LM Funding America, Inc.

Good day, and thank you for standing by. Welcome to the LM Funding America fourth quarter and full year 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Cody Fletcher, Investor Relations. Please go ahead.

Thank you, Operator, and thank you all for joining LM Funding America's fourth quarter and full year 2024 earnings conference call. Joining us today are Chairman and CEO Bruce Rogers, President of U.S. Digital Mining Ryan Duran, and CFO Richard Russell. For today's call, we've uploaded an accompanying supplemental investor presentation. which can be found under the events section of LM Funding's investor relations website. Before we get started, please note that our remarks today may include forward-looking statements. These statements are subject to risks and uncertainties, and actual results may differ materially. We will also reference certain non-GAAP financial measures today. Please refer to our 10-K filing and our website for a full reconciliation of these non-GAAP performance measures to the most comparable GAAP measures. For a more comprehensive discussion of these and other risks, please refer to our filings with the SEC available on www.sec.gov and in the investor section of our website at www.lmfunding.com backslash investors. I'll now turn the call over to our CEO, Bruce Rogers. Bruce?

Thanks, Cody. Good morning, and thanks for joining us today. Since we entered the Bitcoin mining business in 2021, LM Funding has steadily advanced our strategy to become a successful participant in the digital asset sector. Our early focus was on an asset-light model to minimize initial capex by leveraging third-party hosting arrangements while we gain market insights and establish our operational footprint. Last year, through careful planning and execution, we transitioned to a vertically integrated model, one where we manage the infrastructure ourselves ensuring better margins and mitigating risks associated to third-party hosting agreements. Today, we own and directly manage our mining infrastructure with our inaugural 15 megawatt site in Oklahoma. This vertical integration reduces our fleet-wide energy costs and improves our operations for enhanced uptime and mining efficiency. Throughout our expansion, we have continued our commitment to disciplined OPEX control. By actively maintaining a low-cost structure, from power sourcing and infrastructure investments to staffing and equipment, we were able to successfully navigate a challenging year for the industry in our first Bitcoin halving event, which occurred in April 2024. This strategic cost control enabled us to achieve profitability in 2024 on a core EBITDA basis, as well as retain more Bitcoin on our balance sheet, which is a significant piece of our long-term strategy. By retaining a portion of our mined Bitcoin, we not only capture potential upside for our shareholders, but also deepen our alignment with the broader Bitcoin industry. This approach, combined with selective financing during advantageous market windows, helps us maximize value and ensure sufficient liquidity to fund future expansion. In terms of our financial and operational highlights, in 2024, we mined 170.6 Bitcoin, which generated approximately $11 million of revenue and $3.9 million in core EBITDA. This represents strong growth on the bottom line, as well as steadily growing our Bitcoin HODL balance to 150.2 Bitcoin at the end of December 2024, from 95.1 Bitcoin at the end of December 2023. At the end of February 25, we expanded our total energized hash rate to 560 petahash per second, and we held 165.8 Bitcoin on our balance sheet, which equates to approximately $2.81 per share as of Wednesday the 26th. We believe our current market cap relative to our Bitcoin holdings presents compelling value. As of March 26th, our share price of $1.49 per share reflects a market cap of $7.6 million. Yet our Bitcoin holdings alone are valued at $14.4 million, or $2.81 per share. This nearly 2x disparity between our market cap and Bitcoin holdings demonstrates a compelling opportunity, in our opinion, and values us at significant discount to our Bitcoin mining peers. As we look forward to 2025, our emphasis on vertical integration, disciplined cost management, strategic infrastructure expansion, and strong Bitcoin treasury remain crucial to our success. Our lean operations and strengthened balance sheet position us to capitalize on the evolving Bitcoin mining landscape. We plan to invest in next-generation mining hardware, energy efficiency initiatives, and strategic site acquisitions to grow our company. I'll now turn the call over to Ryan Duran, our president of U.S. Digital Mining, to review our operational highlights in more detail.

