Earnings Call Transcript - LMFA Q1 2023

Operator, Operator

Greetings, and welcome to the LM Funding America, Incorporated. First Quarter 2023 Business Update Conference Call. At this time, all participants are in a listen-only mode. And a question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Ted Avas with Investor Relations. Sir, you may begin.

Unidentified Company Representative, Company Representative

Good morning and thank you for joining LM Funding America's first quarter 2023 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, 2023 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 United States 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 212-671-1020. Before management reviews the company's operating results for the quarter ended March 31, 2023 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 March 31, 2023. 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 achievements. In addition, neither the company nor any 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 is 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. Having said that, I will now turn the call over to Bruce Rodgers. Please go ahead, Bruce.

Bruce Rodgers, CEO

Thanks, Ted, and good morning. Thank you to everyone for joining us today. On behalf of the LM Funding team, I want to extend our sincere gratitude to our investors for their continued support and belief in our vision. We are well on our way towards achieving our goals, which we believe will drive significant shareholder value. We are pleased with the progress LM Funding has made during the first quarter of 2023 as we steadily shift our company's focus towards bitcoin mining. The positive impact of this shift is reflected in the more than 1100% year-over-year increase in revenue that we've reported for the quarter ended March 31, 2023. This was almost entirely the result of an increase in digital mining revenue in connection with the commencement of our bitcoin mining operations in September 2022. We began 2023 with around 2,700 fully operational mining machines and added about 2,300 more during the first four months of 2023, increasing our total to approximately 5,000 machines with a mining capacity of nearly 520 petahash actively mining bitcoin today. Throughout the quarter, we mined close to 91.75 bitcoins at an average value of $22,800 per bitcoin. In contrast to the current price, which fluctuates between $27,000 and $30,000 over the last several months. We continue to strategically acquire additional cutting-edge bitcoin mining machines. In January, we purchased an additional 125 S19 XP machines from Bitmain Technologies for a purchase price of approximately $500,000, which were delivered in April 2023. We also took part in Bitmain Technologies raffle and were pleasantly surprised to find that we were able to obtain an additional 101 of the cutting-edge S19 XP mining machines for a cost of around $300,000. These machines are due for delivery by the end of May 2023. We plan to continue our efforts to identify and leverage favorable opportunities to purchase additional mining machines. Regardless of the fluctuations in the bitcoin market, we have maintained a prudent approach of strategically acquiring and efficiently operating bitcoin mining machines in our efforts to enhance long-term value for shareholders. In addition, the company signed a contract with GIGA Energy in May to host 1,080 of our bitcoin mining machines. We expect to have these machines fully energized and operational by the end of May, bringing the company's projected total mining capacity to 627 petahash by the end of May 2023. All of these actions align with our objectives of opportunistically acquiring and energizing more mining machines in the coming quarters and further lowering our joules per terahash energy consumption as we approach the next bitcoin halving event, anticipated to occur sometime in 2024. Historically in the run-up to halving events in 2012, 2016, and 2020, bitcoin's value has climbed due to investor anticipation of a price rise, which typically occurs six to twelve months after the halving. We believe operating highly efficient mining machines is the key to successfully navigating the 2024 bitcoin halving, and we will make further mining machine purchases to lower our joules per terahash profile of our mining fleet through the 2024 and 2029 halving events. With respect to our legacy business, which involves funding to nonprofit community associations, this business remained fairly stable since our last report in the fourth quarter of 2022. Our primary focus moving forward continues to be bitcoin mining, and we are extremely enthusiastic about the future. As we continuously acquire and bring online additional high-efficiency mining machines in order to mine more bitcoin, we expect to channel the revenue generated from our mined bitcoin back into the company. This will allow us to acquire even more miners, further accelerating the implementation of our business strategy. We continue to find it perplexing that there exists such a significant discrepancy between our stockholders' equity of $44 million as of March 31, 2023, equivalent to $3.36 per outstanding share, and the current trading price of our shares, merely $0.73 per share, representing a 78% discount to book value. While we recognize the overall weakness in the stock market and in particular the microcap market, which has been disproportionately impacted, we believe we can close the gap in our valuation by driving execution of our business model and profitability, while expanding our outreach to the investment community. On that note, I would like to turn over the call to Rick Russell, Chief Financial Officer of LM Funding, who will review the financial results of the three-month period ending March 31, 2023.

