Participants
Ted Ayvas; IR; Crescendo Communications, LLC
Bruce Rodgers; Chairman, CEO & President; LM Funding America, Inc.
Rick Russell; CFO; LM Funding America, Inc.
Matthew Galinko; Analyst; Maxim Group, LLC
Michael Donovon; Analyst; H.C. Wainwright & Co.
Jack Richardson; Shareholder; Expressway Center
Presentation
Operator
Greetings. Welcome to the LM Funding America, Inc. second 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. (Operator Instructions) Please note that this conference is being recorded.
I will now turn the conference over to your host, Ted Ayvas. You may begin.
Ted Ayvas
Good morning and thank you for joining LM Funding America’s second quarter 2023 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 quarter ended June 30, 2023, and our financial conditions 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 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 quarter ended June 30, 2023, and its financial condition as of that date, we’d 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 United States Securities and Exchange Commission on March 31, 2023. 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 these 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 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 direct comparable GAAP measure is available in today’s news release on our website.
With that, I will now turn the call over to Bruce Rodgers.
Bruce Rodgers
Thanks, Tedd. Good morning and thanks to everyone for joining us today. On behalf of the LM Funding team, I want to thank our shareholders for their continued patience with our share price through much of the second quarter. Our company made significant progress in the second quarter towards our Bitcoin mining and other objectives in furtherance of our strategic plans. We believe our strategic plans for our businesses will lead to considerable value for our shareholders.
At June 30, 2023, we had approximately 5,230 mining machines electrified at hosting facilities and actively mining bitcoin. During the quarter ended June 30, 2023, we mined 106.6 bitcoin, a sequential increase of 16% compared to 91.6 bitcoin mined in the first quarter of 2023 at an average market revenue value of $27,900 per bitcoin.
The current bitcoin price has been higher and has fluctuated between $29,000 and $31,000 over the last several months. As of August 14, 2023, we have approximately 5,950 mining machines fully operational and mining, providing approximately 615 petahash of mining capacity.
Looking ahead to the next bitcoin halving event, projected to occur in 2024, our goal is to continue to procure more energy efficient mining machines to boost our mining capacity and lower our average joules per terahash costs.
In July, we announced that the company had installed Braiins OS+ software on 360 of its mining machines. We expect this to increase the hash rate on these machines by as much as 25%, which should lead to an increased number of bitcoins that we can mine.
In addition to increasing hash rate, there’s further advantage to mining bitcoin with machines operating Braiins OS+ software as machines equipped with this software may mine with any pool or mine with Braiins pool without having to pay pool fees to Braiins. We believe the best use of our capital is to increase hash rate production through the purchase of additional miners, enhancements to their hashing capabilities.
We pivoted our focus to bitcoin mining with the purchase, delivery, and energization of our first miners completed at the end of 2022. We mined 53.4 bitcoin in 2022, 91.7 bitcoin in the first quarter of 2023, and 106.6 bitcoin in the second quarter of 2023.
Since the beginning of Q1, we have increased our mining capacity from 3,000 mining machines to 5,950 mining machines, generating 615 petahash. We believe our stock price should better reflect the growth in our bitcoin mining business since the beginning of 2023.
A significant highlight from the recent quarter was our successful $2.6 million Stalking Horse Bid leading to the acquisition of Symbiont, Inc’s assets, including its flagship product, the Assembly financial services block chain enterprise platform.
Assembly was developed for financial institutions to handle the issuance, tracking, and management of various financial transactions such as loans, investment contracts, and securities on a shared blockchain. This acquisition affords us entry into the smart contracts business with an advanced technology offering developed for real customers. We are currently in dialogues with technology partners to license, develop, and sell our Symbiont assets and expect to announce further developments this quarter.
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.
In summary, we find it puzzling that such a substantial discrepancy exists between our stockholders’ equity of $39.9 million, equivalent to $2.72 per outstanding share as of June 30, 2023, and the recent trading price of our shares at $0.70 per share. This represents a 75% discount to book value.
