LM Funding America Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 15, 2023

There are 6 speakers on the call.

Operator

Greetings. Welcome to the LM Funding America Inc. 3rd Quarter 2023 Business Update Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Operator

Please note this conference is being recorded. I will now turn the conference over to your host, Ted Avis, Investor Relations. Ted, you may begin.

Speaker 1

Good morning and thank you for joining LM Funding America's 3rd quarter On the call with us today are Bruce Rogers, Chief Executive Officer and Richard Russell, Chief Financial Officer of LM Funding. This morning, the company announced its operating results for the quarter ended September 30, 2023, and its financial condition has been updated. 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.

Speaker 1

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 quarter ended September 30, 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 fact 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 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.

Speaker 1

These forward looking statements are subject to various risks, uncertainties and assumptions as described in the company's Form 10 ks 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.

Speaker 1

Although the company believes that 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 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 in the context of these risks and uncertainties. In addition, today's discussion will include references to non GAAP measures.

Speaker 1

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 would now like to turn the call over to Bruce Rogers. Bruce?

Speaker 2

Thanks, Ted. Good morning and thanks to everyone for joining us today. On behalf of the LM Funding team, I want to thank our shareholders for your continued support despite the volatility and weakness in the market. Nevertheless, our company has made significant progress executing on our business model, including advancing our Bitcoin mining strategy and other key strategic activities. We believe the steps we are taking today will lead to considerable long term value for our shareholders.

Speaker 2

As of September 30, 2023, our Bitcoin mining operations included about 5,900 minuteing machines Actively engaged in mining at various hosting facilities providing approximately 6 14 petahash per second of mining capacity. During the quarter ended September 30, 2023, the company mined 117.1 Bitcoin, marking a 10% sequential increase Revenue value of approximately $28,000 per Bitcoin. The current Bitcoin price has been higher, fluctuating between $35,000 $37,000 over the last several weeks. As most people likely know, Bitcoin halving is an event where the reward for mining new Bitcoin blocks is cut in half, resulting in miners receiving 50% fewer blocks for verifying transactions. Having is built into the Bitcoin algorithm and designed to limit the supply of new Bitcoin.

Speaker 2

It is expected that the next halving will occur in the first half of twenty twenty four. Historically, Bitcoin prices have tended to increase as a halving event in years, often reaching record highs in the 6 months following the event. Likewise, the value of Bitcoin mining machines has typically peaked between halvings. LM Funding is actively implementing an infrastructure light approach to our Bitcoin mining business. It seeks to mitigate risk and volatility in the by focusing our capital investments on Bitcoin and Bitcoin mining machines to track the value

Speaker 3

of Bitcoin.

Speaker 2

The success of our infrastructure light strategy depends upon deploying capital to acquire assets best correlated to the price of Bitcoin, which we believe will appreciate. If history repeats and the anticipated events unfold as expected, we expect to create meaningful value for shareholders, reflecting both the value of our Bitcoin holdings as well as the increased value of our mining equipment. Overall, we are quite Encouraged by the recent performance of the Bitcoin market as well as the outlook for Bitcoin pricing. The company installed Brains OS Plus software on approximately 1,000 of our mining machines. It is expected this will increase the hash rate of these machines by as much as 25%, which should lead to an increase in the number of bitcoins the company can mine.

Speaker 2

A further advantage to mining bitcoin with machines operating Brains OS Our next question comes from the line of the company. Please go

Speaker 1

ahead. Hi, good morning, everyone.

Speaker 2

I'm going to turn the call over to the operator. We believe the best use of our capital is to increase hash rate production through the purchase of additional miners and enhancements to their hashing capabilities. With respect to our legacy business, which involves offering funding to non profit community associations, The business has remained fairly stable since the conclusion of 2022. We share our investors' frustration that there is such a significant gap Between our stockholders' equity valued at $35,900,000 or $2.45 per share as of September 30, 2023 and the recent trading price of our shares at $0.40 representing an approximately 85 We recognize the broader downturn in the stock market, particularly a disproportionate impact on the microcap sector. However, we remain extremely optimistic about the outlook for the business.

Speaker 2

Our confidence lies in our commitment to our strategic goals, Increased prudent Bitcoin mining efforts, which we believe will ultimately be recognized by the market. On that note, I'd like to turn the call over to Rick Russell, Chief Financial Officer of LM Funding, who will review the financial results for the 3 month period ending September 30, 2023. Rick?

