Good day, ladies and gentlemen. Welcome to MARA's Second Quarter 2024 Earnings Webcast and Conference Call. I would now like to turn the call over to your host, Robert Samuels, Vice President of Investor Relations. Please go ahead.

Thank you, Darryl. Good afternoon, and welcome to MARA's second quarter 2024 earnings call. Thank you for joining us today. With me on today's call are our Chairman and Chief Executive Officer, Fred Thiel; and our Chief Financial Officer, Salman Khan. Certain statements made during this call may be considered forward-looking statements within the meaning of the federal securities laws. In particular, any statements about our future growth plans and performance, our liquidity position, our growth opportunities and our future financial performance are forward-looking statements. These statements are often identified by the use of words such as anticipate, believe, estimate, intend, design, may, plan, project, would, and similar expressions or variations. Investors are cautioned not to place undue reliance on these forward-looking statements. All forward-looking statements made on today's call involve risks and uncertainties. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so, except to the extent required by applicable law. Our actual results and outcomes may differ materially from those included in these forward-looking statements as a result of various factors, including, but not limited to, the factors discussed under the heading Risk Factors in our most recent annual report on Form 10-K and any other periodic reports that we may file with the SEC. Finally, please note that on today's call, we will refer to certain financial measures that were not prepared in accordance with the generally accepted accounting principles in the United States, including adjusted EBITDA and non-GAAP total margin. MARA believes these non-GAAP financial measures are important indicators of its operating performance because they exclude certain items that we do not believe directly reflect our core operations and may not be indicative of our recurring operations. Please refer to the earnings release for a full reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures. As usual, we'll begin today's call with prepared remarks from Fred and Salman. After their comments, we will go through some of the more popular questions from investors before transferring to a live Q&A with our covering analysts. And with that on the way, I'm going to return the call over to Fred to kick things off. Fred?

Thank you, Rob, and thank you, everybody for joining us. Today I'm going to discuss our second quarter results and provide some insights into our newly launched business teams. In Q2, we celebrated several key achievements that highlight our innovative and strategic initiatives. We completed the successful acquisition and closing of our Garden City data center in Texas, increased our 2024 hash rate target to 50 exahash, signed a significant partnership with the Government of Kenya aimed at developing underutilized energy assets and to fund further development of the electrical grid and boost local economic growth. We began to diversify our revenues through the successful launch of MARA's Kaspa mining operations, launched a pilot heating project in Finland, leveraging digital asset compute to offer an efficient and low cost alternative to district heating by converting clean energy into heat directly on-site, while reducing carbon emissions for the district by avoidance of wood pallet and biomass burning source of energy. Continued to increase capacity reaching an all-time installed hash rate of 31.5 exahash through the deployment of 15,000 new miners with energy efficiency of 17 joules per terahash. Organized MARA into strategic business teams with the focus on pushing responsibility and authority as far down in the organization as possible for diversification and growth. These accomplishments demonstrate our dedication to innovation, sustainable growth, and a long term vision that leverages digital asset compute to transform the energy industry and enable a speedier energy transformation. As I discussed during our last call, we are beginning to lay the foundation for MARA to become a globally diversified company that leverages digital asset compute to build a more sustainable and inclusive future. During the second quarter, we recognized -- sorry, we reorganized the internal structure of the business to better align our growth opportunities,…

Thank you, Fred. As Fred mentioned, our hash rate started to climb back up during the quarter as transformer issues at Ellendale started to improve and were subsequently resolved post quarter end. The Ellendale facility where we are hosted by Applied Digital is now fully back on track. During the quarter, despite increased deployment of miners and capacity, a higher global hash rate resulting in increased network difficulty and lower Bitcoin production due to April's halving event impacted our results. Let's dig into details. Due to the unfavorable fair market value of digital assets and a decrease in Bitcoin production due to the halving event in April, we reported a net loss of $200 million, or $0.72 loss per diluted share in the quarter. This compares to a net loss of $9 million, or $0.07 loss per diluted share in the second quarter of last year. The average price of Bitcoin was higher this quarter versus the same quarter last year, but the Bitcoin price being lower than the price on the last day of the quarter of 2024 resulted in a significant loss on fair market value of our digital assets. The price of Bitcoin deteriorated on June 30, 2024 versus March 31, 2024, resulting in a loss on digital assets of $148 million during the second quarter of 2024. The price of Bitcoin after quarter end has recovered by roughly 6% as of July 30, and we expect this volatility to result in a temporary gain or -- book gain or loss due to one of the largest Bitcoin holdings in corporate America on our balance sheet. I want to point out that if we combine our almost $490 million paper gain in the first quarter with our roughly $150 million paper loss in the second quarter, we…

