LM Funding America, Inc.

Greetings and welcome to the LM Funding America Incorporated second quarter 2024 business update call. At this time all participants are on a listen-only mode and 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, Mr. Ted Avas, Investor Relations. Sir, you may begin.

Good morning and thank you for joining LM Funding America's 2024 Second 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 June 30, 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 Prescendo Communications at 212-671-1020. Before management reviews the company's operating results for the three and six months ended June 30, 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, result 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, followed 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 the conference call may not occur, and actual results could differ materially and adversely from those anticipated or applied 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 the 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?

Thanks, Ted. Good morning, and thanks to everyone who joins us today. On behalf of the LM Funding team, I'd like to thank all of our shareholders for your ongoing support and for joining us on this call this morning. April was an eventful month with the Bitcoin halving event. Despite this transition reducing miners' rewards by 50%, we are pleased that we successfully mined 44.1 bitcoins during the quarter, valued at approximately $2.9 million. Notwithstanding the halving event, we are extremely pleased that several expensive hosting contracts have recently expired, allowing us to relocate these machines to more cost-effective mining sites. As of July 31st, we had approximately 3,800 miners placed at several hosting sites, and our potential hash rate remains strong, 639 petahash. We believe that this positions LN funding for even greater mining success in the future. I would now like to turn the call over to our CFO, Rick Russell, for a review of the financial highlights for the 2024 second quarter. Rick? Thank you, Bruce. As of June 30, 2024, the company had approximately 1,900 Bitcoin mining machines in operation at various hosting sites. We have subsequently placed an additional 2,000 machines into service at the Arthur mining site. In total, our 5,900 miners provide the company with approximately 639 petahash of mining capacity. We mined 44.1 Bitcoins in the second quarter of 2024, generating $2.9 million in revenue at an average Bitcoin price at $65,600. As of June 30, 2024, the company held 160.4 bitcoins valued at approximately $10 million. Total revenue for the second quarter of 2024 was approximately $3 million, a decrease of $184,000 from the same period last year. Digital mining revenue was relatively flat at $2.9 million in the second quarter of 2024 versus $3 million in Q2 of 2023. This change was the result of the effects of the April 2024 Bitcoin halving event and the repositioning of miners during the month of June, offset in part by the increase in Bitcoin prices. Operating expenses for the quarter ended June 30, 2024, rose to $7.8 million from $6.4 million year-over-year due to a $1.3 million loss in Bitcoin fair value and a $1.2 million increase in depreciation and amortization costs, offset in part by a $1.6 million decrease in staff costs and payroll. Additionally, we reported net loss attributable to shareholders of approximately $6.1 million, including a $1.9 million unrealized loss in securities compared to a $4.5 million net loss in the prior year. Moreover, we reported that our core EBITDA loss was $2.2 million in Q2 2024 from $0.1 million in Q2 of 2023. However, we achieved positive core EVA for the first half of 2024 of $2.2 million. I'll turn it back over to Bruce for our business overview. Thanks, Rick. I'd now like to focus our attention on our overall business and strategic focus for 2024, 2025, and beyond. We recently announced that the company has entered into a letter of intent to acquire a mining site in Texas. This site offers an initial power capacity of 12 megawatts with the potential to expand by an additional 60 megawatts. This acquisition will provide us with a cost-effective location to power all of our existing machines. The mining site is currently generating 55 petahash of mining capacity using immersion mining techniques. And our primary goal with this acquisition is to invest capital to mine the full potential 72 megawatts. We are leveraging our Bitcoin holdings to finance the acquisition of market price power. which can be used for Bitcoin mining or resold to the grid. We now have a clear path to grow from our current transitory position to quickly mining 12 megawatts and then to a steady leveraged capital expansion plan aimed at growing our Texas site's mining capacity to 72 megawatts, which is projected to yield about 1,000 Bitcoin annually at current network difficulty rates. Additionally, the company has partnered with Arthur Mining to establish a new 15-megawatt hosting facility near Oklahoma City, where we have already relocated approximately 3,000 of our Bitmain S19J Pro machines. Arthur Mining has agreed to host these machines at cost for 10 months, significantly reducing operating expenses for LM funding. The companies are also considering a new 60-megawatt site adjacent to the existing Oklahoma facility. We believe these sites provide us with cost-effective, short- and long-term solutions to host our S19J pros, allowing us to rapidly scale our Bitcoin mining capabilities. The strategic alliance with Arthur Mining enables LM Funding to capitalize on Arthur's hosting expertise in infrastructure and allows us to focus on our core competencies while minimizing operational integration risks, thus positioning the company for what we believe will be a period of accelerated growth and increased profitability. In order to facilitate these expansion initiatives, the company secured a $5 million non-convertible loan, the proceeds of which will be dedicated to acquiring additional miners, further bolstering the company's mining capabilities. Our legacy business, which provides funding to nonprofit community associations, has been stable since the end of 2023. Looking ahead, we anticipate growth due to increased demand for reserve funding, spurred by legislative changes following the 2023 Seaside Tower collapse in South Florida. New Florida laws now mandate that associations fully fund building maintenance reserves, which may lead to higher association dues and more homeowners unable to pay. Our experience collecting over 12,000 delinquent condominium owners' accounts may afford us an opportunity to address the fully funded reserve problem faced by Florida condominium associations. So to wrap up, we are committed to reinvesting our mining revenue into purchasing additional cutting-edge miners. Perhaps more important is our laser focus on integrating sophisticated software and technologies into our mining operations, enabling us to enhance the hash rate of our existing machines. We are excited about our new initiatives to acquire the mining facility in Texas in our partnership with Arthur Mining to establish a new 15-megawatt hosting facility near Oklahoma City, and possibly a new 60-megawatt site adjacent to that facility. We are confident that these initiatives will provide ELIN funding with cost-effective and efficient hosting solutions for our S19J pros, benefiting us in both the short and long term. By implementing these initiatives, we are well-positioned to significantly accelerate our Bitcoin mining operations. Furthermore, we believe these efforts will drive increased shareholder value for our investors in the future. I would now like to open the call up for questions. Operator, can you assist us with that?

Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. And 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. One moment, please, while we poll for questions. Thank you. Our first question is coming from Michael Donovan, which H.C. Wainwright. Your line is live.

Thank you, operator. Congrats on the quarter, Bruce and Rick. Can you help us get a better read on Texas and Oklahoma, just in terms of build-out? I know you mentioned immersion. Do you plan on just dropping containers there, or do you expect to have a larger build-out? Also, what are you thinking about in terms of power? Are transformers going to be needed, additional transformers needed at both these sites? Thank you. Thanks, Michael.

Bundled question there. Okay, Texas and Oklahoma, two different places. Both sites will operate using containers. I'm sorry, Texas actually does have a... Yeah, Texas will be immersion containers. Right now, the Oklahoma site is air containers, right? And that is 15 megawatts that's fully built out right now. The Texas site, they've got four new emerging containers that we'll put in service once we buy it. They have three slightly older suburb emerging containers that are active right now. And then, of course, we will buy more emerging containers to fill out the other six megawatts of the site at Texas.

Okay.

The second part of your question, Michael, was that, yes, there are transformers on the ground in Texas. There are in Oklahoma, but there are additional costs for build-out at both in tranches to build more megawatts.

Okay. Now, in terms of the potential for AI or HPC hosting, what sort of connectivity do these sites offer, either for fiber connectivity and what sort of water sources do you have nearby just for this potentiality?

We have not priced or valued the sites for HPC uses. I only have general knowledge of stuff like that. To us, it's securing the power. So, it's 72 megawatts in Texas and the additional 60 potential in Oklahoma, what we've got there. It's just not our business yet. Gotcha. Fair enough.

Now, Oklahoma, so it's going to be at cost for 10 months for running the 3,000 miners there. After the 10 months, have you guys discussed what that looks like or what a potential deal would be?

It's in the agreement, Michael. It's in the agreement, the docs. It goes to market price after the 10 months. So the big picture of that is we, rather than provide a hosting company with a deposit that they use to build you something, we loan them on a secured basis the money they need to build it out. And then to make money on our money, they're mining for us for costs for this first 10 months. And then after that, we plan to be elsewhere, and they'll rent our space out to somebody that will pay market rates and be able to pay off that loan to us.

Okay, thank you. Now, in terms of the timeline that took to transition those 3,000 miners, was that in June and July? I believe that they're all... over there now, right, the 3,000? Correct. That had interrupted operations?

Yeah, it took probably a good 45-ish days to transition over, right? Just get a move set up, you know, a few kinks worked out with the new site as usual. But they're all installed there now at this point, the 3,000.

Okay. Can you remind us about the new machines, the S21s, and are they located at a third-party site? I believe you're expecting them to arrive in March, April. Can you just help with that?

Yeah, they came in, I want to say April, and they're installed at the core location in Kentucky with our XPs. So we have about 800 S21s and XTs combined over there.

Okay. And for a third-party hosting, is everything with core now, or do you still have some at Giga?

No, we transitioned out of Giga, and they went to a warehouse, and we're looking to move some of those over to the Texas side once that's done. So for hosting, we have core, and then the Arthur site is a hosting site. Yep.

Great. Now, more of a big-picture question, though, with that $5 million loan, I believe you spoke to some of that being used for immersion. Is this going to be mostly for infrastructure or purchasing new machines, too? How should we think about that?

Mostly, well, I don't know, mostly. It mostly has a number attached to it. Whatever infrastructure it takes plus whatever machines the infrastructure will support, that's the plan.

Okay. Okay, so next. Good. All right, well, I'll help out.

Ten megawatts of capacity doesn't do you any good if you don't have any machines to plug into it, so you've got to kind of think of it like that.

Fair enough. Thank you so much, Bruce and Rick. Thank you.

Thank you. Ladies and gentlemen, if there will be any final questions or comments, please indicate so now by pressing star 1 on your telephone keypad. Okay. As we currently have no further questions in queue, I will hand it back to management for closing comments.

Thank you all for joining us on today's call. With 2024 halving event behind us, we now turn our focus toward enhancing our Bitcoin mining operations in anticipation of the next halving event expected to occur in 2028. With our current initiatives providing cost-effective locations to power all of our existing machines, we are extremely excited about what the future holds for LM Funding and its shareholders. We are grateful for the ongoing support of our shareholders and look forward to updating you on the future progress.

Thank you. Thank you. This concludes today's call and you may disconnect your lines at this time and we thank you for your participation.