Executive Summary / Key Takeaways

• LM Funding America has undergone a significant strategic transformation, pivoting from an asset-light model to a vertically integrated Bitcoin mining and treasury company, emphasizing owned infrastructure and operational control.
• Recent strategic acquisitions, including a 15-megawatt site in Oklahoma and an 11-megawatt site in Mississippi, are rapidly expanding the company's wholly-owned mining capacity to 26 megawatts, equivalent to approximately 1.7 exahash.
• Technological advancements like LuxOS firmware and the adoption of immersion cooling are driving substantial efficiency gains and margin improvements, positioning LMFA for enhanced profitability and consistent uptime.
• Despite the Bitcoin halving event, LMFA demonstrated resilience in Q2 2025 with improved mining margins of 41% and a GAAP net income of $0.1 million, supported by strategic curtailment revenue and disciplined cost management.
• A compelling valuation disconnect persists, with the company's Bitcoin treasury and net book value significantly exceeding its market capitalization, a gap further highlighted by a recent $23 million capital raise aimed at fortifying its Bitcoin holdings.

The Strategic Evolution: From Specialty Finance to Digital Asset Powerhouse

LM Funding America, Inc. (LMFA) is undergoing a profound strategic evolution, transforming from its roots as a specialty finance provider to a vertically integrated Bitcoin mining and treasury company. Founded in 2008 with its specialty finance arm, LMFA historically provided funding to nonprofit community associations, primarily in Florida, by purchasing rights to delinquent assessments. While this segment continues to operate, generating $94,945 in revenue in Q2 2025, the company's primary growth engine and strategic focus has decisively shifted to Bitcoin mining, a venture initiated in 2021 through its wholly-owned subsidiary, US Digital.

This pivot reflects a keen understanding of market dynamics and a proactive response to industry challenges. Initially adopting an "asset-light" model for Bitcoin mining, LMFA quickly recognized the imperative for greater control and efficiency. The Bitcoin halving event in April 2024 served as a catalyst, accelerating a strategic pivot towards full vertical integration. This involved exiting high-cost third-party hosting arrangements and investing directly in owned mining infrastructure, a move designed to enhance margins and mitigate operational risks.

Technological Edge and Operational Excellence

LMFA's vertical integration strategy is underpinned by significant technological and operational advancements. The company has deployed LuxOS firmware upgrades across its Oklahoma fleet, a proprietary technology expected to increase mining efficiency by an impressive 10% to 15%. This enhancement allows LMFA to achieve higher margins and profitability without necessarily adding more machines or consuming additional power.

A cornerstone of LMFA's technological roadmap is the adoption of immersion cooling. The company is actively implementing a 2-megawatt immersion-based expansion at its Oklahoma site, with energization anticipated by the end of 2025. Immersion cooling offers superior return on investment (ROI) by mitigating performance and maintenance challenges common with traditional air-cooled systems, particularly in harsh climates. This technology promises improved margins through higher efficiency, extended equipment lifespan, and the ability to access new markets previously unsuitable for air cooling.

The benefits of this vertical integration are tangible and immediate. By owning and managing its infrastructure, LMFA has significantly reduced power costs, with its Oklahoma site operating at approximately $0.04 per kilowatt-hour, a rate 40% cheaper for relocated next-generation miners. This direct control also eliminates third-party hosting fees and allows for dynamic optimization of the mining fleet, ensuring enhanced uptime and overall mining efficiencies.

Strategic Expansion and Capacity Build-Out

LMFA's growth trajectory is marked by a disciplined approach to strategic acquisitions and capacity expansion. The company's inaugural 15-megawatt mining site in Oklahoma serves as a foundational asset, offering low-cost power and substantial expansion potential, including a prospective 60-megawatt expansion with substation upgrades. This site is crucial for deploying miners from storage and applying firmware optimizations already boosting margins.

Further cementing its vertically integrated model, LMFA recently signed a definitive agreement on August 1, 2025, to acquire an 11-megawatt Bitcoin mining site in Columbus, Mississippi, for $3.9 million, or approximately $355,000 per megawatt. This acquisition, expected to close by September 16, 2025, is fully funded from LMFA's balance sheet. Once this Mississippi site is fully operational and the Oklahoma expansion is complete, LMFA's wholly-owned U.S. power and Bitcoin mining capacity will reach 26 megawatts, equivalent to approximately 1.7 exahash capacity, assuming latest generation Bitcoin miners at 15 joules per terahash. This accelerated expansion timeline, compared to greenfield builds, is designed to maximize ROI for shareholders.

The company's M&A strategy specifically targets greenfield and brownfield power assets in the 5- to 20-megawatt range. These facilities often fall below the acquisition thresholds of larger operators, presenting accretive opportunities for LMFA to scale efficiently.

Financial Performance: A Post-Halving Resilience

LMFA's financial performance in Q2 2025 demonstrates the resilience of its evolving business model, particularly in the face of the April 2024 Bitcoin halving event. Total revenues for the three months ended June 30, 2025, were $1.93 million, down from $3.01 million in Q2 2024. This decrease was primarily driven by a reduction in Bitcoin mined (18.4 BTC in Q2 2025 versus 44.1 BTC in Q2 2024) due to the halving, miner relocation, and increased network difficulty, though partially offset by higher average Bitcoin prices ($98,000 in Q2 2025 compared to $66,000 in Q2 2024).