Thanks, Salman. For MARA, Bitcoin mining is a vehicle rather than the end destination. Unlike our Bitcoin mining peers, MARA is very focused on executing a long term vision that leverages digital asset compute to transform the energy industry and enable a speedier energy transformation. Over the past few years, the intersection of Bitcoin mining and AI data centers has been at the forefront of our industry. While several of our competitors have announced their intentions to pivot parts of their business model to hosting and operating AI HPC, we have chosen to stay the course. However, don't take that to mean we're idly sitting by. We're constantly evaluating opportunities and looking for the right approach and entry point. While LLMs form the bulk of AI data center investments so far in the industry, AI at the edge will be the predominant application use case for AI. The majority of traffic in inference will not be human to machine, such as when you query your phone about where to find the best widget you're going to buy or how to write the best speech. The predominant volume of inference AI will be machine to machine operated at the edge in oilfields, on jet planes, by telecoms at the base of telecom cell phone base stations, vehicle-to-vehicle communications networks, etc. The challenge with inference AI is that it's an uneven load, not dissimilar to demand patterns on the grid, which vary throughout the day. The energy load on the compute varies as demand varies. Typically, these large sites that are operating predominantly inference AI have power purchase agreements and they need to consume a consistent amount of energy. Bitcoin mining can act as a load balancer for inference AI, similar to how it does with the electrical grid, due to its…

Thanks, Fred. At this time, we are going to commence the Q&A section of today's call. We'll start by answering some of the most popular questions submitted by investors through our Q&A platform. The first question comes from John P. who asks, can you talk a little bit about your investment in Auradine, and are you currently using any of their miners? Fred, do you want to take that one?

Sure. So we've disclosed in the 10-Q orders and payments to Auradine for orders of machines. And we believe the Auradine 3 nanometer miners, which will begin shipments towards the back half of this year and into next year, are amongst the best in the industry. In Nashville, they were demonstrating the 3 nanometer machines and getting a lot of very positive feedback from a number of miners who are evaluating it currently. And we believe that the Auradine miner potentially is a better choice and option due to its performance than the best MicroBT machines and a very strong competitor to Bitmain going forward.

Great. Our next question comes from Ian M, who asks, with the announcement of your 100% HODL strategy of mined Bitcoin, how do you plan to fund continuing operations? Salman, you want to take that?

Sure. Thank you, Ian, for asking that question. Look, this is not new to Marathon. MARA has bought $150 million worth of Bitcoin in 2021 and has had a HODL -- full HODL strategy until we changed that last year. So circling back to the strategy, this is not new to MARA. Now in terms of how we plan to fund it, we have cash on the balance sheet and we have access to capital markets. On top of that, we -- in our prepared remarks, we've talked about many other business initiatives that the MARA team has been diligently working on during this year. And some of the examples that come to mind, for example, Kaspa, that Fred mentioned earlier, is very high margin compared to our current Bitcoin operations. And that -- those kind of initiatives, in addition to that, the Technology businesses that we've launched earlier this year, will result in additional cash flows for us as we move from here into the next few quarters.

Thanks, Salman. Our last question comes from David A. who asks, you have a number of really great initiatives ongoing. When can we expect to get some more color on when they will begin to contribute to revenue and earnings? Fred, Salman, you guys want to take that?