Ryan? Thank you, Bruce. The fourth quarter of 2024 was marked by significant operational achievements that support our ongoing vertical integration strategy. Notably, we acquired a 15 megawatt mining facility in Oklahoma, which represents a major step forward in our efforts to control our mining infrastructure. In line with our focus on operating efficiency, we placed orders for 256 new Bitmain S21 Plus mining machines. With these new generation miners, we're aiming to improve our fleet efficiency enabling us to mine more Bitcoin at a lower cost per coin. In Q1 2025, we partnered with Luxor Technology Corporation and installed their proprietary LuxOS firmware on our existing fleet. The new firmware will allow us to mine at higher margins and increase profitability without adding more machines or using more power. We expect the benefits from this upgrade to increase our mining efficiency by an overall 10 to 15%. Finally, as Bruce mentioned, we mined 170.6 Bitcoin in 2024 and have mined 16.1 through February 2025. I look forward to providing more updates as we expand in a cost-efficient manner. Our CFO, Rick Russell, will now provide a review of the financial highlights for the fourth quarter of 2024. Rick?

Thanks, Ryan. For the fourth quarter of 2024, we mined 21.7 Bitcoins. The average Bitcoin price during the fourth quarter was approximately $83,000, while the average price for the full year of 2024 was approximately $61,000. Total revenue for the fourth quarter of 2024 was approximately $2 million. This compares with $4.1 million for the fourth quarter of 2023. The year-over-year decrease in revenue primarily reflects the effects of the April 2024 Bitcoin halving event and moving mining machines into a storage until such machines became active at our Oklahoma site. Our direct mining margins for the fourth quarter were essentially flat to the prior year. We increased our operational efficiency year over year with staff costs, payroll, professional fees, and SG&A expenses down 18%. Fourth quarter net income attributable to LM shareholders was $2 million. an over 2.20% improvement versus a net loss of $1.6 million a year ago. The transition from total revenues to positive net income was primarily driven by the $4.3 million gains on fair value of our Bitcoin codings, which more than offset operating expenses. Lastly, our core EBITDA increased to $3.3 million this quarter, nearly 10x what we generated a year ago. Turning to our balance sheet, I'm pleased to report that our combined cash and Bitcoin holdings increased by 200% in fiscal year 2024. Our cash grew 40% to 3.4 million, while our Bitcoin holdings surged over 300% to $14 million. As of December 31st, 2024, we held 150.2 Bitcoin. Of our 14 million Bitcoin, 5 million sits in a custody account as collateral for the 5 million Seam secured loans. We believe our debt financing strategy differentiates us from competitors as we are bullish of Bitcoin's price momentum, which allows us to capitalize on positive arbitrage compared to traditional USD loans. Bruce will now provide some thoughts on our outlook and strategy heading into 2025.

Thanks, Rick. In conclusion, even as a relatively small player in the sector, LM Funding has demonstrated an ability to navigate industry volatility. With the recent halving behind us and our vertical integration strategy in practice, we're well positioned to capitalize on the opportunities ahead. Looking ahead, we're focused on acquiring greenfield and brownfield power assets in the 5 to 20 megawatt range, facilities that typically fall below the acquisition thresholds of larger operators. By targeting these opportunities, we continue to scale while maintaining our operational efficiency. Several key advantages underpin this approach. our lean cost structure, a healthy balance sheet, the flexibility to leverage Bitcoin-backed debt when favorable, and a willingness to pursue mergers and acquisitions aligned with our core objective of an efficient Bitcoin line. We believe this strategy will foster ongoing growth and generate lasting value for our shareholders. Thank you for your continued support. We're excited to advance into our next phase of growth and remain committed to driving LN funding toward even greater success in the digital asset space. I'll now turn the call over to the operator to take your questions.

Thank you, Bruce. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kevin Deedy with HC Wainwright. Your line is now open.

Good morning, gentlemen. Thanks for hosting the call and having me on it. I appreciate it. I was hoping maybe we could just make sure that the current operating stats are straight in my head. I mean, and whether or not that 256 new machines is included in the 560 pedash.

Kevin, this is Rick. Those new machines have not yet arrived, so they'll be added to it once they're installed.

Okay, so are there open sockets within the 15 megawatts? Are you deploying new boxes there, or are you just going to change out machines? How should we think about that?

