LM Funding America Inc (LMFA) 2022 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to LM Funding America's second-quarter 2022 financial results and business update conference call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Mr. David Waldman of Investor Relations. David, over to you.

Good morning, and thank you for joining LM Funding America's second-quarter 2022 conference call. On the call with us today are Bruce Rodgers, Chief Executive Officer, and Rick Russell, Chief Financial Officer of LM Funding. This morning, the company announced its operating results for the quarter ended June 30, 2022, and its financial condition as of that date. The press release was 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 second quarter of 2022 and the company's financial condition as of June 30, 2022, 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 positions, 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 several risks, uncertainties, and assumptions as described in the company's Form 10-K filed with the US Securities and Exchange Commission on March 31, 2022. 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 and 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.

With that, I'll now turn the call over to Bruce Rodgers. Please go ahead, Bruce.

Thank you, David, and thank you, everyone, for joining us today. I will speak quite a bit more slowly than that. We're excited to begin to be again hosting earnings calls and look forward to hosting these calls every quarter to keep our investors regularly updated on our progress. I'm pleased to report that we are successfully executing on our Bitcoin mining strategy, which began in late 2021. We've already placed nearly 2,900 of our mining machines that we committed to purchase last year at a facility with Compute North, a multi-state data hosting company. In addition, we are currently on track to have over 5,000 miners operational by the end of the fourth quarter, which would provide us a capacity of approximately 504 petahash.

In 2021, we negotiated a contract to purchase mining machines with our mining machine supplier, containing variable pricing terms pegged to the price of bitcoin. The price of Bitcoin has declined since contracting to purchase these machines, leaving us with more than $2 million in rebate credits, which would significantly improve our return on investment on these machines.

Based on the current price of Bitcoin, we would expect the machines we have already purchased, once fully operational, would generate approximately 820 Bitcoins on an annualized basis, which we could hold or we can reinvest in additional miners. Overall, we believe the volatility in the market has created significant opportunities for us to acquire distressed assets at attractive prices. But regardless of bitcoin pricing, we plan to maintain our disciplined approach of opportunistically purchasing and cost-effectively operating bitcoin mining machines in order to maximize long-term value for our shareholders.

We believe we're in the right place at the right time, with a very solid and sustainable business model capitalized on our growth opportunities in the bitcoin mining sector. In terms of our legacy business, providing funding to non-profit community associations, the business remains stable, unaffected by current macroeconomic challenges. But in terms of our priorities, we're really putting the major emphasis and directing the bulk of our resources toward the bitcoin mining business, which we believe has the potential to really transform the company over the coming quarters and for years to come.

Once again demonstrating our ability to leverage our experience in specialty finance and capital markets to drive value for shareholders, I'm pleased to provide an update on LM Funding Acquisition Opportunities, Inc., or LMAO for short. The special-purpose acquisition company we formed with another [humorous] ticker symbol in which we serve as the sponsor and the founding shareholder. Specifically, we continue to make steady progress related to the proposed merger of LMAO with SeaStar Medical, which was announced in April. Based on the progression of the pending merger, we reassessed the value of LMAO as of June 30, 2022. Based upon our third-party appraisal report, we recalculated the fair value of our interest in LMAO and recognized an unrealized gain on securities of $12.2 million for the three months ended June 30, 2022. Aside from the short-term financial impact of this transaction, we are more excited than ever about the potential of SeaStar to unlock significant value for our shareholders.

Prior to announcing the SeaStar merger, we evaluated numerous merger candidates and conducted extensive due diligence. SeaStar stood out with strong financial support from Dow pension fund and an accomplished management team. By way of background, SeaStar Medical is a medical technology company developing proprietary solutions to reduce the consequences of hyper-inflammation on vital organs with an innovative immunomodulatory platform for pediatric and adult acute kidney injury, as well as other programs for acute and chronic inflammations, including conditions associated with COVID-19.

Patients battling inflammation today have limited options, and this platform provides a therapy that not only stops hyper-inflammation, but also helps the body heal. Further reinforcing our confidence in the market potential for their patented selective cytopheretic device, or SCD, was the fact that Dow pension plans was an existing investor in SeaStar Medical, is willing to further invest in a pipe for this transaction, and will be represented on the combined company's Board of Directors.

In short, since announcing the planned merger, we believe the progress SeaStar has made is a significant validation of our selection. Just this past May, SeaStar announced a major milestone that the FDA had granted their SCD breakthrough device designation. More recently, they announced that the SCD was successfully used in a pediatric patient with HLH, a severe systemic inflammatory syndrome that can be fatal, and I can't pronounce. The fact that this device could help young and such critically ill patients further reinforces our confidence in the market potential for SeaStar. We remain on track to close the proposed transaction in the second half of 2022, and look forward to providing additional updates on the status of the merger.

So to wrap up, we are very encouraged by the outlook for the business. Our bitcoin mining business is not only on track, but poised for significant growth as our new mining assets come online. At the same time, we've demonstrated our ability to leverage our backgrounds, especially finance, to drive significant returns for our shareholders. And while we recognize the market, especially the micro-cap and small-cap stocks, have been under pressure, we're focused on building our business for rapid and sustainable long-term growth and profitability.

