PowerCompute Inc (PWCM) 2023 Q3 法說會逐字稿

Greetings. Welcome to the LM Funding America, Inc., third-quarter 2023 business update conference call. (Operator Instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Ted Ayvas, Investor Relations. Ted, you may begin.

Good morning and thank you for joining LM Funding America's third-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 September 30, 2023, and its financial condition [as of last 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 and would like any additional information about the company, please contact Crescendo Communications to 212-671-1020.

Before management reviews the company's operating results for the quarter ended September 30, 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 fact contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plan, 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 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 those anticipated or implied in the forward-looking statement. You should not rely upon forward-looking statements as predictions of future events.

Although the company believes that expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievement. 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.

Having said that, I would now like to turn the call over to Bruce Rodgers. Bruce?

Thanks, Ted. 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 despite the volatility and weakness in the market. Nevertheless, our company has made significant progress at executing on our business model, including advancing our Bitcoin mining strategy and other key strategic activities. We believe the steps we are taking today will lead to considerable long-term value for our shareholders.

As of September 30, 2023, our Bitcoin mining operations included about 5,900 mining machines actively engaged in mining and various hosting facilities, providing approximately 614 petahash per second of mining capacity. During the quarter ended September 30, 2023, the company mined 117.1 Bitcoin, marking a 10% sequential increase from the 106.6 Bitcoin mined in the second quarter of 2023 as an average market revenue value of approximately $28,000 per Bitcoin.

The current Bitcoin price has been higher, fluctuating between $35,000 and $37,000 over the last several weeks. And as most people likely know, Bitcoin halving is an event where the reward for mining new Bitcoin blocks is cut in half, resulting in miners receiving 50% fewer blocks for verifying transactions. Halving is built into the Bitcoin algorithm and designed to limit the supply of new Bitcoin. It is expected that the next halving will occur in the first half of 2024.

Historically, Bitcoin price is intended to increase as the halving event nears, often reaching record highs in the six months following the event. Likewise, the value of Bitcoin mining machines has typically peaked between halvings.

LM Funding is actively implementing in Infrastructure Light approach to our Bitcoin mining business. It seeks to mitigate risk and volatility in the market by focusing our capital investments on Bitcoin and Bitcoin mining machine that track the value of Bitcoin.

The success of our Infrastructure Light strategy depends upon deploying capital or acquire assets best correlated to the price of Bitcoin, which we believe will appreciate. If history repeats and anticipated events unfold as expected, we expect to create meaningful value for shareholders, reflecting both the value of our Bitcoin holdings as well as the increased value of our mining equipment.

Overall, we are quite encouraged by the recent performance of the Bitcoin market as well as the outlook for Bitcoin pricing. The company installed Braiins OS+ software on approximately 1,000 of our mining machines. It is expected this will increase the hash rate of these machines by as much as 25%, which should lead to an increase in the number of Bitcoins the company can mine.

A further advantage to mining Bitcoin with machines operating Braiins OS+ software is that machines equipped with this software may mine with any pool or mine with the Braiins pool without having to pay pool fees to the Braiins pool. We believe the best use of our capital is to increase hash rate production through the purchase of additional miners and enhancements to their hashing capabilities.

With respect to our legacy business, which involves offering funding to non-profit community associations, the business has remained fairly stable since the conclusion of 2022. We share our investors' frustration if there is such a significant gap between our stockholders' equity valued at $35.9 million, or $2.45 per share, as of September 30, 2023. And the recent trading price of our share is at $0.40, representing approximately 85% discount from book value.

We recognize the broader downturn in the stock market, particularly disproportionate impact on the microcap sector. However, we remain extremely optimistic about the outlook for the business. Our confidence lies in our commitment to our strategic goals, increased prudent Bitcoin mining efforts, which we believe will ultimately be recognized by the market.

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 September 30, 2023. Rick?

Thanks, Bruce, and good morning, everyone. Total revenues for the three months ended September 30, 2023, increased by approximately $3.2 million to $3.4 million from the $200,000 generated in the three months ended September 30, 2022. Beyond our year-over-year quarterly revenue growth, we also experienced sequential quarterly revenue growth of 7% compared to the second quarter of 2023.

Revenues for the third quarter of 2023 includes digital mining revenue of $3.3 million due to the mining of 117.1 Bitcoins during the third quarter of 2023 compared to 2.2 Bitcoins for the third quarter ended 2022 since our Bitcoin mine operations have become late at September 2022.

Operating expenses totaled $6.6 million for the third quarter of 2023 compared to $5.5 million for the third quarter of 2022. The change is primarily attributable to a $2.7 million increase in digital mining costs and a $1.5 million increase in depreciation, partially offset by a $3 million decrease in stock compensation and a $300,000 decrease in professional fees as compared to the third quarter of 2022.

For the third quarter of 2023, the net loss attributable to LM Funding shareholders was $3.7 million, which included an $800,000 non-cash unrealized loss on investment and equity securities and an $800,000 non-cash impairment charge on long-lived intangible assets, as compared overall to a net loss of $6.7 million for the third quarter of 2022, which included a $200,000 non-cash unrealized loss on investment and equity securities. Core EBITDA loss for the quarter ended September 30, 2023, was approximately $600,000 compared to a loss of $1.5 million in the 2022 comparable quarter, primarily due to the increase of our Bitcoin mining operations.

Turning to our balance sheet, we ended the quarter with $500,000 cash, 90 Bitcoins at a value of approximately $2.2 million, and working capital of $4.5 million, which we believe provides us with sufficient liquidity to execute on our current Bitcoin mining strategy. In addition, we have minimal long-term debt at the end of the quarter with stockholder's equity of $35.9 million, or $2.45 per share.

