LM Funding America - Q1 2024

Executive Summary

• Q1 2024 delivered a sharp inflection to profitability on higher BTC prices and larger fleet: revenue rose 105% YoY to $4.75M, operating income was $0.56M, and net income reached $1.90M (EPS $0.61); Core EBITDA improved to $4.42M from a ($0.31)M loss a year ago.
• Mix driven by digital mining revenue ($4.60M) as the company mined 86.4 BTC in the quarter; BTC holdings increased to 163.4 by quarter-end, then 155.1 by April 30 as some BTC was sold to fund operations.
• Non-GAAP tailwind: adoption of ASU 2023-08 (mark-to-market for Bitcoin) produced a ~$4.3M gain (recorded in operating expenses), offset by higher depreciation and ~$1.2M impairment on mining equipment.
• Management reiterated “infrastructure light” mining focus but is pursuing more control near the meter and evaluating selective infrastructure steps; S21 deployment and hosting renegotiations post-halving are focal points and potential stock catalysts.
• Consensus estimates from S&P Global were unavailable for Q1 2024 at time of analysis; beat/miss vs Street cannot be assessed (we attempted retrieval but did not obtain values).

What Went Well and What Went Wrong

• What Went Well

  • Returned to profitability: net income $1.90M vs loss ($7.16)M YoY; Core EBITDA positive $4.42M vs ($0.31)M prior-year, supported by higher BTC price and expanded operations.
  • Strong BTC production and balance sheet: 86.4 BTC mined in Q1; 163.4 BTC held at 3/31/24 (~$11.7M at ~$71.3k), with working capital of $12.7M and LMFA stockholders’ equity of $38.5M.
  • Management tone upbeat with clear strategic emphasis: “We continue to make tremendous strides in growing our Bitcoin mining operations… achieved a record $1.9 million of net income and $4.4 million of Core EBITDA” – CEO Bruce Rodgers.

• What Went Wrong

  • Accounting/optics complexity: non-GAAP tailwind from new BTC fair-value accounting (~$4.26M gain) is partially offset by non-cash factors (e.g., $1.2M impairment, higher D&A by ~$1.6M YoY), complicating underlying profitability reads.
  • Continued cost pressures: digital mining cost of revenues rose to $2.65M (from $1.67M) amid higher scale; management flagged evolving post-halving hosting economics as a key negotiation area.
  • KPI confusion: press references to 673 PH post-S21 contrasted with call clarification that 639 PH is the “right number” for forecasts, highlighting near-term data variability in fleet metrics.

Transcript

Operator (participant)

Greetings! Welcome to the LM Funding America Inc. First Quarter 2024 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that the conference is being recorded. I will now turn the conference over to your host, Ted Ayvas. You may begin.

Ted Ayvas (Head of Investor Relations)

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 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 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 three 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 Rogers, Chairman and CEO of LM Funding. Bruce?

Bruce Rodgers (Chairman and CEO)

Thanks, Ted. Hello from sunny Tampa, and thank you to everyone who has joined us today. On behalf of the LM Funding team, I'd 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 first full year in the Bitcoin mining industry. The momentum we built in 2023 has carried over into 2024, continuing to drive our business forward. We've returned to profitability, so I'd 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, providing 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 turnaround 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, and perhaps most importantly, I want to highlight that as of March 31, 2024, we had stockholders' equity of $38.5 million, or $0.1543 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 (Chairman and CEO)

Thanks, Rick. You've painted the financial picture of a company that has completed the start-up 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. And 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 six 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 TH/s and consumes 3,500 W of power. We believe these are the most capable machines on the market. These machines are now fully operational and increase the company's mining capacity to 639 PH/s. 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 machines will be leading producers and anticipate that this model will continue to generate revenue through the next halving event, which we expect to occur in 2028.

We continue to concentrate our capital investments on Bitcoin and mining machines whose value closely follows Bitcoins. 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 the huge value of our mining. Our legacy business, focused on providing funding to nonprofit community associations, 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 increase 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 a fifth of our stockholders' 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 Marty 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 Marty'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 (participant)

Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Kevin Dede with H.C. Wainwright.

Kevin Dede (Managing Director and Senior Technology Analyst)

Morning, Bruce, Rich. Thanks for having me on the call.

Bruce Rodgers (Chairman and CEO)

... Great to hear from you.

Kevin Dede (Managing Director and Senior Technology Analyst)

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 that figure included the 300 new S21s, and that everything is installed and hashing now.

Bruce Rodgers (Chairman and CEO)

The 5,900 machines was as of March. We got the new S21s at end of April, first of May, but we also disposed to 300 machines. So we're still about the same number of machines, but with the S21s, our petahash is up. And the machines we got rid of were the old sub-100 machines that slipped in.