We ended the quarter with $17 million cash, working capital of $21 million, and no long-term debt, which provides us a solid foundation to invest and drive returns from our bitcoin mining operations. We look forward to ways to grow our bitcoin mining operations through acquisitions of companies and machines as the opportunities may arise.

At the same time, it's important to note that we ended the quarter with approximately $65.2 million of stockholder equity, which works out to $4.98 per share. To put this in perspective, we're currently trading at just $1.07 per share. We plan to increase our investor relations work in the future with quarterly earnings calls and presentations to investors at upcoming conferences that we will announce in the future.

We need to close the market disconnect between our $4.98 stockholder equity per share and the $1.07 market price. Nevertheless, we could not be more excited about the outlook for the business with a number of key upcoming catalysts in the months ahead.

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 ending June 30, 2022. Rick?

Thanks, Bruce. And good morning, everyone. Revenues for the three months ended June 30, 2022, totaled $234,000 compared to $328,000 for the three months ended June 30, 2021, which reflects the timing of association fee payouts. Operating expenses totaled $5.6 million for the three months ended June 30, 2022, compared to $642,000 for the three months ended June 30, 2021. The increase is primarily attributed to increases in non-cash stock compensation, as well as professional fees and other operating expenses.

The three months ended June 30, 2022 net income attributed to LM Funding shareholders was $2.8 million compared to $11.1 million for the three months ended June 30, 2021. Net income in the second quarter of 2022 included an unrealized gain on investment and equity securities of $12.2 million related to the company's interest in LMAO, partially offset by $3.6 million of non-cash stock-based compensation expense. The 2021 second quarter included an $8.5 million realized gain on securities and a $2.5 million unrealized gain on convertible debt security, both related to the company's investment in Borqs.

Turning to our balance sheet, as Bruce mentioned earlier, we ended the quarter with $17 million of cash and $21.2 million of working capital, which we believe provides the sufficient liquidity to execute on our current bitcoin mining strategy. In addition, we have no significant long-term debt and ended the quarter with stockholds equity of $65.2 million or $4.98 per share. Finally, net cash used by operations was just $154,000 during the six months ended June 30, 2022. We are reinforcing our lean operations as we get ready to commit bitcoin mining operations.

That completes our prepared remarks, I would now like to open the call for questions. Operator, could you please assist us with that?

(Operator Instructions) Matthew Galinko, Maxim Group.

All right. Well, thanks for taking my questions. Can we start with how the rebate credits work? Are they useful only on a additional purchase of equipment? Is there an expiration on them? Are they transferable? Help us understand how those work.

Sure. What happens is the final price of these miners are not completed until a couple of days before shipment. So we're paying the down payment and prepayments up until that time. And when they ship, the final price is determined essentially on bitcoins, right? So we either get a credit going forward. If that credit, let's call it $1 million we owe for that 40% of shipment, we get in the payment that we owe is $1.2 million. We only pay $200,000. So we get the immediate benefit of that credit.

Got it. That's helpful. Thank you. And then I think you're sort of cashed out about $13.5 million through the second quarter for deposits on mining equipment and hosting. Are you fully paid up for the equipment order and the hosting or do you have more to pay on both?

Well, we had two more shipments coming into this third quarter. If the rebate credits hold up, we would really only be paying for shipping costs. So we prepaid the Compute North deposit already and all the other machines. So really, we own the final 40% on the two remaining shipments that we have coming in. And we believe the credits from the price reduction will cover any amount that would normally be due to Bitmain. And we'd only have to be paying shipping costs.

Got it. Terrific. And it's just the spot price when they're shipping?

It's a little of that, but Bitmain's pricing is a bit --

Not as clear as it would convey it. We don't know if our contract is similar to all contracts, so we probably shouldn't get into specifics about our contract.

Fair enough. I guess maybe last question for me and I'll jump back into queue. For those of us who aren't well-immersed in SPAC transactions on the sponsor side, any more or what are the next steps towards changes in value of what you have on the balance sheet? Thanks.

Well, the value is essentially $6.71 per share for the Class B shares that we own. So put differently, SPACs open at their de-SPAC at a $10 price. We have recognized $6.71 of that $10 on the de-SPAC on our balance sheet to date, and the delta there is recognizing the potential of a deal not closing, et cetera, et cetera, et cetera. Right. So for one moment in time, when the de-SPACs before the market starts trading, it starts at $10.

Got it. All right. That's it for me. I appreciate you taking my questions.

Thank you. Okay. We don't appear to have any questions. I will now hand back over for any closing remarks.

I'd like to thank everybody for participating on our second quarter of 2022 conference call. The future is extremely bright for LM Funding with a number of important upcoming catalysts. As we commence our bitcoin mining operations in the second half and work towards completing the merger between our SPAC, LMAO, and SeaStar Medical. We appreciate the ongoing support of our shareholders and look forward to updating you on our progress as developments unfold. Thank you.

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