Sure. I can take that. So, listen, we're very focused on developing businesses that are resilient and businesses that have long term growth potential. And if you look at the synergies of Energy Harvesting together with our Technology business, what you have is effectively a business that can begin to mine Bitcoin at very low cost, where you're not buying electricity off the grid as the majority of utility scale miners do. The other thing we believe is we think that over time, what is going to happen is you're going to see a movement of Bitcoin mining into a lot of technologies related to energy storage, a lot of things related to energy generation, such as combination with residential solar, commercial solar, etc., and we're going to be playing a very active role in those businesses. So we feel the key to success here longer term is a diversified business where you're not just diversified geographically, which is why we're diversifying internationally, but also from a perspective of the use case of digital asset compute. So it's not just to mine Bitcoin for balancing a grid, but it's also for heat offtake and other uses where Bitcoin mining is simply a means to an end. And we're very excited about what we're doing there. And, as we said earlier, our Technology business, we think is definitely going to give very good benefits, not just to us, but it will also be able to provide technology to other players in the mining business, but also around AI and around telecoms and other industries, where we think a lot of that technology is going to shine. So we're very excited about that.

Thanks, Fred. In the interest of time, I think we're going to wrap up this section of the Q&A. Again, we really appreciate the questions and the interest. I'm now going to turn the call back to our operator to open the line to questions from our covering analysts. Darryl, back to you.

Thank you. We're now going to open the call to questions from our covering analysts. [Operator Instructions] Our first questions come from the line of Reggie Smith with J.P. Morgan. Please proceed with your questions.

Hey, thanks for taking the question. I guess you've talked about, operational issues the last two quarters, and I was hoping -- I don't want you to get too technical, but just can you explain, maybe in plain English, what exactly went wrong, how it was repaired? And I guess what I'm really trying to get at is, I guess the likelihood that, that could happen again either at that site or another site. Just trying to understand a little bit better about what drove those issues? Thank you.

Sure. So if you look at the Ellendale site operated by Applied Digital, what you predominantly had were transformer issues where the transformers that had been supplied by the vendor did not operate to spec when they were operated at -- over the long term. And so you started to see failures. And so the folks at Applied Digital did a heroic job of not just sourcing replacements, but also modifying the transformers such that they could be put back into service so that they wouldn't have this issue again. There were also some transmission line maintenance issues, which again is outside of their ability to control as -- or hosting partners' ability to control as that's done by the electrical utility. So, could it happen again? Once we became aware of these issues, we started looking at all our other sites to see what we could do to make sure that these types of issues wouldn't happen. That's one of the reasons why in our prepared remarks, we talked about the fact that we were purposely underclocking miners at some of the third-party hosted sites so that we wouldn't strain the transformers and run a risk of this. So again, these are sites which we don't own and operate, and so we have little control over the infrastructure that's there. But we've been working very closely with the hosting partners to make sure we put in place strategies to mitigate the potential for this to happen again.

Understood. And I appreciate the color on your HPC kind of strategy and thinking. I was curious, and I know it's early days, you talked about some, I guess, different use cases at the edge. I guess, how do you evaluate away the economics of mining versus maybe what you can earn doing some of that edge type work? Do you have a sense of the value of that work today maybe on a megawatt basis or how -- you follow my question?