Kevin Dede (Managing Director and Senior Technology Analyst)

All right. So, the earnings press talked to a hash rate at 673, but I don't know, I may have heard 639. I'm just-

Bruce Rodgers (Chairman and CEO)

Yeah.

Kevin Dede (Managing Director and Senior Technology Analyst)

trying to make sure I have that number right.

Bruce Rodgers (Chairman and CEO)

Six-

Kevin Dede (Managing Director and Senior Technology Analyst)

'Cause that's what we're basing our forecast on.

Bruce Rodgers (Chairman and CEO)

639 is the right number for forecasts. To forecast, yeah.

Kevin Dede (Managing Director and Senior Technology Analyst)

Okay. All right, perfect. Bruce, I especially appreciated hearing your sort of strategic snapshot. I mean, I know you guys are still financial buccaneers. 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 (Chairman and 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, and really unclear as to where that would be. So I would focus on our company as being a Bitcoin miner. And then our strategy has been infrastructure light, but we're 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 (Managing Director and Senior Technology 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 (Chairman and CEO)

I might not understand what you mean by HPC market.

Kevin Dede (Managing Director and Senior Technology Analyst)

Oh, I'm sorry, high performance computing. That's sort of the AI. I know, I know that you... Yeah, you talked, you talked to that a little bit. I'm just. Maybe let's just take the question back a step. I apologize. I kind of running my mouth here a little bit, forgive me. How are you reviewing your asset light strategy? Are you... I know you said you're, you know, you've borrowed some money, and you'll probably have more to say about that shortly, but are you thinking about owning assets for, or infrastructure for Bitcoin mining or for other purposes?

Bruce Rodgers (Chairman and 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, you know, there could be things that happen. So that's the way we regard that.

Kevin Dede (Managing Director and Senior Technology 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, rev share, contractual obligations, given sort of the lower hash price that we've seen since the halving?

Bruce Rodgers (Chairman and CEO)

Loaded question there, 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's probably discussions on every possible plane at all times on things. Back to the, the $1.5 million we borrowed and the strategic initiative I alluded to, the reality of hosting is that you usually have to make a deposit in order to host with someone. So we're looking for using that deposit type of money to get more control over some of the infrastructure. It's still infrastructure light in theory, but we like to have some more control right up to where the electric meter is.

Kevin Dede (Managing Director and Senior Technology Analyst)

Okay. That helps. Thanks, Bruce. Well, how about expanding the mining fleet? I guess you've got to put one step-

Bruce Rodgers (Chairman and CEO)

That's the goal, right? So if you know, the thing starts flying with cash, that's where the cash is gonna go, is to buy more machines. And all of the roads lead to that's how you grow a mining business. You got to keep up with the increase in difficulty, and then if you go faster than that, you increase your potential returns.

Kevin Dede (Managing Director and Senior Technology Analyst)

Right. Rick, did you or how are you considering this mark-to-market for digital asset ruling? Have you incorporated it, or how, when do you expect to? Help me understand that, please.

Richard Russell (CFO)

Yeah, we adopted the mark-to-market effective this year, 1/1, 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, you know, the guide points you to.

Kevin Dede (Managing Director and Senior Technology Analyst)

And that-

Richard Russell (CFO)

I believe that value was about 72-ish, 73 at end of March, and that's what it's marked to right now.

Kevin Dede (Managing Director and Senior Technology Analyst)

Oh, you mean 72 Bitcoin?

Richard Russell (CFO)

No, $72,000.

Bruce Rodgers (Chairman and CEO)

$72,000 per Bitcoin.

Kevin Dede (Managing Director and Senior Technology Analyst)

Oh, oh, oh, oh, oh, oh, okay.

Richard Russell (CFO)

Yeah, and part of the adoption, we recognize a $600,000 pick-up in equity for, you know, what we had as of 12/31, right? That was not factored into this gain on operation. But what we mined during from 1/1 was about $43,000, I think. And what we mined in the quarter, so that mining was an average of, I think, $53,000. That accumulated Bitcoin to 163, I think, resulted in the pick-up of $4.3 million.

Kevin Dede (Managing Director and Senior Technology Analyst)

Ah, okay. So, Bruce, as I sort of think about your comment regarding the rulings in Florida taking effect in 2025, have you considered maybe just separating yourself from that business and going all in in Bitcoin?

Bruce Rodgers (Chairman and CEO)

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

Kevin Dede (Managing Director and Senior Technology Analyst)

Okay, fair enough. Thank you very much, gentlemen, for taking my questions. Appreciate it.

Richard Russell (CFO)

Thank you.

Operator (participant)

Once again, if you would like to ask a question, please press star one. We have reached the end of the question and answer session, and I will now turn the call over to management for closing remarks.

Bruce Rodgers (Chairman and 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 into 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 $67,000, 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 (participant)

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