We have space to add about Two more megawatts there is what we're looking at for sockets. Right now, all of our sockets there are filled.

Okay. So then the new machines are going to replace less efficient ones in those sockets then? Is that what you're thinking?

Well, we're looking to add the two megawatts fairly quickly and just Plug it in. Ah, okay, okay, okay.

What do you think is a good timeline for us to assume that happens?

I think, Ryan, do we have a thought on what it would take to get those two new containers in place?

Yes, Rick, we should... Kevin, we're looking at groundwork would be about three weeks, and it depends on infrastructure. That's going to be our holdup, but it should be within 90 days, no matter what.

Okay. Okay. Helpful. Thanks, gentlemen. I'm also wondering about your studies. I know there was some talk about opportunities in Texas, so maybe you could spend a little time updating us on where those things stand. Brian, why don't you respond to that?

Yeah, Kevin, I'm assuming we're referring to the, well, we've had a couple sites we've looked at in Texas. A couple of LOIs have been presented. None of them currently outstanding right now in the state of Texas. Okay.

Maybe a little more on the Luxor OS2 while I have you, Ryan. Did you deploy that across all your machines at this point? And you'll also be able to run it on your S21s?

Yes, it's deployed on all of our machines that are Calumet mining site. It is not on the machines that are mining at core. just to be clear on that. And yes, we can deploy those on newer machines as well.

Okay. Last question for me. Rick, on the secured loan, I guess what I thought I understood is that you see it, the way that you've structured that loan as an advantage. I know you guys are really good at that. Can you just run through the details on that for me? Sure. It's clear.

Please. Sure. The $5 million secured loan is used mainly to help pay for the hosting site that we just purchased the mining site in Oklahoma. And since that's a long-term asset, we think, you know, that's why we did a loan there versus liquidating our Bitcoin, which we think has more up, you know, to increase in value from where it is or at year end. Right. The loan is like 12% for two years. So we can either refinance that, you know, when the time comes or pay it off with hopefully higher Bitcoin balances.

Okay. So it's not, it's a function of value and not number of Bitcoin.

Well, it's secured by a $5 million Bitcoin as custody. And that would, the number of Bitcoin would free up if the Bitcoin price jumps to $50. It would, yeah.

Yeah. Okay. Okay. Thank you, gentlemen. Appreciate the insight and color. Thank you.

Thank you. Our next question comes from the line of Matthew Galenko with Maxim Group. Your line is now open.

Hey, good morning, guys. Thanks for taking my question. I wanted to go a little bit further into the pipeline for new data center and power assets. I know you touched on Texas, but are you beginning to evaluate other assets beyond that? And what sorts of megawatt capacity are you looking at? Maybe give us some sense of what you're seeing. Thanks.

Sure, Matt. Like we said in the presentation, we're looking at somewhere between 2 and 15 megawatts. We look at the main thing is the price of the electricity, and then the real important thing is the terms of the contract. So in Oklahoma, we're very happy with our situation where it treats us as a power provider, which allows us, when we curtail, to actually sell the unused power back to the grid. So it's that type of favorable situation that we're seeking in these smaller contracts that seem to have been left by the wayside. So there's a number of them out there, and we're kicking tires on each and every one we can find, and we'll have something else when we bring it to a definitive agreement.

All right. Thank you. And then maybe if you could touch on if there's any change or how you're, you know, Thinking about the AI opportunity in 2025, are you continuing to be exclusively focused on Bitcoin for your data center and power, or are there any discussions to diversify the use?

Thanks. We're focused on Bitcoin. We have looked at the AI proposition and simply do not see that We would have the capital lift necessary to build an AI facility. We don't have the customer reach to secure a customer for a Davis facility. We don't have the experience in running a Davis facility for AI. So that's off the charts for us. We view our customer in the world as being the grid and trying to position ourselves in the power market such that We either make money on the Bitcoin or we make money selling power back to the grid.

Great. All right. Thank you.

Thank you. And I'm currently showing no further questions at this time. Thank you for joining today's earnings call. You may now disconnect.