Earnings Call Transcript - LMFA Q1 2024

Operator, Operator

Greetings. Welcome to the LM Funding America Inc. First Quarter 2024 Business Update Conference Call. Please note that this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas. You may begin.

Ted Ayvas, Host

Good morning, and thank you for joining LM Funding America's 2024 First Quarter Financial Results and Business Update Conference Call. On the call with us today are Bruce Rodgers, Chief Executive Officer; and Richard Russell, Chief Financial Officer of LM Funding. This morning, the company announced its operating results for the quarter ended March 31, 2024, and its financial condition as of that date. The press release is posted on the company's website, lmfunding.com. In addition, the company has filed its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. Before management reviews the company's operating results for the 3 months ended March 31, 2024, and its financial condition as of that date, we would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations are forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to various risks, uncertainties and assumptions as described in the company's Form 10-K filed with the U.S. Securities and Exchange Commission on April 1, 2024. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievement. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. In addition, today's discussion will include references to non-GAAP measures. The company believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release on our website. With that, I would now like to turn the call over to Bruce Rodgers, Chairman and CEO of LM Funding. Bruce?

Bruce Rodgers, CEO

Thanks, Ted. Hello from sunny Tampa. Thank you to everyone who joined us today. On behalf of the LM Funding team, I would like to thank our shareholders for your ongoing support. We've made significant strides in expanding our Bitcoin mining operations in the first quarter of 2024, building on the substantial progress we achieved in 2023, our inaugural full year in the Bitcoin mining industry. The momentum we built in 2023 has carried over into 2024 and continues to drive our business forward. We returned to profitability. So I would like our CFO, Rick Russell, to tell you about that.

Richard Russell, CFO

Thank you, Bruce. As of March 31, 2024, the company had approximately 5,900 Bitcoin mining machines in operation engaged in Bitcoin mining at various hosting sites. This provided LM Funding with approximately 614 PetaHash of mining capacity. We mined 86.4 Bitcoins valued at approximately $4.6 million based on the average price of $53,000 per Bitcoin during the first quarter. With Bitcoin prices reaching record highs during the quarter and currently standing at approximately $63,000, we believe this strongly validates our strategy. We increased our revenue by 105% in the first quarter of 2024 compared to the same quarter last year. Additionally, we achieved net income of $1.9 million in the first quarter of 2024, a significant turn from a net loss of $7.2 million in the comparable quarter of 2023. Moreover, we reported positive core EBITDA of approximately $4.4 million for the quarter ended March 31, 2024, a substantial improvement compared to a core EBITDA loss of $300,000 in the comparable quarter of the previous year. Lastly, perhaps most importantly, I want to highlight that as of March 31, 2024, we had stockholder's equity of $38.5 million or $15.43 per share. As of March 31, 2024, the company held approximately 163.4 Bitcoins valued at roughly $11.7 million based on a Bitcoin price of $73,000. As of April 30, 2024, the company held 155.1 Bitcoins valued at approximately $9.7 million based on the recent Bitcoin price of roughly $63,000. I want to turn it back over to Bruce for our business review.