Speaker 3

Thanks, Bruce, and good morning, everyone. Total revenues for the 3 months ended September 30, 2023 increased by approximately $3,200,000 to $3,400,000 from the $200,000 generated in the 3 months ended September 30, 2022. Beyond our year over year quarterly revenue growth, we also have experienced sequential quarterly revenue growth of 7% compared to the Q2 of 2023. Revenues for the Q3 of 2023 include digital mining revenue of 3,300,000 Due to the mine of 117.1 Bitcoins during the Q3 of 2023 compared to 2.2 Bitcoins for the Q3 ended 2020 Since our Bitcoin mining operations had begun late September 2022. Operating expenses totaled $6,600,000 for the Q3 of 2023 compared to $5,500,000 for the Q3 of 2022.

Speaker 3

The change is primarily attributable to a $2,700,000 increase in digital mining costs and a $1,500,000 increase in depreciation, partially offset by $3,000,000 decrease in stock compensation and a $300,000 decrease in professional fees as compared to the Q3 of 2022. For the Q3 of 2023, the net loss attributable to LM Funding Shareholders was $3,700,000 which included an $800,000 non cash as compared overall to a net loss of $6,700,000 for the Q3 of 2022, which includes

Speaker 2

a $200,000

Speaker 3

non cash unrealized loss on investment in equity securities. Core EBITDA loss for the quarter ended September 30, 2023 was approximately $600,000 compared to a Loss of $1,500,000 in the 2022 comparable quarter, primarily due to the increase of our Bitcoin mining operations. Turning to our balance sheet, we ended the quarter with $500,000 in cash, 90 bitcoins valued at approximately $2,200,000 and working capital of $4,500,000 which we believe provides us with sufficient liquidity to execute on our current Bitcoin mining strategy. In addition, we have minimal long term debt and ended the quarter with stockholders' equity of $35,900,000 or $2.45 per share. That concludes our prepared remarks.

Speaker 3

I would now like to open the call for questions. Operator, could you please assist us with that?

Operator

Thank you. At this time, we will be conducting a question and answer session. Please hold while we poll for questions. The first question today is coming from Matthew Galinko from Maxim. Matthew, your line is live.

Speaker 4

Hey, thanks for taking my questions. Can we start with Bruce, I think you talked about the Post having value, having correlation to both the value of the Bitcoin itself and the Value of the machines, could you touch on with the recent run-in Bitcoin, what has been the trend in the value of the mining equipment?

Speaker 2

Sure. It's a great question. The value of mining equipment right now is affected by 2 different things. 1, Bitmain has introduced some newer machines that are knocking up around 190 and above 200 Terahash as opposed to the machines that are selling Just a year ago around 100 terahash. And then the second influence is obviously the having is coming up in those.

Speaker 2

Having makes half of the machines basically obsolete, so in the lower end of the production range, those machines have a short life and a very Low price rate. So there's folks making their bets at different ends of the machine spectrum. Our position is that Bitcoin post having the 2 quarters afterwards or so we should expect to reach an all time high. In the past having the ramp up to that has been led by an increase in machine prices. So That is our position as to investing in Bitcoin machines as well as Bitcoin, both correlating to the same asset class pricing.

Speaker 4

Got it. Thank you. And I guess I wanted to also touch on Just some of the sources of capital that are a little bit non standard. I think you've got a Partial repayment on a loan to, I think it was D STAR Medical and I think You have an arbitration with a Bitcoin mining host. Can you talk about Those sources of capital and potential sources of capital?

Speaker 2

Sure. Our plans and hopes would move in for some of these to be worth more and more liquid than they are right now. We have now held our Seastar stock for over a year since it became public. That Company seems to be rolling out FDA approvals and we're very, very happy with how the stock is recovering and advancing it. It was beaten down all the way About $0.20 It's on its way to recovering above $1,000,000 and we can see a future of it above that.

Speaker 2

If you took that in perspective, if we mark that That position to $1 during the Q3, things the parenthesis fall off of much stuff. So that's one source of our liquidity. We have an investment in the Symbiont technology and we marked that down by $800,000 this quarter. We Have an opportunity to sell that and turn it into cash, which we intend to turn into Bitcoin mining machines. We simply don't have the capital to invest in the semi owned assets to turn it into something right now.

Speaker 2

So we're Looking forward to that.

Speaker 3

We also need the CECL note receivable. So we picked about $800,000 from that In October to improve our liquidity. And there's another $1,000,000 in change left To be received out of that.

Speaker 2

And then the last thing you get on was the arbitration and that's a Long term fraud suit where we're chasing somebody took a deposit from us. You have to win the arbitration and then you have To succeed in protecting the judgment for that.

