LM Funding America, Inc.

Greetings. Welcome to the LM Funding America Inc. Third 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

Good morning, and thank you for joining LM Funding America's third quarter 2023 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 September 30th, 2023, and its financial condition as of today. 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 quarter ended September 30th, 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 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 event 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 statement. You should not rely upon forward-looking statements as predictions of future events. 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 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. Having said that, I would now like to turn the call over to Bruce Rogers. Bruce?

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. As of September 30, 2023, our Bitcoin mining operations included about 5,900 mining machines actively engaged in mining at various hosting facilities, providing approximately 614 petahash per second of mining capacity. During the quarter ended September 30, 2023, the company mined 117.1 Bitcoins. marking a 10% sequential increase from the 106.6 Bitcoin mined in the second quarter of 2023 as an average market revenue value of approximately $28,000 per Bitcoin. The current Bitcoin price has been higher, fluctuating between $35,000 and $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. Halving is built into the Bitcoin algorithm and designed to limit the supply of new Bitcoin. It is expected that the next halving will occur in the first half of 2024. Historically, Bitcoin prices have tended to increase as a halving event nears. often reaching record highs in the six 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 that seeks to mitigate risk and volatility in the market by focusing our capital investments on Bitcoin and Bitcoin mining machines that track the value of Bitcoins. 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. A further advantage to mining Bitcoin with machines operating Brains OS Plus software is that machines equipped with this software may mine with any pool or mine with the brains pool without having to pay pool fees to the brains pool. 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 nonprofit 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 $35.9 million, 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% discount from

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 three-month period ending September 30, 2023. Rick?

Thanks, Bruce, and good morning, everyone. Total revenues for the three-month ended September 30, 2023 increased by approximately $3.2 million to $3.4 million from the 200,000 generated in the three months ended September 3, 2022. Beyond our year-over-year quarterly revenue growth, we also experienced sequential quarterly revenue growth of 7% compared to the second quarter of 2023. Revenues for the third quarter of 2023 include digital mining revenue of 3.3 million due to the mine of 117.1 Bitcoins during the third quarter of 2023 compared to 2.2 bitcoins for the third quarter end of 2022, since our Bitcoin mining operations had begun late in September 2022. Operating expenses totaled $6.6 million for the third quarter of 2023, compared to $5.5 million for the third quarter of 2022. The change is primarily attributable to a $2.7 million increase in digital mining costs and a $1.5 million increase in depreciation, partially offset by a $3 million decrease in stock compensation and a $300,000 decrease in professional fees as compared to the third quarter of 2022. For the third quarter of 2023, the net loss attributable to LM funding shareholders was $3.7 million, which included an $800,000 non-cash unrealized loss on investment in equity securities and an $800,000 non-cash impairment charge on long-lived intangible assets. as compared overall to a net loss of $6.7 million for the third quarter of 2022, which includes a $200,000 non-cash unrealized loss on investment and equity securities. Core EBITDA loss in the quarter ended September 30, 2023 was approximately $600,000 compared to a loss of $1.5 million 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 $2.2 million, and a working capital of $4.5 million, 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 $35.9 million, or $2.45 per share. That concludes our prepared remarks. I would now like to open the call for questions. Operator, could you please assist us with that?

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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Once again, please press star one if you wish to ask a question at this time. And please hold while we poll for questions. The first question today is coming from Matthew Galenko from Maxim. Matthew, your line is live.

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

Sure. That's a great question. The value of mining equipment right now is affected by two different things. One, 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 halving is coming up and there's you know the halving makes half of the machines basically obsolete so in the lower in the lower end of the production range those machines are have a short life and a very low price range so there's folks making their bets at different ends of the machine spectrum. Our position is that Bitcoin post-halving, the two quarters afterwards or so, we should expect to reach an all-time high. In the past halvings, the ramp-ups to that have been led by an increase in machine prices. So that is our position as to investing in Bitcoin machines as well as Bitcoin machines. both correlating to the same asset class pricing.

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?

Sure. Our plans and hopes would have been for some of these to be worth more and more liquid than they are right now, but We have now held our C-Star 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 was beaten down all the way to about 20 cents. It's on its way to recovering above a buck, and we see a future of it above that. If you took that in perspective, if we marked that position to 20, during the third quarter, the parentheses 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 opportunity to invest in the semi-owned assets to turn it into something right now. So we're looking forward to that.

We also have the CSAR no receivable.

Yes.

So we pick up about $800,000 from that in October to improve our liquidity. And there's another million and change left to be received out of that.

And then the last thing you get on is the arbitration, and that's a long-term fraud suit where we're chasing somebody who took a deposit from us. You have to win the arbitration, and then you have to succeed in perfecting a judgment for that.

Got it. And I guess for that last piece, at least in terms of Finishing the arbitration, is there a timeline there? Is it early 24 or might we hear something new out?

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

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

Thank you. Once again, Ladies and gentlemen, if there are any questions, please press star 1 on your phone at this time. That's star 1 if you wish to ask a question. The next question is coming from Michael Donovan from H.C. Wainwright. Michael, your line is live.

Hi, Bruce. Hi, Nick. Take my question. Could you talk a little bit more about lead expansion and what are your plans for expansion in front of and post-tapping?

Okay.

We always have a bias towards buying the fastest machines we can at the lowest price, and so we're fleshing 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. Improving the efficiency and size of the fleet is the name of the game, so if we can mine Bitcoin and reinvest it to get more Bitcoin through our mining and do that.

Yeah. 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. Um, we're also limited into degree with our arrangement with core and we have some, uh, slots that are open for us there. Um, what type of machines they can take. So we're looking at expansion there.

Okay, great. Appreciate that. And Bruce, you mentioned the possibility of selling Symbiont. Can you add a bit more color around that?

No, not really. We're obviously in the LOI and there's confidentiality provisions and all that with that. But We expect to have some resolution of that by the end of the year.

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

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

Hey, guys, just kind of... The question around the quarry bidon number that you disclosed, obviously that's progress I think year over year. Sequentially that's swung down and I just wanted to understand the mechanics there. I think it's predominantly, well maybe I'll let you, but it seems like revenue was up from the mining fleet and so could you just parse out what, What sort of swung you down on the core EBITDA line? And if you could provide any sort of commentary, what we might expect into the fourth quarter.

Well, you know, core EBITDA, you know, part of the problem is, you know, your revenue is based on an average per quarter, right, or month by month. So it's not as reflective as you would like to more recent prices. It was an improvement year over year. And we're trying to take out more non-cash items and 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 in the hosting this quarter due to we moved machines from our ACDC site over to the core facility in Texas. So that impacts the margin a bit. But I think at the more current 35-plus route, there should be quite an improvement in the fourth quarter.

Terrific. Thanks again.

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

Thank you to everyone for joining our 2023 third quarter 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 remains strong. In summary, we are extremely pleased with the progress we have made during the third quarter of 2023 and believe the momentum of our transition to Bitcoin 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 will continue to provide updates on our progress as new developments emerge. Thank you very much.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.