Q4 2023 LM Funding America Inc Earnings Call

Participants

Ted Ayvas; IR; Crescendo Communications, LLC

Bruce Rodgers; Chairman of the Board, President, & CEO; LM Funding America Inc

Richard Russell; Chief Financial Officer; LM Funding America Inc

Kevin Dede; Analyst; H.C. Wainwright & Co. LLC

Jack Richardson; Analyst; Express Center

Presentation

Operator

Good morning, everyone, and welcome to the LM Funding America's Fourth Quarter Business Update Conference Call. (Operator Instructions)
It is now my pleasure to turn the floor over to your host, Ted Ayvas. Sir, the floor is yours.

Ted Ayvas

Good morning. And thank you for joining LM Funding America's 2023 financial results and business update conference call. On the call with us today are Bruce Rodgers, Chief Executive Officer; and Richard Russell, Chief Financial Officer of LM Funding.
This morning, the Company announced its operating results for the fourth quarter and year ended December 31st, 2023, 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 annual report on Form 10-K with the US 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 year ended December 31st, 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 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 US 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. Our 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 Bruce Rodgers, Chairman and CEO of LM Funding.

Bruce Rodgers

First, thanks to 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 and for joining us this morning. I'm proud to report that our business is firing on all cylinders and our strategy is working as evidenced.
Let me walk you through a few key metrics. First of all, we mined 423 Bitcoins in 2023 valued at approximately $12.3 million and an average market revenue value of approximately $29,000 per bitcoin. Obviously, with Bitcoin market prices recently at near record highs of approximately $70,000. We believe that this validates our strategy.
Second, our revenue grew over 600% versus last year, which was based on an average $29,000 bitcoin price for 2023, which is now substantially higher. Additionally, we reported positive core EBITDA for the fourth quarter of 2023, a major milestone for the Company last and possibly most important, I'd like to highlight the fact that we have stockholders' equity of $36.2 million or $14.52 per share as of December 31st, 2023. We believe we are creating value for shareholders. If you give us absolutely no value for future growth.
Our stockholders' equity per share is roughly four times our current stock price. We are clearly executing our strategy and remain committed to delivering value for our shareholders. We also believe that as we start to get our story out the intrinsic value of our company will be more accurately reflected in our market share price in 2023, our first full year as a bitcoin mining company, we've made tremendous progress in implementing our approach to mining Bitcoin. As of December 31st, 2023, our Bitcoin mining operations included about 5,900 mining machines actively engaged in mining at various hosting facilities, providing approximately 614.5 per second of mining capacity company held approximately 95 bitcoin on December 31st, 2023, valued at approximately $3.4 million mining activity from January and February of this year brought that total to approximately 154 bitcoin held on February 29th, 2024, valued at approximately $10.8 million based on the recent bitcoin price of approximately $70,000. In December 23, we sold Symbion's blockchain technology, which we had acquired earlier in 2023 as debtor-in-possession in Symbion's Chapter 11 bankruptcy case, we sold for $2 million to Platonic Holdings, Inc.
This transaction provided the company with additional capital to grow our Bitcoin business Additionally, the transaction provided the company with additional working capital to strengthen our balance sheet. As most people likely know, Bitcoin halving is an event where the reward for mining new bitcoin box is cut in half resulting in miners receiving 50% fewer Bitcoin for verifying transactions. Having is built into the bitcoin algorithm and designed to limit the supply of new Bitcoin is anticipated. Next halving event will occur in late April or early May of this year. In anticipation of the upcoming halving event, the company has invested approximately $1.1 million in acquiring 300 Bitmain S. 21 and minor units. These machines are known for their high efficiency and substantial hash rate capabilities, specifically designed for mining, the change to 56 algorithms each unit, both the hash rate of 200 terabits per second, while consuming 35 hundred watts of power, we expect the delivery of the machines by the end of March or early April and plan to locate energize and commence mining with them by mid April, which may increase the Company's mining capacity to 674 per ounce.
Second, we remain committed to investing our resources, including the proceeds from our Bitcoin mining activities towards acquiring the most efficient bitcoin mining hardware in the market. We are confident that the S. 21 machines will stand out as top performers during this year's halving event and will continue to play a significant role in driving revenue growth over the long term.
Including through and beyond the next halving event, we anticipate take place sometime in 2028. We are concentrating our capital investments on Bitcoin and Bitcoin mining machines, whose value closely follows that of bitcoin itself. However, we are open to investing in opportunities to lower our mining costs and to eventually provide hosting facilities for artificial intelligence machines. If historical patterns continue and expected events materialize. As predicted, we expect to create meaningful value for shareholders. This value creation is expected to mirror both the appreciation of our Bitcoin holdings as well as the enhanced value of our mining equipment. In addition to the purchase of the S. 21 mining machines, the company has upgraded approximately 1,000 of its mining machines with brains glass plus software. This is testament is anticipated to boost the hash rate of these machines and improve efficiency by as much as 20%. As a result, this improvement should lead to an increase in the number of bitcoin that the company can mine and an increase in the profitability using these upgrade machines, an additional benefit of utilizing brains O S plus software for Bitcoin mining is that machines equipped with this software have the flexibility to mine with any pool or specifically with the brain pool without incurring any pool fees to bring 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 see opportunities in the future to grow this business from demand from reserve funding requirements and actually in response to the collapse of the seaside tower itself, Florida, we continue to be extremely frustrated by the considerable disparity between our stockholders' equity, which, as I stated earlier, was valued at $36.2 million or $14.52 per share as of 1230 first, 23 in the recent trading price of our shares at around $3.66, which represents a discount of around 75% from book value. Although we acknowledge the ongoing issues affecting the micro-cap market. Our outlook for the business has never been more optimistic. Our optimism is rooted in our dedication to achieving strategic objectives in enhancing our Bitcoin mining activities in a prudent manner, which we believe will eventually be recognized by the market.
On that note, I would like to turn the call over to Rick Russell, Chief Financial Officer of LM Funding, who will review the financial results for the year ended December 31st, 2023.