Right. Yeah. So again, as we've said, we're not going to be the operator of the AI inference operating at the edge. If you just look at NVIDIA's roadmap for equipment, you'll see that they're quadrupling the power and throughput, if you would, of their technology over the next three generations in 24 months, which makes the technology transitions in the Bitcoin industry look fairly benign. So we definitely don't want to be in what is a hugely more CapEx intensive business. That being said, we do want to be a provider of infrastructure for people in this business. And if you look at our immersion technology and you look at our cooling technology, it is specifically designed for use in these areas. And if you look at the sheer amount of infrastructure spending that is going to go into all of these inference data centers, especially inference at the edge, it is an ideal market for us to sell immersion and cooling technology to. And there are very interesting opportunities to partner with people who are building bundled solutions that include the GPU, etc., and we're just going to be a vendor to them. We think that is the best way for us to play in that marketplace. I don't believe that Bitcoin miners should really be in the business of doing -- operating AI. They can be in the business of hosting AI if they feel they want to build that infrastructure. But the real future is around containerized immersion based infrastructure at the edge, and that's really where we're going to play in that area. Now when you look at running inference AI data centers of larger scale, we believe there's a great synergy between Bitcoin mining and the AI data center because of the electrical load variances in inference and the perfect synergy with Bitcoin mining there. And so we will partner with data center operators on that. But again, we don't want to be the operator of the AI. We don't want to own the compute load because we are so early in the technology cycles here that the CapEx spend in that industry is going to make the CapEx spend in the Bitcoin mining industry look fairly small, a data center for AI costs over $12 million a megawatt today. And in the Bitcoin mining space, you're looking at $1 million a megawatt. So we believe it's an industry where it's better to be a fast follower and to be an infrastructure provider. And by being an infrastructure provider, you could partner with the people who are the leaders in the industry and you can learn and you can see exactly where you can benefit from it.

Understood. That makes a lot of sense. Thank you.

Thank you. Our next questions come from the line of Tyler DiMatteo with BTIG. Please proceed with your questions.

Yeah. Hi, everyone. Good afternoon, and thanks for taking the question. Really appreciate it. Fred, I'm curious. I'm following the rationale for the three business units and streamlining and breaking it out. I guess what I'm wondering, though, is how do you think about deploying capital amongst the various units and I guess what goes into that decision in your mind? And then my follow-up question here is that you put some notes in the prepared remarks on the speed and the agility. I'm also curious, beyond the capital part of the equation for the three units, how do you think about being flexible among deploying other general resources, whether that be personnel, what have you, among the various units? Any color there?

Sure. So you're familiar with the matrix organization, because that's the way most investment banks operate today. You have teams that do different things. And you'll notice in our remarks, we're talking about business teams. So the groups that are actually effectuating the business, that are out there winning the business, that are out there delivering on the business, are divided up into teams of specialists who are able to go in and execute these transactions, execute the projects. The support organizations, finance, communications, HR, IT, etc., are centralized functions that support the various business teams and their purposes. So it's a very traditional matrix organization. The goal is to not have redundant infrastructure or redundant support people, but rather be able to benefit from being able to have specialized teams. It's like a football team. You have special units, special teams that do special things. That's how we look at the business. Utility Scale Mining is a very well understood, very easy business to operate. You have swap teams doing O&M, you have business development doing acquisition, you have operations folks running NOCs and running the actual sites. In the case of Energy Harvesting, a lot of them are one-off projects and they start as pilots and then they grow. And so you have to have these specialized project teams that go in and do those. If you tried to do that in a traditional siloed organization, it would be very difficult, you wouldn't be able to do it quickly. And more importantly, you would lose the benefit of the specialized knowledge. And so we're able to, for example, move very quickly in deploying these sites. We do a test, we do a pilot, we figure out how we're going to do it and then we can scale it.…

Okay. Great. Thank you, Fred. Really helpful overview there. Appreciate it. I'll turn it back to the queue.

Thank you. Our next questions come from the line of Lucas Pipes with B. Riley Securities. Please proceed with your questions.

Thank you so much, operator. Good afternoon, everyone. My first question is on the cost side. When I back into kind of cash cost, direct cost, whatever you may want to call it, it -- I shake out around $59,000 per coin. So first, I wondered if you could comment on that. I could see how there might be some pluses and minuses around that number. Obviously, this excludes non-cash items such as D&A and some other things. And then more broadly, in an environment macro wise where there's maybe a bit more volatility, do you have specific cost targets that you think about where could you squeeze some additional unit cost reductions out of the business? Thank you very much.

