LM Funding America, Inc.

Greetings and welcome to the LM Funding America Incorporated third quarter 2024 Business Update conference 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 of Investor Relations. Sir, you may begin.

Good morning, and thanks to everyone for joining LM Funding America's 2024 Third Quarter Financial Results and Business Update Conference Call. On the call with us today are Ryan Duran, President of U.S. Digital Mining, and Richard Russell, Chief Financial Officer of LM Funding. Bruce Rogers, the company's Chief Executive Officer, will not be able to attend the call this morning due to a family emergency. This morning, the company announced its operating results for the quarter ended September 30, 2024, and its financial condition as of that date. The press release is posted on the company's website, lmfunding.com, and is filed as an exhibit to a Form 8-K, which was filed 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 and nine months ended September 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 the 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 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. With that, I will now turn the call over to Ryan Duran. Ryan?

Thanks, Ted. Good morning, and thanks to everyone who joined us today. We have a lot of positive developments to share with you today as we continue to strengthen our position in the Bitcoin mining landscape. Following the Bitcoin mining halving earlier this year, there has been a strategic shift in our mining approach to more cost-effective operations. The halving event coincided with the expiration of several high-cost hosting contracts, providing us with opportunities to relocate our machines to more cost-effective facilities. We believe these strategic decisions have positioned LM Funding for continued growth and success in our mining operations. I would now like to turn the call over to our CFO, Rick Russell, for a review of the financial highlights for the third quarter of 2024. Rick?

Thank you, Ryan. As of September 3rd, 2024, the company had approximately 3,700 Bitcoin mining machines in operation and engaged in Bitcoin mining at various hosting sites, with an additional 2,200 miners at a third-party warehouse waiting to be redeployed. In total, Our 5,900 miners provide the company with approximately 639 petahash of mining capacity. We mined 18.5 bitcoins in the third quarter of 2024, generating approximately $1.1 million in revenue at an average bitcoin price of $61,000. As of September 3, 2024, the company held 142.3 bitcoins, which are valued as of November 11, 2024, at approximately $12.4 million, assuming an $87,000 per Bitcoin price. Total revenue for the third quarter of 2024 was approximately $1.3 million, a decrease of $2.1 million from the same period last year. The decrease in revenues reflects the effects of the April 2024 Bitcoin halving event, as well as the reposition of miners during the quarter. Operating expenses for the quarter ended September 3, 2024 decreased to $5.6 million from $6.6 million year-over-year due to a $2 million decrease in digital mining costs offset in part by a $0.8 million increase in depreciation and amortization Moreover, we reported that our core EBITDA loss was $1.6 million in Q3 2024 from $0.6 million in Q3 2023. However, we achieved positive for EBITDA for the first nine months of 2024 of $0.6 million due to expanded Bitcoin operations. I would now like to turn the call over to Ryan for our strategy overview.

Thanks, Rick. I would now like to focus our attention on our overall strategic shift in our mining operations post-halving. Following the April halving event, the company strategically pivoted away from the infrastructure-light approach that we had employed pre-halving to a strategy of vertical integration. This strategy is centered on securing mining sites with low-cost, sustainable power sources and significant expansion potential, positioning the company in enhanced operations efficiency and growth. The timing of this strategic shift was intentional as we had aligned our hosting contract expirations to coincide with the halving event. allowing us the flexibility to restructure our operations with minimal disruption. As we continue to build out our infrastructure, we remain committed to identifying additional cost-effective hosting sites. We believe these investments will drive substantial growth and create long-term value for our shareholders, positioning the company as a key player in the digital mining sector. I would now like to turn the call over to Rick Russell for a wrap-up.

Thanks, Ryan. We remain fully committed to reinvesting our mining revenue into expanding our capacity with additional state of the art miners and further enhancing our operations through the integration of advanced software and technologies, boosting the hash rate of our existing machines. Moreover, we are enthusiastic about our recent vertical integration initiatives, which we anticipate will continue to lower our direct mining costs as compared to the prior year. I would now like to open up the call for questions. Operator, can you assist us with that?

Yes, sir. Thank you. At this time, we'll be conducting our 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 and you may press star 2 if you would like to remove your question from the queue. For those 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 Kevin Deedy with HC Wainwright. Your line is live.

Thanks. Hi, Rick, Ryan. Thanks for having me on the call. Appreciate it. My pleasure. Yeah, lots of questions because there weren't many details. Obviously, you are moving miners. Can you give us an indication of what you have mining now, where it is, and where you think your hash rate goes by the end of the year?

Sure. So we have about 3,300 machines located at an Oklahoma facility that's about 4 cents per kilowatt there. We have another... That's $800 over at a core facility in Kentucky, and that's at about $0.07 per kilowatt. We have about 2,200 machines in a warehouse in Oklahoma, and we're working on being able to place those machines at that location in Oklahoma, hopefully by year end, if not the 1st of January. During the quarter, we were probably at 60% capacity, give or take.

Okay. Has that changed through the month of October?

No, it has not changed. Like I say, we hope to have some additional contracts to put those remaining machines by year end, if not by the first of January.

Could you please remind me what your available power is in Oklahoma?

The total site has 15 megawatts. We're only using 10.

Okay. And then when you get those 2,200 machines plugged in, then you'll be up to the full 15? 15, correct. And are you... They're going into containers, if I remember correctly.

Correct.

Okay. Now, there was some talk about a site in Texas. Are there any details you can share about how that might be progressing?

