LM Funding (LMFA) Q3 2024 Earnings Call Transcript

LM Funding America mined 18.5 BTC in Q3 and reported $1.3M in revenue (down $2.1M YoY) with a core EBITDA loss of $1.6M (wider from $0.6M a year ago); the company holds 142.3 BTC (~$12.4M valuation at $87k/BTC). Operational footprint: 3,700 active miners, 2,200 stored (5,900 total, ~639 PH), Oklahoma power ~ $0.04/kWh with 10 MW used of 15 MW capacity (targeting full deployment of the 2,200 machines by year-end/early Jan) and potential +60 MW expansion requiring ~9 months. Management is pivoting to vertical integration and low-cost sustainable power to improve margins while Condo/Association funding demand remains muted due to slower legislative urgency.

Analysis

Idle capacity and delayed redeployment are the hidden convexity in LM Funding’s story: a concentrated chunk of machines parked off-grid creates a short-dated operational option for the company but also depresses the used-ASIC market if those assets hit the market. That dynamic lowers replacement-cost support for miners broadly, shortening payback thresholds for buyers while simultaneously making sellers (and acquirers via M&A) more price-sensitive — a subtle tailwind for well-capitalized operators who can assemble capacity quickly at sub-replacement cost.

Oklahoma’s sub-$0.04 power bucket is the strategic fulcrum; the nine‑month substation lead time converts a locational cost advantage into a time arbitrage. If management nails site buildouts and fills capacity within the next 6–12 months, unit economics re-rate quickly; miss the timeline or see local rates drift above mid‑single cents, and leverage and depreciation cadence amplify negative surprises. The vertical-integration pivot reduces per-unit opex in steady state but increases execution and capex risk during the runway to scale.

Catalysts to watch in the next 90–365 days: completion milestones for domestic redeployment, go/no-go on the big substation, and whether used-ASIC flows accelerate (which would compress rig replacement prices). Tail risks that would reverse the nascent upside include a sustained pullback in BTC that re-prices miner valuations, a power-rate shock at key sites, or a slower-than-expected pick-up in municipal/regulatory support for the condo funding business that had been offered as diversification.

Key Decisions for Investors

• LMFA (long equity, small tactical): Allocate 0.25% NAV to LMFA common shares immediately as a binary event bet on redeployment and Oklahoma expansion. Time horizon 6–12 months; target 2.5x upside if redeployment completes and BTC sustains an upward trend; hard stop -40% (or exit if redeployment slips past end of Q1).
• LMFA (options collar to buy optionality, if liquid): Use 0.5% NAV to buy a 12–18 month call spread (buy LEAP call / sell higher-strike call) to cap premium while retaining upside to the expansion outcome. Risk = premium paid, reward = leveraged exposure to go/no‑go catalyst without open-ended downside of stock.
• Pairs trade (directional hedge): Long 0.5% NAV BTC spot/futures vs short 0.5% NAV LMFA equity to isolate company execution risk from pure Bitcoin upside. Hold 3–9 months; unwind if LMFA redeployment milestones hit or BTC drops >30% from entry (cut losses), expected positive carry if BTC rallies while LMFA execution stumbles.
• NVDA (portfolio hedge / convexity play): Buy 3–6 month NVDA call options (size 0.25% NAV) to diversifying away from crypto-dependence — AI/data-center demand can rerate tech exposure independent of mining-sector volatility. Risk: premium decay; reward: outsized upside if macro/AI earnings season remains strong.