Richard Russell

Thanks, Bruce, and good morning, everyone. Total revenue for the quarter ended December 31st, 2023 was approximately $4.1 million, an increase of $2.9 million or approximately 262% compared to $1.1 million for the fourth quarter of 2022. Total revenue for the year ended December 31st, 2023, was approximately $13 million, an increase of $11.3 million from the $1.7 billion in 2022. These increases were primarily due to digital mining revenue of $3.9 million and $12.3 million for the three months a year ended December 31st, 2023, compared with $0.9 million for both comparable periods in 2022.
As the company commences our Bitcoin mining operations in late September 2022. The average bitcoin price for three months and year ended December 31st, 2023, were recognized as revenue was approximately $36,500 and $29,000, respectively.
Operating expenses totaled $23 million for the year ended December 31st, 2023, compared to $26.4 million for the year ended December 31st, 2022. The decrease is primarily due to a $13.6 million decrease in staff costs of payroll and a $1.3 million decrease in professional fees, partially offset by an $8.4 million increase in digital mining costs and a $4.5 million increase in depreciation as compared to 2022.
Net loss attributable to LM Funding shareholders for the three months ended December 31st, 2023, was approximately $1.6 million, which included a $500,000 non-cash unrealized gain on investment in equity securities compared to a net loss of approximately $19.7 million for the 2022 comparable quarter, which included a $6.6 million non-cash unrealized loss on investment in equity securities and a $4.9 million impairment of various OT assets.
Net loss attributable to LM Funding shareholders for the year ended December 31st, 2023 was approximately $15.9 million, which included a $9.8 million noncash unrealized loss on investment in equity securities compared to a net loss of approximately $29.2 million for the year ended December 31st, 2020, which included a $4.4 million non-cash unrealized gain on investment in equity securities, a $4.9 million impairment loss on various hosting assets. Core EBITDA was positive for the three months ended December 31st, 2023 which totaled approximately $0.3 million compared to a core EBITDA loss of $2.8 million in the prior year's comparable quarter. Core EBITDA loss for the 12 months ended December 31st, 2023, totaled approximately $0.2 million compared with core EBITDA loss of $6.5 million in 2022. The improvement in core EBITDA for the three and 12-month period ended December 31st, 2023 was primarily due the existence of material bitcoin mining operations in the current year that did not exist in the prior year. Core EBITDA is a non-GAAP financial measure and a reconciliation of core EBITDA to net loss can be found in our press release.
Turning to our balance sheet cash was approximately $2.4 million of digital assets at $3.4 million in working capital of $7.4 million as of December 31st, 2023 based on 95.1 bitcoin at a price of approximately 36,000 as of December 31st, 2023. The current bitcoin market prices fluctuated recently was around 30,000 in recent weeks. In 2023, the company also received approximately $2.7 million from CCR Medical Holdings as a partial repayment of the outstanding note receivable, total ELAM funny stockholders' equity was approximately $36.2 million of $0.1452 per share as of December 31st, 2023.
That concludes our prepared remarks. I would now like to open the call for questions. Operator, could you please assist us with that?