While we are mindful of the broader weaknesses in the stock market, especially within the microcap market where we suffered disproportionately, we remain optimistic that by diligently executing on our strategic plan, mining more bitcoin, and monetizing the Symbiont assets, we can narrow this valuation gap.
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 ended June 30, 2023. Rick?
Rick Russell
Thanks, Bruce, and good morning, everyone. Total revenues for the three months ended June 30, 2023, increased by $3 million to $3.2 million from $235,000 for the three months ended June 30, 2022. Furthermore, we have experienced strong sequential quarterly revenue growth of more than 38% compared to the first quarter of 2023. Revenues for the three months ended June 30, 2023, include digital mining revenue of $3 million due to the mining of 106.4 bitcoins in the second quarter of 2023, whereas there was no mining for 2022 comparable quarter.
Operating expenses totaled $6.4 million for the three months ended June 30th, 2023, compared to $5.6 million for the three months ended June 30, 2022. The $1 million increase is primarily attributable to $2.4 million increase in digital mining costs, a $1.3 million increase in depreciation, partially offset by a $1.9 million decrease in stock compensation and $700,000 decrease in professional fees as compared to the second quarter of 2022.
For the three months ended June 30, 2023, the net loss attributable to LM Funding shareholders was $4.5 million, which included a $3.7 million non-cash unrealized loss on investment in equity securities compared to net income of $2.8 million for the second quarter of 2022, which included $12.2 million unrealized gain on investments in equity securities.
Core EBITDA for the quarter ended June 30, 2023, was $1 million compared to a core EBITDA loss of $2.3 million in the 2022 comparable quarter, primarily due to our bitcoin mining operations and the gain on adjustment of Symbiont note receivable allowance.
Turning to our balance sheet, we ended the quarter with $1.8 million cash, bitcoins worth $2 million, and working capital of $5.5 million, which we believe provides us with sufficient liquidity to execute on our current bitcoin mining strategy. In addition, we had minimal long-term debt and ended the quarter with stockholders’ equity of $39.9 million or $2.32 per share.
Finally, net cash used by operations were $330,000 during three months ended June 30, 2023, compared to net cash provided by operations of $334,000 for the three months ended June 30, 2022. This change in cash used in operating activities was primarily driven by the difference between bitcoin mining revenue received in non-cash consideration, i.e., bitcoin, as compared to [that of] mining bitcoins, liquidate [support] operations in three months ended June 30, 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
Certainly. At this time, we will be conducting the question-and-answer session. (Operator Instructions) Matthew Galinko, Maxim Group.
Matthew Galinko
Can we start with maybe a little bit more on your thoughts looking into the halving event next — expected for next year? Is the — maybe talk a little bit more about your strategy going into that or maybe how you see that playing out?
Bruce Rodgers
Sure, Matt. Well, from a 50,000-foot view, the halving means that basically half the machines will probably fall into level of unprofitability worldwide. So you want to be at the top end of the efficiency curve there, which is why we’ve focused our purchases — most recent purchases on XPs. And before that, we had SJ Pros or the 19J Pros.
Then we’ve — we are a infrastructure light plan, so we host with other people and we have spread our hosting contracts around. And we have our hosting contracts coming due around the period of the halving because in the past, there have been sort of a rejiggering period after the halving where things goes sideways before the supply and demand curve discrepancy created by the halving kicks in and the price goes up.
So our infrastructure light plan is to stay with lean and fast machines. Keep our joules per terahash low and have our contracts be in position that we can renegotiate, should the halving produce different economics on the go forward.
Matthew Galinko
Got it. Thanks. And then maybe touching on the implementation of Braiins on a subset of your mining equipment, is that something you expect to bring across the fleet or what — I guess, what’s the timing on rolling out more broadly optimization strategies like that?
