, that your enforceable right to compensation only begins when you commence providing hash calculation services for the mining pool operator;
● Revise the sentence that starts with “These contracts are period-to-period contracts…” to be more precise. Similarly, remove the example that refers to second, minute or hour. For example, disclose your assertion that each party has the unilateral right to terminate the contract at any time without any compensation to the other party for such termination and, if true, that as a result the contract is continuously renewed many times throughout the day, such that the duration of each contract is less than daily; and
● Clarify the statement indicating the implied renewal option is not a material right. More specifically, is it correct that “… there are no upfront or incremental fees in the initial contract…” and “…the terms, conditions, and compensation amounts for the renewal options are at the then market rates”?
Response: The Compan
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CORRESP
1
filename1.htm
February
16, 2024
Securities
and Exchange Commission
Division
of Corporation Finance
100
F Street, NE
Washington,
D.C. 20549-4561
Attn:
Melissa
Walsh
Stephen
Krikorian
Re:
Marathon Digital Holdings, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2022
Form 10-Q for the Quarterly Period Ended September
30, 2023 File No. 001-36555
Dear
Ms. Walsh and Mr. Krikorian:
This
letter constitutes the response (“Response”) of Marathon Digital Holdings, Inc. (the “Company”) to your comment
letter dated February 2, 2024 (the “Letter”) to the Chief Financial Officer of the Company, relating to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 10-K”) and the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 2023 (the “2023 10-Q”). Unless otherwise indicated, capitalized
terms used herein have the meanings ascribed to them in the 2022 10-K and/or 2023 10-Q. For ease of reference, we have copied each comment
verbatim from your Letter and have placed our response immediately below each comment.
Form
10-Q for the Quarterly Period Ended September 30, 2023
Notes to Condensed Consolidated Financial Statements
Note
4 - Revenue From Contracts With Customers, page 11
1. As
it relates to your pool operator activities, we note your statement that, “The Company’s
ongoing major or central operation is to provide bitcoin transaction verification services
to the bitcoin network…” Please revise to indicate, if true, that you also provide
these services to the transaction requestor, in addition to the bitcoin network.
Response:
The Company acknowledges the Staff’s comment that in addition to providing verification
services to the bitcoin network, we also provide these services to the transaction requestor.
Please see attached exhibit to this letter of our revised revenue recognition policy footnote
that will be included in the Form 10-K for the year ended December 31, 2023, reflecting the
requested revision.
2. As
it relates to your pool participant activities, we note that your reference to “…to
provide computing power…” is too general to distinguish whether you provide
a good or service and too general to describe the nature of such good or service. Please
revise to clarify, if true, that as a pool participant in mining pools not operated by you
that you provide a service of performing hash calculations for pool operators.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
3. Your
statement that “The Company currently mines in a self-operated pool” appears
to be inconsistent with your disclosure that a pool in which nonconsolidated entities participate
does not exist subsequent to May 2022 and, for the period from September 2021 to May 2022,
appears to conflate your pool participation activities and your pool operator activities.
That is, as it relates to the activities of what you call “a self-operated pool”
for all periods, including from September 2021 to May 2022 when nonconsolidated entities
participated in your mining pool, it appears that your consolidated financial statements
would depict you providing a transaction verification service, not a service of providing
hash calculations. Please tell us if our understanding is correct. If our understanding is
correct, reconsider the use of this phrase or make appropriate clarifying revision.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
4. Revise
the table so that “Operator - block reward” revenue is not characterized as revenue
from contracts with customers. Refer to ASC 606-10-50-4.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
5. We
note your disclosures related to your Operator revenue policy indicating that a contract
is deemed to exist at the point in time that the performance obligation is satisfied. Please
further revise your disclosure to include your assertions that, if true:
● the
transaction requestor and the bitcoin network each have a unilateral enforceable right to
terminate their respective contracts at any time without penalty;
● for
each of these respective contracts, contract inception and completion occur simultaneously
upon block validation; that is, the contract begins upon, and the duration of the contract
does not extend beyond, the validation of an individual blockchain transaction; and
● each
respective contract contains a single performance obligation to perform a transaction validation
service and that this performance obligation is satisfied at the point-in-time when a block
is successfully mined.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
6. Revise
your Operator revenue policy to clarify, if true, that the transaction price is fixed as
of the inception of each individual contract, contract inception occurs at the same point
in time you validate a block, and that you measure such noncash consideration at the point
in time the Company successfully validates a block, which is contract inception.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
7. Consider
clarifying the statement within the first sentence of the Participant revenue policy that
references “only when the Company-operated mining pool is not available.” We
note this statement appears to be referring to the Company’s business practice, rather
than describing its accounting policy; however, as it relates to business practice, it is
not clear what “not available” means and the frequency of this occurrence. We
also note that a Company-operated pool does not exist after May 2022.