Question and Answer Session

Operator

(Operator Instructions) Kevin Dede from H.C. Wainwright.

Kevin Dede

Good morning, Bruce, Rick. Thanks so much for having me on. Can you hear me guys?

Bruce Rodgers

Yes, very good.

Kevin Dede

Okay. Listen, congrats. Congrats on all the mining improvement over the year. Appreciate the hard work that you've put in on that.
A couple of questions. I guess the if you'll allow me the 300 new machines, I think you'll need what about a megawatt for those. Can you can you give me some insight on where you think you're going to put them if you think you're going to replace existing plugs and that brings your total pet hash to almost 700 if you keep everything you have. And then maybe some insight on the on the Brink software, your fleets a lot larger than the, I guess, the amount of seats that you've bought.

Bruce Rodgers

So maybe give us some thinking on that sure on the three new machines are going to come over at core from 33 to that. And we also had an addendum to our contract to bill or put up to 1,100 new machines at core if we wanted, we're going to actually take those three machines out of core right now in taking over Giga and GIG is where we run our brain software and they have about 2,100 machines right now. And so we'll move those 300 machines over there and they will be running the green software Q1 that run brands.

Kevin Dede

Okay, that that helps. Thanks. So no, no retirement, just some moving around?

Bruce Rodgers

Correct.

Kevin Dede

Okay. I understand you sold Symbian and understand that you received a partial payment on SeaStar. Can you offer a little bit more color on where you stand with SeaStar? What's what's left and how are you looking at that investment through the course of this year.
And maybe, Rick, you could touch on I mean, I looked at the core EBITDA reconciliation in the press release, but it doesn't really point to the lines of business that you're considering core.

Bruce Rodgers

Okay. So for SeaStar, we received all the cash that was on the inter-company loan so far on, I think all the way through this year. So from that. Now receivable is all fully paid down as opposed to ARM core.
And let me backup in proceeds to our we have our common stock with them. So we'll see how that investment continues. We believe it's still a solid investment. There are certainly progressing on getting more hospital studies and FDA approval. And for core again, what was the question. I'm sorry.

Kevin Dede

Yes, no, no, I think that kind of summed it up, right, because right now as it is, you're just holding outstanding SeaStar stock. Can you remind us of how much that is, but it's operations aren't flowing through your P&L at all?

Bruce Rodgers

Correct.We own about 2.6 million shares on CTR with about being trading between $0.70 and $0.80 right now, we also have approximately 5.7 million warrants, which I believe are being traded. The public warrants, which are similar to ours, are being traded on $0.14 per share.

Kevin Dede

Yes. Okay.

Bruce Rodgers

Three stores almost $0.08 right now.

Kevin Dede

Okay. Given you know for as long as I've known you, I don't know that you've had as strong a financial position in the past. So I'm just sort of wondering I'm wondering how you're thinking about.
No, I understand the main purchase, but I'm wondering just maybe a little insight on how you're looking at the balance of the year and what other commitments you might make in terms of growing your hash rate, Brazil and China?

Bruce Rodgers

Yes, we are going to continue to hold bitcoin into buy efficient machine were ever excess proceeds. We have we may find some opportunities to go vertical and depart from our infrastructure light plan. If we can find few megawatts at a really good price, reduce and control. We probably would do that on the that's where we're pointing for the balance of the year.

Kevin Dede

Okay. Thanks, Bruce. That helps. I'll pass the I'll pass the floor. Thank you very much for entertaining my question.

Operator

[Jack Richardson, Express Center].

Jack Richardson

Yes, can you hear me?

Bruce Rodgers

Yes, good morning.

Jack Richardson

Thank you. Thank you for the call, Bruce and Richard, some very good presentations. Just a couple of questions. I didn't get the name of the first caller, but he answered several of them. Roger, you mentioned you have 59 hundred active rigs. Is that correct?

Richard Russell

More or less. Yes, approximately more than we know which ones are run and they did that did not meet and understand that are most of those rigs I call them rigs, are they S. 19 now?
We do have some expertise on some new mixes.

Jack Richardson

Okay, that's good. Jay, have you have a chart or a spreadsheet of your mix, just not like a view that's public. I don't know. I'm just trying to I'm just trying to get a balance of what you have there the nineteens, the SPs and now the S. 21 in May, we disclosed the yes, we have Rob Lee.

Richard Russell

No, yes, as we always do later, I answered that we have to look at what we've published.

Jack Richardson

Yes, in parallel, and I am not looking for exact numbers here and I'm not a whole minute, but anything I want to thank my dear We embrace surely a multicarrier, but the plaintiff's lawyers only had like numbers that we have about.