No, that still has some requirements for power validation. If you remember, that had a 12-megawatt site with 60 expansions. um and we before we move forward on that we want the 60 megawatt expansion to be solidified and they're still working on that um so it's kind of wait and see on that one uh any insight on timing is it a a three-month process a six-month process um i think by year-end we'll know Oh, okay. Whether it's go or no go, how's that?

Fair enough. Can you offer any indication on where or how you're thinking about new rig purchases? Brian, do you?

Yeah, it all comes back to, obviously, machines are consistently rolling out new models. When it comes time to make that purchase, we basically look at what options are available, what potential deals we could get directly through Bitmain, which we normally do, and it comes back to payback period.

And I know we've looked at the S21 Pros are fairly expensive. Some of the older K models look more enticing. right? So once we have the space and we start refreshing our odor machine, those will be the main criteria.

And Rick, since you're intimately more familiar with the condo business, can you give us just sort of a view on how you see it, how you see the Florida real estate market and what you think your opportunities are?

Well, you know, I think there are opportunities there, given the new laws, but with the legislation coming in in the spring, some of those demands upon the condos may lessen a little bit and give them more breathing room. We think regardless, the condos will need help, and we're trying to work with them in that manner. I know that's not a lot, but it's kind of – we're seeing a lot of increase in assessments and later assessments. Is that correct, Ryan?

Yes. Special assessments are being assessed at a very large rate. And we're looking to solve that problem that's slowly rolling out, as Rick indicated, maybe delayed a little bit longer down the road than originally planned. But there's definitely going to be opportunity there. as associations continue to special assess and fill their reserve requirements.

So, the past nine months seem to be fairly consistent for you folks. I'm wondering if there's any indication that you're potentially involved in more deals helping the associations manage these assessments? Has the tenor of business changed? I guess this is sort of the root of the question.

Not really, because requirements are not quite as urgent as they have to be, right?

Okay.

I mean, I would like to have it to pick up more, but, you know, we're willing to take the opportunity to expand that if it comes about. But, you know, we can only push it so far.

So would it be fair to assume then, Rick, that the emphasis now is on expanding the vertical integration aspect of your Bitcoin mining, and it's kind of a wait and see really on how legislation changes the profile of the condo business. Is that fair?

Yeah, that's fair. I mean, we're, Ryan and his group, you know, are searching for additional sites, right, in that four cents power. And we've got some good leads on those in addition to what we have already. And we think we can get funding to help acquire those sites. through loans, and then use equity rates to help put machines in there.

Last question for me. Have you looked at sort of the M&A side of things with pre-established, privately held mining companies that might be hitting a roadblock given the hash price was so low for so long?

Yeah. We've talked to a few firms in those situations. Nothing has come about of it yet. And we do get introduced to other people who know such firms, and we're open to discussions. But it depends on their situation and willingness to trade, right?

Absolutely. All right. Well, thanks for your candor, Rick. I appreciate it. Thank you.

Thank you. Once again, ladies and gentlemen, if you do have any questions or comments, please press star 1 on your telephone keypad. Our next question is coming from Matthew Galinko with Maxim Group. Your line is live.

Hey, thanks for taking my question. I wanted to look back at Oklahoma for a second. What is the power rate you're currently paying, and is it sustainable? I recall it might have been something that you have wanted to cite through maybe nine months. Can you just refresh me on what the power rate is and how long you have it locked in for? Yeah.

We're roughly in the 4 cent range. It floats with cost of power each month, but we have projections and expectations that it's going to be anywhere from 3.8 to 4.2. So that's why we continue to say the 4 cent number. It's right in that range. And we do not see that changing for better or for worse. That is our expectation for the foreseeable future.

Got it. And do you have expansion past the, I think you mentioned 5 megawatts is currently the target in Oklahoma. Is there capacity on site to add to the site, or do you have more expansion beyond the 5 in Oklahoma that has potential?

Yes, that site can be expanded with some substation expansion.

So it's an additional 60 megawatts, right?

Yes.

It would take nine months, you know, once you put this expansion substation stuff there. And we're looking heavily at that since the price of electricity is reasonable for us.

Gotcha. So, I mean, I guess last question for me in terms of decisioning. I think you mentioned earlier in the call that you might, know by the end of the year whether you can get the expansion in Texas or not. So if the Texas expansion doesn't come your way, would expanding Oklahoma be your primary direction for the non-deployed machines currently?

Yeah, we would look at primarily Oklahoma and also looking at a few other

sites out there um to take advantage of um okay so sorry just to to put a finer point on that if you have about a nine month lead time to get infrastructure in place to expand oklahoma behind beyond the 15 um do you think you'd move more quickly on a another site than sort of wait the nine months for expansion or how just how do you think about timing yeah we would do dual

prong that we would definitely look hard at ready-to-go sites right now or something that could be pop up in three months, call it that, while also exploring the 60 megawatt expansion also.

Got it. Thank you. Thank you.

As we have no further questions on the lines at this time, I'd like to turn it back over to management for any closing remarks.

Thank you. We are thrilled to see Bitcoin recently reach an all-time high above $92,000, a milestone that we believe strongly validates our long-term strategy of mining and holding Bitcoin. This recent surge reinforces our confidence in Bitcoin's upward trajectory as we anticipate the price moving toward our projected target of over $100,000 in 2025. With the current initiatives providing cost-effective locations to power existing machines, we are extremely excited about what the future holds for LM Funding and its shareholders. We are grateful for the ongoing support from our shareholders and look forward to updating you on our future progress. Thank you.

Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day and we thank you for your participation.