Yeah. Let me try to answer that question. So first of all, Lucas, that's right. The cost per coin, the way you're viewing it, it includes a certain cash and non-cash component to it. So G&A is included in that cost and so is the mining cost of revenue. The way we view this, we -- a better way of viewing the way we run our business, and we believe this is a better matrix from a KPI perspective, is the hash cost per petahash per day. And that is a more better representation of our business structure and also the hash that we're deploying which is effective and the costs associated with mining. So from that standpoint, if you view it from a going-forward perspective as we deploy more hash and we energize as we head towards the 50 exahash target that we've set for ourselves, we expect the fixed cost to be spread across larger exahash capacity available. And we expect the cost to decline over a period of time systematically as a result of that. Secondly, what we have to understand a little bit is that we've got some one-off costs in our cost structure in the Q1 and Q2 both. We closed two major acquisitions, and there are some legal costs and repairs and maintenance costs. And certain things that Fred alluded to in the prepared remarks about the quality of assets that the way they were managed previously versus how we are managing the stand -- bringing them back to our standard, it requires some additional money and that is reflected in our operating costs as of now. The other thing is we also have some one-off legal costs in there that we expect over a period of time to disappear. So there -- in the last two quarters, we've experienced some additional one-off cost that is driving our G&A at least a little bit on the higher side. Now when you think about our business, the current business is Bitcoin mining, a majority of the business, from materiality standpoint. But then we also have introduced Kaspa, which is more than 80% margin to produce Kaspa with less than 1% of our energy capacity. And those kinds of businesses, as we bring them mainstream from pilot phase, as Fred alluded to previously, in our energy harvest business, we expect to see our -- not only increasing our revenues, but also driving our costs down and squeezing that margin with the passage of time. So hopefully that answers the question.

I appreciate that very much. Thank you. My second question is a bit higher level for both of you. With the HODL strategy, obviously, you have some U.S. dollar expenses, should we think about you liquidating some Bitcoin to pay those U.S. dollar bills, electricity, salaries, what have you? And then more broadly, is the goal here really to just maximize the absolute number of Bitcoin in treasury? Is it maximizing Bitcoin produced per share, held per share, or is it ultimately an ROIC measure that's still the most important? Thank you so much for your perspective.

Yeah. So Bitcoin purchases, as we announced fairly recently, which is again not a new strategy for us, we used to have the strategy two years ago, we intend to HODL -- exclusively HODL. So we don't intend to sell Bitcoin at this stage for the foreseeable future. The macroeconomic conditions and the geopolitical situation and what's with the presidential election this year, we expect lots of tailwinds in this space and the Bitcoin price, which was already projected to be going up based on the demand and supply and based on the projections that we see publicly discussed. So from a HODL strategy standpoint, yes, we are a Bitcoin miner and we produce Bitcoin, and we were HODLing a big portion of our Bitcoin historically and we were selling some portion of that Bitcoin to pay for our operating expenses. With this change in strategy or going back to our original strategy, we will stop selling Bitcoin for paying for our operating expenses. So what does that mean? That means that we will continue to HODL more because we see, from an ROIC perspective, from a shareholder value perspective, any capital that we deploy in building our Bitcoin reserve asset, that is highly accretive to our stockholders.

All right. Well…

I think also…

Yeah. Sorry. Please, Fred.

Sorry. I was just going to say that I think the -- we are just at the beginning of the institutional wave of investing and holding Bitcoin. ETFs have now accumulated a substantial position in Bitcoin, and we're starting to see businesses like Cantor Fitzgerald start offering financing businesses -- financing offerings around people who have Bitcoin holdings. We're starting to see pension funds invest. We're starting to see many long term holders invest. And at the end of the day, it is a finite resource. And the only place to get it is what's available in the market or what people are willing to sell. And when we're able to go into the marketplace, as we did, in the past 30 days, and buy at very attractive prices, it just makes sense for us to do that. And then it makes sense for us to hold it. The $150 million of Bitcoin we bought in January of 2021, we never sold. And so we think right now, we are in the beginning of a very attractive time for Bitcoin. We believe it's an asset that's going to continue to perform better than other areas. And if we look at kind of the historical returns that Bitcoin has offered, you're looking at something north of 30%, 35%. And as Salman said, holding Bitcoin can be very accretive for our shareholders. So that's one of the reasons that drove this.

Fred, Salman, thank you, both very much for your perspective and best of luck.