Speaker 4

Got it. And I guess for that last piece, At least in terms of finishing the arbitration, is that is there a timeline there? Is it early 'twenty four or when might we hear something

Speaker 2

I don't want to speculate on calendaring and arbitration going back and forth It's always been a mystery to me as to how long it takes to do that stuff.

Speaker 4

Okay, thanks. I'll jump back in the queue.

Speaker 1

Thank

Operator

The next question is coming from Michael Donovan from H. C. Wainwright. Michael, your line is live.

Speaker 3

Hi, Bruce. Thanks for

Speaker 5

taking my question.

Speaker 3

Could you talk a little

Speaker 5

bit more about fleet expansion and what are your plans For expansion in front of and post tapping?

Speaker 2

We always have a bias towards buying the Fastest machines we can at the lowest price and so we're flushing that out with Bitmain right now as to The size of orders they want for the new machines are pretty big. So we're trying to get a bite size out of some of those. And It's improving the efficiency and the size of the fleet is the name of the game. And so if we can Mine bitcoin and reinvest it to get more bitcoin through our mining and do that.

Speaker 3

Yes. And this is Rick. And I think with improved value of bitcoin, I think We may have increased liquidity this quarter to look at more opportunities to expand that fleet. We're also Limited in degree with our arrangement with Core and we have some slots that are open for us there, What type of machines they can take? So we're looking at expansion there.

Speaker 5

Okay, great. Appreciate that. And Bruce,

Speaker 4

you mentioned the possibility of selling Symbiote. Can you add a

Speaker 5

bit more color around that?

Speaker 2

No, not really. We're obviously under some LOI and Confidentiality provisions and all that with that, but we expect to have some resolution by the end of the year.

Speaker 5

Fair enough. Sounds good. Well, I appreciate it, Bruce. Appreciate it, Rick. Congrats on the quarter.

Speaker 4

Thank you.

Operator

Thank you. And we did have a follow-up question come from Matthew Galinko. Matthew, your line is live.

Speaker 4

Hey, guys. Just a question around the core EBITDA number that you Closed. Obviously, you've made progress, I think, year over year. Sequentially, that's swung down. And I just Wanted to understand the mechanics there.

Speaker 4

I think it's predominantly, well, maybe I'll let you, but it seems like revenue It was up from the mining fleet. And so could you just parse out what Sorry to swung you down on the core EBITDA line and if you could provide any sort of commentary what we might expect into the Q4?

Speaker 3

Well, core EBITDA, part of the problem is your revenue is based on An average for the quarter, right, or month by month. So it's not as reflective as you would like to more recent prices. There was an improvement year over year, and we're trying to take out more non cash items in the Odd items like the symbiont up and down and the impairment will also mine digital assets, bitcoin, because that's kind of where GAAP is going to. We also had a little bit of expenses And the holding this quarter due to a move machines from our ACDC site over to the core facility in Texas. So that impacts the margin a bit.

Speaker 3

But I think at the more current 35 plus route, there should be a quite

Operator

Thank you. There are no other questions at this time. I would now like to hand the call back to the LM Funding Management team for closing remarks.

Speaker 2

Thank you to everyone for joining our 2023 Q3 conference call. Our company's shift towards Bitcoin Mining is yielding encouraging outcomes. We're committed to reinvesting our mining revenues into acquiring more mining machines without incurring debt and also integrating advanced software aimed at enhancing the hash rate of our current machines. Our belief in the long term value increase of Bitcoin as an asset class In summary, we are extremely pleased with the progress we have made during the Q3 of 2023 and believe the momentum of our transition to Mining will continue to accelerate as we acquire and electrify more mining machines in the future. We are thankful for the ongoing support from our shareholders and we'll continue to provide updates

Powered by Quartr

Key Takeaways

  • Revenues for Q3 2023 jumped to $3.4 million from $0.2 million a year ago, driven by mining 117.1 Bitcoin compared to 2.2 BTC in Q3 2022.
  • Net loss narrowed to $3.7 million versus $6.7 million in the prior year, and Core EBITDA loss improved to $0.6 million from $1.5 million.
  • Installed Braiins OS Plus on approximately 1,000 miners to boost hash rate by up to 25%, which should increase future Bitcoin production.
  • Ended the quarter with $500,000 in cash, 90 BTC (≈$2.2 million) and working capital of $4.5 million, with minimal long-term debt to support mining expansion.
  • Shares trade at $0.40 versus a book value of $2.45 per share, reflecting an ~85% discount despite progress in the Bitcoin mining strategy.
AI Generated. May Contain Errors.
Earnings Conference Call
LM Funding America Q3 2023
00:00 / 00:00