Bruce Rodgers, CEO

Thanks, Rick. You’ve painted the financial picture of a company that has completed the startup phase of its Bitcoin mining operations and attained profitability. We are now poised to scale and grow. So I want to focus our attention on our overall business and our strategic focus for 2024, 2025 and beyond. The company was well positioned for the recent Bitcoin halving event, which took place in mid-April. Looking ahead, we anticipate entering into new hosting agreements that reflect the post-2024 halving economic realities. Considering the current market conditions and the future outlook for Bitcoin, which reached a new all-time high of approximately $73,800 in the first quarter of 2024, we remain highly optimistic about its future. Historically, halving events like the one in April have led to new all-time high Bitcoin prices in the 6 months following the halving. In January, the company invested approximately $1.1 million to purchase 300 Bitmain S21 Antminer machines. The S21 is a high efficiency, high hash rate machine for mining the SHA-256 algorithm. Manufactured by Bitmain, each unit boasts a hash rate of 200 TeraHash per second and consumes 3,500 watts of power. We believe these are the most capable machines on the market. These machines are now fully operational and increased the company's mining capacity to 639 PetaHash per second. We remain committed to reinvesting the proceeds from our Bitcoin mining operations into acquiring the most efficient Bitcoin mining equipment available. We believe that our S21 mining machine will be leading producers and anticipate this model will continue to generate revenue through the next timing event, which we expect to occur in 2028. We continue to concentrate our capital investments on Bitcoin and mining machines whose value closely follows Bitcoin. However, we are also open to exploring opportunities that could lower our mining costs and potentially expand our operations to include hosting for AI machines. We are actively pursuing developments in these areas and look forward to sharing these with our shareholders. If historical patterns hold and anticipated events unfold as expected, we anticipate creating significant value for our shareholders. We expect this value creation to reflect both the appreciation of our Bitcoin holdings as well as our legacy business, which is focused on providing services to nonprofit community associations and has remained stable since the end of 2022. Looking ahead, we see growth opportunities arising from increased demand for reserve funding, which is a response to the legislative changes following the collapse of the seaside tower in South Florida in 2023. Florida law now requires associations to fully fund reserves for building maintenance. The resulting increase in association dues will likely lead to an increase in the number of homeowners who fail to pay their dues. We see an opportunity to provide funding and services to help associations transition to maintaining fully funded reserve accounts. We continue to be frustrated by what we perceive as the market's undervaluation of our shares, despite our firm belief that we are generating substantial shareholder value. Our stock price is currently less than 1/5 of our stockholder's equity per share. Our record net income in the first quarter is a clear testament to the successful execution of our business strategy. We are actively pursuing our strategic goals and taking every opportunity to share our story with investors, including presenting at several upcoming investment conferences. As more investors become familiar with our company and growth opportunities, our market share price will better reflect our intrinsic value. Our optimism about the business has never been as bright. We are making money mining Bitcoin, and we see a clear path to scaling our operations and improving our cost per Bitcoin mined. We believe the market will eventually recognize these efforts. Finally, I would like to take a moment to welcome Martin Traber back to the LM Funding Board of Directors. We are pleased to reintroduce an investment banking perspective to our Board. Given his expertise in the capital markets, we believe Martin's current market insights will significantly assist our strategic decisions as we continue to expand our Bitcoin mining operations and hold Bitcoin on our balance sheet. Additionally, we sincerely thank Todd Zhang for his substantial contributions during the ramp-up of our Bitcoin mining operations and wish him success in his future endeavors. Thank you again for listening today, and I look forward to hearing your questions.

Operator, Operator

Your first question for today is from Kevin Dede with H.C. Wainwright.

Kevin Dede, Analyst

So you'll have to excuse me, Bruce, I think I have my lines a little crossed. The press release pointed to 5,900 machines and I just wanted to be sure that figure included the 300 new S21 and that everything is installed in hashing now.

Bruce Rodgers, CEO

The 5,900 machines was as of March; we got the new S21 at the end of April, first of May, but we also disposed of 200 machines. So we're still about the same number of machines, but with the S21, our PetaHash is up. The machines we got read out with the old sub-100 machines that we phased out.

Kevin Dede, Analyst

All right. So the earnings press talked to a hash rate of 673, but I don't know, I may have heard 639 just to make sure I have that number right, because that’s what we're basing our forecast on.

Bruce Rodgers, CEO

639 is the right number.

Richard Russell, CFO

For forecasting.

Kevin Dede, Analyst

All right. Perfect. Bruce, I especially appreciated hearing your strategic snapshot. I mean I know you guys are still financially growing; maybe you could just take a step back and help me think about or guide my thinking in your view of investment in building your hash rate versus your strategic attention on sort of your legacy endeavors?

Bruce Rodgers, CEO

So we're Bitcoin miners primarily and foremost right now. Our legacy business really the way that legislation works, that's a 2025 event. It's really unclear as to where that would be. So I would focus on our company as being a Bitcoin miner. Our strategy has been infrastructure light, but as you might have noticed in the Q, we borrowed $1.5 million for some strategic initiatives and we should be making some announcements on that pretty soon.