Despite the revenue headwinds, LMFA achieved a GAAP net income of $60,500 for Q2 2025, a significant turnaround from a $6.18 million net loss in Q2 2024. Net income attributable to LM Funding America, Inc. was $100,554. Core EBITDA for Q2 2025 was $2.6 million, a substantial improvement from a negative $2.8 million in Q1 2025 and negative $2.3 million in Q2 2024. This profitability was largely driven by a $3.8 million gain on the fair market adjustment of mined digital assets and a $5.8 million year-over-year decrease in operating expenses.

Mining margins improved to 41% in Q2 2025, up from 38.5% sequentially, reflecting the benefits of the transition to the lower-cost Oklahoma facility. Curtailment and energy sales also played a crucial role, generating $223,269 in Q2 2025, which helped offset lower Bitcoin production and contributed to higher mining margins. For the full year 2024, LMFA mined 170.6 Bitcoin, generating $11 million in revenue and $3.9 million in Core EBITDA, showcasing its ability to achieve profitability even in a challenging market.

Liquidity, Capital Allocation, and Bitcoin Treasury

LMFA maintains a robust liquidity position, anchored by its Bitcoin treasury strategy. As of June 30, 2025, the company held $354,000 in cash and $16.7 million in Bitcoin, with $5.0 million of Bitcoin pledged as collateral for outstanding borrowings. The company's working capital stood at $9.3 million.

A key element of LMFA's financial strategy is its long-term Bitcoin accumulation. The company leverages innovative financing structures, such as Bitcoin-backed debt, to fund expansion without liquidating its Bitcoin holdings. This approach, as highlighted by management, allows LMFA to capitalize on positive arbitrage opportunities, reflecting a bullish outlook on Bitcoin's price momentum. On August 19, 2025, LMFA further strengthened its balance sheet by raising approximately $23.0 million through a direct offering and private placement, with the majority of net proceeds earmarked for purchasing additional Bitcoin for its treasury. This capital raise is also expected to unlock additional capital-raising flexibility under its $150 million shelf registration.

Competitive Landscape and Strategic Positioning

LMFA operates in a dynamic competitive landscape, particularly within the Bitcoin mining sector. Its strategic focus on acquiring 5- to 20-megawatt power assets positions it to target opportunities often overlooked by larger, more capital-intensive operators. This niche M&A strategy, combined with a lean cost structure and a healthy balance sheet, provides LMFA with distinct competitive advantages. The flexibility to leverage Bitcoin-backed debt further differentiates its financing capabilities.

The company's "power producer" model, where it can sell curtailed energy back to the grid, acts as a natural hedge against Bitcoin price volatility and a unique competitive differentiator. This allows LMFA to generate revenue even when mining is less profitable, stabilizing operating costs. While LMFA's specialty finance segment faces competition from larger players like PRA Group Inc. (PRAA), Encore Capital Group Inc. (ECPG), Performant Financial Corporation (PFMT), and Credit Acceptance Corporation (CACC), its localized expertise and tailored programs for community associations provide a niche advantage. However, LMFA's smaller scale in this segment means it primarily competes on specialized service rather than broad market share. The company has explicitly stated it is not pursuing AI facilities, choosing to focus its capital and expertise squarely on Bitcoin mining and energy market dynamics.

Outlook and Key Risks

LMFA's outlook for the remainder of 2025 is characterized by continued strategic execution and anticipated operational improvements. The Mississippi acquisition is on track for completion, and the Oklahoma immersion expansion is expected to be energized by year-end. Management anticipates that as seasonal temperatures moderate and immersion systems come online, curtailment revenue will trend lower, while Bitcoin production and fleet efficiency will increase, leading to improved cost per Bitcoin and more consistent uptime. The company remains confident in its ability to steadily grow its Bitcoin treasury, with management anticipating Bitcoin's price moving towards a projected target of over $100,000 in 2025.

However, investors must consider several key risks. Bitcoin's price remains highly volatile, influenced by speculation, macroeconomic conditions, and regulatory changes. The ongoing increase in network hash rate and difficulty necessitates continuous investment in new capacity to maintain a competitive share of Bitcoin rewards. Furthermore, LMFA faces legal proceedings related to past disputes over mining equipment and hosting services, with the likelihood and amount of recovery currently unestimable. Regulatory changes in the specialty finance sector could also impact that segment's profitability, though the company's primary focus has shifted.

Conclusion

LM Funding America is a company in the midst of a compelling transformation, strategically repositioning itself as a vertically integrated Bitcoin mining and treasury enterprise. Its disciplined approach to acquiring cost-effective power assets, coupled with a commitment to technological innovation through LuxOS firmware and immersion cooling, underpins a clear path to enhanced operational efficiency and profitability. Despite the inherent volatility of the digital asset market and the challenges posed by Bitcoin halving events, LMFA has demonstrated resilience and a capacity for strategic adaptation, as evidenced by its Q2 2025 performance and robust capital raise.

The significant disconnect between LMFA's market capitalization and the intrinsic value of its Bitcoin treasury, further bolstered by recent capital infusions, presents a compelling investment thesis. With a clear roadmap for expanding its owned mining capacity and a steadfast commitment to its long-term Bitcoin accumulation strategy, LM Funding America is actively building a sustainable business model designed to thrive in various market conditions. This strategic clarity and operational discipline position LMFA as an intriguing opportunity for investors seeking exposure to a transforming player in the digital asset space.