Bruce Rodgers

We have ballpark around fiber expertise. Okay. And then we and then you've got a bit. And so the balance would then be more or less as nineteen's. Yes, if you want me one more minute and then you've got there's 20 watts.

Jack Richardson

Okay, that answers my questions. Okay. Well, Rick, I your last reported quarter is it is we're talking about Q4 2023. What is the balance? What is the balance? What is what is the company hold holding in inventory for Bitcoin right now, what does that number?

Richard Russell

So we reported at the end of February, we had 900 bitcoin that they have been okay. In February and December is a nice day during this, whatever 95 ish in May. We've mined about 80. I think the big point the first two months of this year. So you can kind of calibrate what that may be through the first quarter.

Bruce Rodgers

Got it. Okay.

Jack Richardson

That again, if it was my question, thank you.

Bruce Rodgers

You see in 2024. I see now I do you have any plans for any further purchases of the S 20 one's after this 300 that comes that we're looking at additional investments above at $0.21 for a possible small hosting joint venture, either there's something worthwhile 80 megawatt price. So we've got another big point that that we have is a good opportunity for us. So we have the opportunity because we're improving business.

Richard Russell

We don't go to brokers. So if we the name provides opportunity sometimes to buy machines, discounts to market and with rebates and things like that. So there's always the opportunity when you can buy for to put together groups and do things to purchase and that we don't have anything on the table right now?

Jack Richardson

And then my last question, and thank you. Everything is getting answered very efficiently by the way here on has anyone JOHN a breakeven rate on, let's just stick with the S nineteens. Has anyone done a breakeven rate on the S. 19? Regarding I mean, how much?

Richard Russell

So obviously, you're going to breakeven rate on everything, but there's two important variables. What is the price of bitcoin was the price of the electricity foot.
And then on the underwriting and the bottom line, I agree. So yes, we run that all the time. I think that generally publish information out. There would tell you that the nineteens are having teed up and the price of bitcoin in the 70s. I think it's just the most people are right at the cutting edge of what those things are breakeven or losing, depending on where the power contracts are. And that's to be expected.

Jack Richardson

I agree. And again, you're you've answered the question spot on in a roundabout way. The I remember I was on a you may or may not remember, I was on a call maybe to six months ago, two quarters ago, maybe in any event you Rick had told me that that on average you're paying about $0.085 ish on on hosting fees per kilowatt at this point, I just kind of want to confirm that number, if it's gotten any better or not so a little bit better.

Bruce Rodgers

So it's a little bit lower, but and we're working to look at options a little that's more.

Jack Richardson

Okay.

Richard Russell

And also remember, hosting involves the guy with the screwdriver, the build in the rack, the land and electricity, a lot of folks you quoted there are electric price. We've got a total of really two guys that run the Bitcoin mining business. And you can do that because we're paying a little more than $0.08 to get the marginal cost of oil into.

Jack Richardson

Yes. Yes, I agree. I agree. Just as a side note, when you do get a failure on our on a bit main product, it does that it does element they have to pay to get those fixed or is a hosting and the host are paying for that hardware fix physical hardware generally.

Bruce Rodgers

Yes, certain period of time where there's a bidding war to that drag on us and we generally are hosting partners are able to get full spectrum.

Jack Richardson

Okay. All right.So there they generally can go fix them pretty easy then pretty cheap. That's already out design yet. So it's still I know I'm not trying to put words in your mouth, but what I'm hearing.

Bruce Rodgers

It's not a big deal basically.

Richard Russell

Yes, it's not a huge line-item expense.

Jack Richardson

Okay. Okay. I'm good. Thank you all. I'll turn it over to the next person. Thank you, guys.

Operator

Thank you. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks. Please go ahead.

Richard Russell

Thank you to everyone for joining our 2023 financial results and business update conference call. Our company's transition towards bitcoin mining is clearly working as we continue to experience encouraging results. We remain 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 with the price of bitcoin reaching record high of approximately $74,000 earlier in March 2024 and currently trading at approximately $70,000. Our belief in the long-term value of Bitcoin as an asset class has never been stronger. We believe the momentum with which we ended 2023 will continue to accelerate as we acquire and electrify more mining machines in 2024 and beyond. For thankful for the ongoing support of our shareholders and we'll continue to provide updates on our progress as new developments emerge. Thank you again for attending our call.

Operator

Thank you, everyone. This concludes today's event. You may disconnect at this time. And have a wonderful day and thank you for your participation.