Thank you, Lucas.

Thank you. Our next questions come from the line of Kevin Dede with H.C. Wainwright. Please proceed with your questions.

Hi, Fred, Salman. Thanks for taking my question. I was wondering if you might add a little more detail to your 50 exahash target, at 31 now -- 31.5 now, congrats.

Thank you.

Just kind of curious about power source, where -- is that increase going to come on the change? I know you talked about the S21 Pro introduction. Is it efficiency or how much more power do you think you're going to need and will you be able to address to hit that target?

So Kevin, we talked about, when we did the acquisitions and we announced the target, that essentially the vast majority of this is all going to come from the capacity that will be made available to us by owning these assets. And that remains the case today. So we'll continue to add other sources of power along the way. But at this point, we've essentially -- we have the machines ready and we're plugging them in as we vacate customers from the sites and as we continue to do the refits of the sites that help us expand the capacity at the sites. So it's not like we have to go out and buy 500 megawatts of power to do this. We're well along that way with what we already have.

Fair enough. How would you recommend we judge your perspective on moving the company closer to power generation versus like the Generate deal and the Applied Deal in Garden City, right, where you own the facility, but it doesn't really get you closer to that zero power cost target.

Right. So Energy Harvesting -- sorry, go ahead. Sorry, I didn't mean to…

Yeah. No, no, you go ahead, Fred. Yeah.

Yeah. I was just going to say that the -- owning our own infrastructure removes the middleman in the infrastructure, allows us to own control of the power, generate the revenues from trading of the power and control our destiny. The next step is going all the way back to looking at the actual power source. Now that being said, I'm not going to go out and ask our team to go buy a bunch of power generating – large scale power generating assets. But there are opportunities out there for us to partner with people who have power generating assets, which to date aren't able to monetize those assets effectively, where we can share in the benefits of very, very low cost power. And then on the Energy Harvesting side is where you really see this benefit of zero cost energy. And there are locations in the world where today they are shutting down power generation because they can't generate revenues from it. And those are locations where the marginal cost to operate those sites is de minimis. And so partnering with those types of partners allow us to get very low cost energy as well. So you'll start seeing the Energy Harvesting business over time become involved in projects where the actual energy cost is low and then the additional service the Energy Harvesting business provides, whether that's heat recapture, whether that's waste mitigation, whether it's consuming methane flare gas from oil fields or landfills, essentially provides a subsidized cost, which will help lower our overall mining cost per Bitcoin across the board.

When you look at your pipeline, though, on the M&A side, Fred, is it fair to assume that more of your emphasis will be on that Energy Harvesting initiative versus then maybe getting involved in a hostile takeover that seems to be going back and forth in the business?

We don't comment on M&A activities, though sometimes it can be fun to watch. But as I said in our prepared remarks, we have kind of multiple buckets we look at. We look at full true greenfields where, for example, somebody has -- owns an interconnect, wants to monetize that, or they have potentially a renewable energy project that they can't monetize effectively, or somebody has a substation and at really attractive energy prices. Then you have kind of the next step down, which is somebody who has started and built a Bitcoin mining site with maybe, let's say, 100 megawatts of power, but the substation and the interconnect they have can provide power up to 300 or 400 megawatts, which is kind of what you see a lot of people doing in the M&A world around today. And then you have, buying an operational miner who maybe has a pipeline of stuff. We're looking at all these things. The market pricing is kind of where it is today, which is very different than where we were buying sites at the beginning of this year where we were paying under $500,000 a megawatt. So we'll continue to be opportunistic, but we'll look at where we think we can generate the most long term value and as opposed to just trying to do nameplate deals.

Perfect. Thanks for the color, Fred. I'll turn the floor over. Appreciate it.

Yeah. Thanks.

Thank you. At this point, there are no further questions. I'm going to turn the call back to Rob Samuels for closing remarks.

Thanks, operator. And thank you all for your time today. If you have questions that we were -- that were not answered during today's call, please feel free to contact our Investor Relations team at ir@mara.com. Thanks, and enjoy the rest of the day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.