Rick Russell
So this is Rick Russell. On the Braiins software, the bulk of our fleet is with core. And generally, we don’t run Braiins on those machines. But we do run it at our other hosting GIGA, and it works a lot, I think, in the Texas environment where there’s a lot of adjustments to the power usage going on. But it won’t be a rollout throughout the entire fleet.
Matthew Galinko
Got it. And then on Symbiont, I think you mentioned you might — you’re hoping to announce something in the next few months. So I guess what’s your sense since closing that acquisition? Are things going sort of according to plan or how — could you help us with a little bit more color on how that’s going.
Bruce Rodgers
So we’ve learned an awful lot about what it is we’ve acquired and both on its functionality and features, which seem to be more robust than what’s out there in the marketplace, and that seems to be encouraging and attracting a lot of attention. We’ve learned some criticisms of the technology. Some of it was done in a proprietary manner that if you can rule the world, might work great, but maybe converting it to open source would be better.
And so everyone believes that for the different uses that we’re looking at in the different projects that we’re talking to people about, believe that there’s a level of CapEx going to be required to commercialize this for the customer base that they’re targeting. And of course, all those things require money and money requires negotiation and different interests and different objectives for use of the technology. So it’s going great, it’s just hasn’t revealed itself as to how it’s going to go.
Matthew Galinko
Got it. Okay. Maybe, I think, last question for me is on plans for fleet, I guess, evolution on the mining side. Do you expect to just be in a steady state from the next few months going into the halving in terms of the size of the fleet? And if you have any failures, you’ll replace them with higher-efficiency units or what’s the thinking there?
Bruce Rodgers
To the latter part, yeah. We’re buying machines to replace and increase efficiency. Our executive comp plans are all incentivized to get us to one exahash. So everybody from Rick and I, down to the guys those are out at the mines in Texas looking at broken machines today are motivated to do that. And so there’s a combination of finding machines at the right price, hosting at the right price, and deploying capital to do so. And so we’re constantly working on that. It’s the right time to be acquiring machines. We are just looking at our best sources of capital to do so.
Operator
(Operator Instructions) Kevin Dede with H.C. Wainwright.
Michael Donovon
This is Michael Donovon calling on behalf of Kevin Dede. I’m just hoping to get a bit more color on your fleet. So you mentioned, again, to one exahash — so how much are you planning to invest in purchasing new machines? And then also, do you have any specific sites in mind for expanding hosting agreements? Or are you pretty content with your providers on that front right now?
Bruce Rodgers
So the first question, we haven’t released any guidance on the — to talk around the question, obviously, machines cost a certain amount of money to get that one exahash. And Bitmain offers coupons and incentives to their better customers that keep piling up for us. And then there’s the amount of bitcoin we have on hand that we could sell and then turn those into machines. The amount of cash we have on hand that we’re willing to operate without.
And then we’re always looking at our capital markets and our stock and hoping that we will respond well this earnings call and provide some opportunity there. So that’s the status — sources of ways that you can buy machines. You can also borrow money, but we’re very reluctant to leverage our position much.
And then as for your hosting question, we are pursuing a geographically dispersed hosting plan so that our CapEx isn’t tied up into transformers and land and buildings and things that don’t equate to the actual coin mined when it’s mined. And then by being geographically dispersed, you get politically dispersed with that as well as power source dispersed.
And although we like all the people that we’re currently mining with and are always asking them for more space, we’re also open to going and seeing new sites and new technologies and new ways to mine. That’s why these guys are racking up so many frequent flyer miles [for me].
Michael Donovon
That’s helpful. With regard to Symbiont, I guess we’ll have to wait for your announcements there. So a bit more of an esoteric question on, are you going to stick with the current branding of Assembly or are you going to look to re-brand Symbiont’s individual assets?
Bruce Rodgers
I don’t know the answer, but I know that I am not the one that’s going to make that decision. We’re surrounding ourselves with some very, very successful tech savvy people that have their own views on those things, and I think we’d be better to defer to those.