That concludes 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.

Hey, thank you for taking my questions. Can we start with -- first, I think you talked about the post-halving value having correlation to both the value of the Bitcoin itself and the value of the machines. Can you touch on -- with the recent run in Bitcoin, what has been the trend and the value of the mining equipment?

Sure. That's great question there. The value of mining equipment right now is affected by two different things. One, Bitmain has introduced some newer machines that are knocking up around 190 and above 200 terahash as opposed to the machines that are selling just a year ago around 100 terahash.

And then the second influence is obviously the halving is coming up in those. The halving makes half of the machines, basically, obsolete. So in the lower end of the production range, those machines have a short life in a very low-price range. So there's folks making their bet to different end of the machine spectrum.

Our position is that Bitcoin post halving the two quarters afterwards or so, we should expect to reach an all-time high. In this past halving, the ramp up to that has been led by an increase in machine prices. So that is our position as to invest in Bitcoin machines as well as Bitcoin both correlating to the same asset class pricing.

Got it. Thank you.

And I guess I wanted to also touch on just some of the source of capital that are little bit non-standard. I think you've got a partial repayment on a loan to -- I think it was SeaStar Medical. And I think you have an arbitration, let's say, Bitcoin mining post. Can you talk about those sources of capital and potential sources of capital?

Sure. Our plans and hopes would have been for some of these to be worth more and more liquid than they are right now. But we have now held our SeaStar stock for over a year since it became public. That company seems to be rolling out FDA approvals, and we're very, very happy with how the stock is recovering and advancing.

It was being down all the way to about $0.20. It's on its way to recovering above $1 and we see a future of it about above that. If you took that in perspective, if we mark that acquisition to $1 during the third quarter, things -- the parent SeaStar [offered much stuff]. So that's one source of our liquidity.

We have an investment in the Symbiont technology, and we marked that down by $800,000 this quarter. We have an opportunity to sell that and turn it into cash, which we intend to turn in to Bitcoin mining machines. We simply don't have the capital to invest in the Symbiont assets to turn it into something right now. So we're looking forward to that.

We also have the SeaStar no receivable.

Yeah.

So we picked about $800,000 from that in October to improve our liquidity. And there's another $1 million and change left to be received out of that.

And then the last thing you've hit on was the arbitration. And that's a long-term fraud suite where we're chasing somebody who took a deposit from us. We have to win the arbitration and then left to succeed in protecting a judgment from that.

Got it. And I guess for that last piece, at least in terms of finishing the arbitration, is there a timeline there? Is that early '24, or when might we hear something new?

I don't want to speculate on calendaring and arbitration going back and forth to the core processes. It's always been a mystery to me as to how long it takes to do that stuff.

Okay, thanks. I'll jump back in the queue.

(Operator Instructions) Michael Donovan, H.C. Wainwright.

Hi, Bruce. Thanks for taking my question. Can you talk a little bit more about fleet expansion? And what are your plans for expansion, front of and post halving?

We always have a bias towards buying the fastest machines we can at the lowest price. And so we're fleshing that out with Bitmain right now as to the size of orders they want for the new machines are pretty big. So we're trying to get a bite size out of some of those. Improving the efficiency and the size of the fleet is the name of the game. So we can mine Bitcoin and reinvest it to get more Bitcoin through our mining and we'll do that.

Yeah, and this is Rick. And I think with the improved value of Bitcoin, I think we may have increased liquidity this quarter to look at more opportunities to expand that fleet. We are also limited [into a degree with our arrangement Core]. And we have some slots that are open for us there of what type of machines they can take. So we're looking at expansion there.

Okay. Great. Appreciate that. And Bruce, you mentioned the possibility of selling Symbiont. Can you add a bit more color around that?

Well, not really. We're obviously under some LOI. And there's confidentiality provisions and all that with that. But we expect to have some resolution of that by the end of the year.

Fair enough. Sounds good. Appreciate it, Bruce. Appreciate it, Rick. Congrats on the quarter.

Thank you.

Matthew Galinko.

Hey, guys. Just a question around the Core EBITDA number that you disclosed. Obviously, that's a progress, I think, year over year. Sequentially, that's long down. And I just wanted to understand the mechanics there. I think it's predominantly -- maybe I'll let you, but it seems like revenue was off from the mining fleet. And so could you just parse out what swung you down on the Core EBITDA line? And if you could provide any commentary what we might expect into the fourth quarter.

Well, the Core EBIT, yeah, part of the problem is your revenue is based on an average for the quarter or month by month. So it's not as reflective as you would like to more recent prices.

There was an improvement year over year. And we're trying to take out more non-cash items in the odd items, like the Symbiont, up and down, and the impairment loss on mine digital asset bitcoin because that's where GAAP is going to.

We also had a little bit of expenses in the [hosting] this quarter due to removed machines from our ACDC site over to the core facility in Texas. So that impacts the margin a bit. But I think at the more current 35-plus route, there should be quite of an improvement in the fourth quarter.

Terrific. Thanks again.

Thank you. There were no other questions at this time. I would now like to hand the call back to the LM Funding management team for closing remarks.

Thank you to everyone for joining our 2023 third-quarter conference call. Our company's shift towards Bitcoin mining is yielding encouraging outcomes. We're 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. Our belief in the long-term value increase of Bitcoin as an asset class remains strong.

In summary, we are extremely pleased with the progress we've made during the third quarter of 2023. We believe the momentum of our transition to Bitcoin mining will continue to accelerate as we acquire and electrify more mining machines in the future.

We thank you for the ongoing support from our shareholders and will continue to provide updates on our progress as new developments emerge. Thank you very much.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.