Richard Russell, CFO

Thanks, Bruce, and good morning, everyone. Total revenues for the three months ended March 31, 2023 totaled $2.3 million, a more than 1100% increase from $200,000 for the three months ended March 31, 2022. Revenues for the three months ended March 31, 2023 includes digital mining revenue of $2.1 million due to the mining of 91.7 bitcoins in the first quarter of 2023. Operating expenses totaled $4.3 million for the first quarter of 2023 compared to $5.2 million for the comparable prior year quarter. The $900,000 decrease is primarily attributable to a $3.5 million decrease in stock compensation, a $400,000 realized gain on the sale of bitcoin, partially offset by $1.7 million of digital mining costs, increases in professional fees and depreciation expense as compared to the first quarter of 2022. For the three months ended March 31, 2023, the net loss attributable to LM Funding shareholders was $5.4 million. We concluded a $5.8 million non-cash unrealized loss on investment in equity securities compared to a $5.4 million loss for the first quarter of 2022, which included a $1 million unrealized loss on investment in equity securities. Core EBITDA for the quarter ended March 31, 2023 improved to a loss of $300,000 compared to a loss of $1.4 million in the 2022 comparable quarter. Turning to our balance sheet, we ended the quarter with $3.4 million cash, around 84 bitcoins worth $1.8 million in working capital of $4.6 million, which we believe provides sufficient liquidity to execute on our current bitcoin mining strategy. In addition, we had minimal long-term debt and ended the quarter with LM Funding's stockholders equity of $44 million, or $3.36 per share. Finally, net cash used in operations was $1.1 million during the three months ended March 31, 2023, compared to net cash used in operations of $520,000 during the 2022 comparable period. This change in cash used in operating activities was primarily driven by $2.1 million of mined bitcoin recognized as revenues, but not recognized as cash, partially offset by $1.5 million of proceeds from the sale of bitcoin. That concludes our prepared remarks. I would now like to open the call for questions. Operator, could you please assist us with that?

Operator, Operator

Thank you. At this time we will be conducting a question-and-answer session. Our first question is coming from Alan Friedman. Sir, you may proceed.

Unidentified Participant, Participant

Thank you. Congratulations on a very strong quarter. It also looks like we have more machines coming online. I'm not looking for guidance, but can you give some additional color on your expectations for the balance of this year?

Bruce Rodgers, CEO

Sure. I don't want to attach numbers to any goals, but we are mining and generating cash and we're looking for bargains in the XP machines and places to put them, because we think that strategy takes us through this halving and puts us where we want to be for the next four years after that halving. So that's the current intent and the current operating plan.

Richard Russell, CFO

And this is Rick Russell. I think we have disclosed that we anticipate having about 6,080 machines in place by the end of this month, up from what we had, I think, 3,700 in March. So we will actually see that quarterly impact of those new machines. As Bruce said, we'll reinvest our excess cash into new machines when that arises.

Unidentified Participant, Participant

Great. Thank you.

Operator, Operator

Thank you. We have no further questions in the queue at this time. So I'll hand it back to Mr. Rodgers for his closing remarks.

Bruce Rodgers, CEO

Sure. I would like to thank everyone for participating in our 2023 first quarter conference call. We pivoted to bitcoin mining with the goal of energizing 5,000 mining machines. We've achieved that goal and are now reinvesting mining revenues to purchase additional mining machines debt-free. We believe in the long-term appreciation of bitcoin as an asset class and we believe the most efficient way to invest in bitcoin is through the purchase of highly efficient mining machines. So we're pleased with our progress during the first quarter of 2023 and anticipate the momentum to persist as we continue to acquire and electrify more mining machines in subsequent quarters. We're thankful for the ongoing support from our shareholders and are eager to provide updates on our progress as new developments emerge. Thank you all again. We look forward to talking to you next quarter.

Operator, Operator

Thank you. This does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.