Kevin Dede, Analyst

You alluded to that in the call a little bit in reviewing HPC. Would you consider owning your own infrastructure either for Bitcoin mining or for addressing the HPC market?

Bruce Rodgers, CEO

I might not understand what you mean by the HPC market.

Kevin Dede, Analyst

Oh, I'm sorry, high-performance computing. That's related to AI. I know you mentioned that briefly. Let me take a step back. I apologize for talking too much. How are you evaluating your asset-light strategy? I know you've borrowed some money and will provide more information on that soon. Are you considering acquiring assets or infrastructure for Bitcoin mining or other uses?

Bruce Rodgers, CEO

If we own anything, the first and primary purpose would be Bitcoin mining. You look at other purposes for potential exit should you decide to leave the field there could be things that happen. So that's the way we regard that.

Kevin Dede, Analyst

Okay. How are you thinking about adding to your fleet from a hash rate perspective beyond this last S21 order? And how have your hosting partners talked to you about pass-through pricing, revenue share, contractual obligations given the lower hash price that we've seen since the halving?

Bruce Rodgers, CEO

That's a loaded question because we have more than one hosting partner, and we have more than one hosting contract with each one of our hosting partners. So there are probably discussions on every possible plan at all times on things. Back to the $1.5 million we borrowed for the strategic initiative I alluded to. The reality of hosting is that you usually have to make a deposit in order to book someone. So we're looking at using that deposit type of money to get more control over some of the infrastructure. It's still theoretically infrastructure-light, but we would like to have some more control right up to where the electric meter is.

Kevin Dede, Analyst

Okay. That helps, Bruce. How about expanding the mining fleet? I guess you've got to put one step forward.

Bruce Rodgers, CEO

That's the goal, right? If things start generating cash, that's where the cash will be used to buy more machines. All paths lead to that; it's essential for growing a mining business. You need to keep pace with the rising difficulty. By exceeding that pace, you can enhance your potential returns.

Kevin Dede, Analyst

Right. Rich, how are you considering the mark-to-market digital asset ruling? Have you incorporated it, or when do you expect to? Please help me understand that.

Richard Russell, CFO

Yes, we adopted the mark-to-market effective this year, and that's where you see the $4.3 million gain that is buried in operating expenses. I don't really agree that's the best place, but that's where they guide you. That value was about $72,000-$73,000 at the end of March, and that's what mark 2 right now.

Kevin Dede, Analyst

You mean 72 Bitcoin?

Richard Russell, CFO

No, $72,000. $72,000 per Bitcoin.

Kevin Dede, Analyst

Okay.

Richard Russell, CFO

Yes. As part of the adoption, we recognized a $600,000 pickup in equity for what we had at December 31. That was not factored into this gain on operations. But what we mined from January 1 was about $43,000, and what we mined in the quarter that mining was an average of $53,000. That accumulated big point of 163 resulted in the pickup of $4.3 million.

Kevin Dede, Analyst

Okay. So Bruce, as I sort of think about your comment regarding the rulings in Florida taking effect in '25. Have you considered maybe just separating yourself from that business and going all in on Bitcoin?

Bruce Rodgers, CEO

The two businesses have absolutely nothing to do with each other, other than the fact that I'm involved in both. So yes, when things are right, there will be the right time for that, and it will make sense, and it will be obvious to us.

Kevin Dede, Analyst

Okay. Fair enough. Appreciate it.

Operator, Operator

We have reached the end of our question and answer session. I will now turn the call over to management for closing remarks.

Bruce Rodgers, CEO

Thank you. I want to thank everyone for joining us on today's call. Our pivot towards Bitcoin mining has proven fruitful with promising results so far. We are dedicated to reinvesting our mining revenue and acquiring additional mining equipment. We've secured $1.5 million in debt financing to help fund strategic initiatives. Furthermore, we're also focused on integrating advanced software and other technologies to boost the hash rate of our existing machinery. With Bitcoin reaching an all-time high of around $74,000 in March, and presently trading near $60,000 to $70,000, our confidence in the enduring value of Bitcoin as an investment continues to solidify. We are grateful for the ongoing support from our shareholders and we'll continue to provide updates on our progress as new developments emerge. Thank you.

Operator, Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.