Michael Donovon
Makes sense. In terms of the regulatory landscape, what sort of feedback have you received in terms of how Symbiont’s assets can play into the current regulatory landscape?
Bruce Rodgers
I’m unaware of any regulatory landscape effects on Symbiont’s assets. Could you elaborate on your question?
Michael Donovon
It’s more of just a general question about in terms of crypto and blockchain in general, specifically in the US versus, say, Europe. Europe’s MiCA regulatory regime that’s being put in place right now. Just at a 50,000 square foot level, are you feeling optimistic about the landscape, or do you see some things need to change before Symbiont’s tech can really take off?
Bruce Rodgers
So we’re bitcoin miners at heart. In the regulatory environment, for being a bitcoin miner, it kind of keeps getting clearer and clearer. We’re a commodity, I guess, we’re not going to be treated as security. There’s not a lot changing for us. What we’re really hoping will change, they will be on the accounting side. We need [vendor] to come out and allow us to mark this thing to fair market value each quarter rather than to its lowest trading point and keeping it impaired. But I think that the guidance on that, it’s just a matter of time until it gets approved. There’s really not much for resistance there.
On our Symbiont asset, it doesn’t — it was designed as a blockchain for private use among financial institutions. And so it never really had a look towards the tokenization and some of the things that the exchanges have run into with issuing coins and such like that.
Now, it’s a very robust blockchain, it could be turned into a public blockchain, but we would be — we need to see a regulatory path for us to be able to pivot that thing to a public tokenization. But yeah, it’s very interesting if that path can present itself to having a license security and a registry rather in a exchange it traded on, that would interest us.
Operator
Jack Richardson, Expressway Center.
Jack Richardson
This is — I am a stockholder. This is my very first conference call of this matter. I just have a — really just one question, and please tell me if this is proprietary or not, I will not be offended. Question is, what is the average cost per kilowatt for power, including hosting fees?
Rick Russell
Well, it includes all service fees and it’s around (technical difficulty)
Bruce Rodgers
And again, that’s a charge for the kilowatt. The real estate entity, the rack that the machines fits on and somebody walking around with a screwdriver fixing (technical difficulty).
Jack Richardson
That maintenance and real estate and — does that include [maintenance].
Bruce Rodgers
We do everything in construction line, so it’s kind of an all-in cost.
Jack Richardson
Okay. So when a machine goes down, you can fix it, is that correct?
Bruce Rodgers
That’s our — that’s how we set up our hosting.
Rick Russell
That’s correct.
Jack Richardson
And what or — in your presentation, you had mentioned your net number of miners as of couple of days ago to August. What is that number, again?
Rick Russell
I believe it’s like 5,900, it’s changed.
Jack Richardson
5,900 and changed, okay. Alright.
Bruce Rodgers
It’s just we have a mix of XPs that’s about 615 petahash.
Jack Richardson
Okay. And I guess a follow up question is, I assume that all the rigs and element, they are hosted?
Bruce Rodgers
Yeah.
Jack Richardson
Yeah. But somebody or another. Okay.
Operator
This does conclude the question-and-answer session and I will now turn the call back over to management for any closing remarks.
Bruce Rodgers
I’d like to thank everyone for participating in our 2023 second quarter conference call. The company’s pivot to bitcoin mining has been successful to date. We continue to reinvest our mining revenues to purchase additional mining machines debt-free as well as adding cutting edge software designed to improve the hash rate of our existing mining machines. We continue to believe in the long-term appreciation of bitcoin as an asset class, we believe the most efficient way to invest in Bitcoin is through the purchase of highly efficient mining machines.
In summary, we’re extremely pleased with the progress we have made during the second quarter of 2023 and believe the momentum of our transition to bitcoin mining accelerate as we continue to acquire and electrify more 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 for joining us today and for your questions. We look forward to speaking to you soon.
Operator
This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