Response:
The Company acknowledges and agrees with the Staff’s comment. We have removed
the reference “only when the Company-operated mining pool is not available” and
focused on the accounting policy when we are a participant in third-party pools. From a business
practice perspective, we primarily operate as a pool operator and participate in third-party
pools when our own pool is not available due to maintenance and other temporary factors.
Please see attached exhibit to this letter of our revised revenue recognition policy
footnote that will be included in the Form 10-K for the year ended December 31, 2023, reflecting
the requested revision.
8. For
your Participant revenue policy, we note the revised description of your performance obligation
in response to prior comment 4. As previously requested, please further revise your disclosures
throughout the policy to consistently describe the nature of your performance obligation.
That is, revise references to computing power or hash rate to more accurately describe the
performance obligation as a service to perform hash calculations for the pool operator. Please
make similar revision to references in your Pool Operator policy in which you state that
you engaged unrelated third-party mining enterprises (“pool participants”) to
“contribute computing power” and to “contribute their hash rate.”
In addition, in the 5th paragraph of your Participant revenue policy, please reconsider
the appropriateness of referring to this as the “primary” output of your ordinary
activities, considering you also generate revenue as a pool operator.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
9. In
your Participant revenue policy, as previously requested, please revise to provide a more
precise description of the payout formulas and identify the formula inputs that create variability
for each component of the payout formula (i.e., block reward, transaction fee, and pool fee
rate). Also, please describe the measurement period for the underlying variables used to
calculate the payout (e.g., for the 24-hour period beginning at midnight UTC daily). Also,
ensure your disclosure articulates the difference between PPS and FPPS payout methodologies.
For example, revise to clarify that, under FPPS, transaction fees are also earned in addition
to the block reward. In addition, in your description of rewards paid only when the pool
successfully mines a block, replace your references to computing power in describing your
fractional share with more precise terms.
Response:
The Company acknowledges and agrees with the Staff’s comment. Please see attached
exhibit to this letter of our revised revenue recognition policy footnote that will be included
in the Form 10-K for the year ended December 31, 2023, reflecting the requested revision.
10. Please
refer to the second paragraph in your Participant revenue policy and revise your disclosure
to address the following:
● Clarify,
if true, that contract inception occurs once your performance of hash calculations commences.
That is, clarify, if true, that your enforceable right to compensation only begins when you
commence providing hash calculation services for the mining pool operator;
● Revise
the sentence that starts with “These contracts are period-to-period contracts…”
to be more precise. Similarly, remove the example that refers to second, minute or hour.
For example, disclose your assertion that each party has the unilateral right to terminate
the contract at any time without any compensation to the other party for such termination
and, if true, that as a result the contract is continuously renewed many times throughout
the day, such that the duration of each contract is less than daily; and
● Clarify
the statement indicating the implied renewal option is not a material right. More specifically,
is it correct that “… there are no upfront or incremental fees in the initial
contract…” and “…the terms, conditions, and compensation
amounts for the renewal options are at the then market rates”?
Response:
The Compan