DMG Blockchain Solutions Inc.

Thank you. Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the DMG Blockchain Solutions Q2 2023 Update Conference Call. My name is Jules Abraham from CoreIR, the company's investor relations firm. Participants of this call are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes. A website replay of the call will be available on the company's website. Joining us today from DMG Blockchain Solutions is Sheldon Bennett, the company's Chief Executive Officer, and Stephen Oliskew, Chief Operating Officer. During this call, management will be making forward-looking statements, including statements that address DMG Blockchain Solutions' expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, Please refer to the risk factors described in DMG Blockchain Solutions' most recently filed periodic reports and the company's recent press releases, particularly the cautionary statements within. The content of this call contains time sensitive information that is accurate only as of today, May 31st, 2023. Except as required by law, DMG Blockchain Solutions disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It's now my pleasure to turn the call over to Sheldon and Steven. Gentlemen.

Thanks Jules, and thanks to everyone today who has joined the call. We have a lot to get through, including a large number of questions that have been submitted, which we will answer at the end of our presentation. As per our last quarters, I would like to start with a highlight of our recent achievements. On software, We realized our first Petra-based revenue for placing ordinals in the March quarter. Our initial revenue was small as we placed a few high-profile large ordinals, but we are building the foundational technology for this revenue to grow. We stated in our MD&A that we have built a new version of our Breeze wallet for ordinals, which we call Multi-Breeze. We are applying this branding to a project we disclosed in April, where we performed inscription of a large ordinal collection called Bitnips with per ordinal rights transfer. This is the holy grail for artists inscribing in a carbon neutral manner a collection sequentially within a block and enabling the artists to transfer each ordinal individually as the content is sold. We also stated in our MD&A that we were exploring other revenue opportunities related to ordinal inscriptions based on the type of satoshi, mainly creating an inventory of uncommon sats, which is the first satoshi in a block. These and other sats, which may be valuable to collectors, could expand DMG's revenue opportunity with respect to ordinal inscriptions. we may be able to sell these collectible SATs either individually or in combination with ordinals inscribed through TerraPool. We've also increased our marketing of TerraPool on a full paper share or FPPS basis, which is currently the industry's preferred method of compensating pool participants. On mining, DMG has realized a hash rate of 0.89 exahash and mined 255.8 BTC. We also announced that we purchased 350 Bitmain S19 Pros, 350 Bitmain S19 XPs, and 850 Bitmain S19J Pro Pluses, which totals an additional 1,550 units contributing 188 pet hash. The 350 Bitmain S Pros were a spot deal and have already been delivered and arrived. The remaining miners will be added in the coming months to DMG's Christina Lake Data Center. The company is discussing further purchases with Bitmain and other suppliers. We are particularly interested in new offerings of immersion technology specific miners and are considering this for future direction in mining. As we disclosed, we purchased the first set of long lead equipment that could provide up to 12 megawatts of immersion cooling capacity. Our goal is unchanged with respect to immersion to cost effectively leverage the technology to enable increased capital efficiency and deploy it with miners that will have a long useful life, especially as the Bitcoin happening where 3.215 Bitcoin will be the block subsidy amount instead of the current 6.25 is approximately 11 months away. We also announced that we have entered into a non-binding agreement that will result in development of a new data center site with access to low cost reliable renewable energy located in Canada and a province outside of British Columbia. We have begun the project planning process and may be able to disclose more details this summer based on project reaching some key initial milestones. Our overall goal is to ensure DMG has access to sufficient amounts of competitively priced power for years to come. Now, A review of our strategy. First, Core Plus, our software. With respect to our larger strategy to develop software to monetize Bitcoin transactions, what we call Core Plus, we encouraged by recent market developments. With nearly 10 million ordinal inscriptions to date and over 40 million of related on-chain transaction fees, the ordinals market has clearly established itself. Even as fees have significantly subsided from their recent peak, we believe 2023 represents an important milestone for the blockchain ecosystem, whereby the utility of the blockchain has significantly increased in a way that has been talked about for the last decade and is now only being realized. While some traditionalists may discount the value of placing art and other content on a blockchain that was intended to be the basis for a new decentralized financial system, free from control by central authorities, We are agnostic on these Bitcoin culture wars and believe anything that increases the utility of the blockchain is good for the ecosystem. New blockchain utility ultimately should result in sustained higher fees, which supports our business model. As DMG strategies focused on monetizing Bitcoin transactions, we believe we are well positioned to capitalize on this new opportunity that may be looked upon years from now as an inflection point for the industry. As a reminder, our key objectives for CorePlus remain. One, grow our TerraPool hash rate with the long-term goal of reaching 10% of the network share. Two, actively transact Bitcoin in a carbon-neutral manner for TerraPool using our Petra technology. And lastly, to create a carbon-neutral BTC marketplace. In the near term, Ordinals has risen as a short-term catalyst for Petra, and our goal is to build upon initial success. even as we are continuing to work towards our long-term goal of enabling carbon-neutral transactions for financial institutions. We believe achieving these goals will enable us to grow our core plus revenue to be significantly larger in the long term. For DMG's core mining strategy, we have completed installation of our initial 1x a hash of capacity and have disclosed purchasing of an additional 180 petahashes. and 40 megawatts of containers, which will exhaust our accumulated credits with Bitmain. Going forward for our next exahash capacity, we intend to focus on deploying emergent cooling technology in a way that should enable greater capacity efficiency versus air-cooled mining. Sorry, capital efficiency versus air-cooled mining. We will provide updates as we get closer towards our initial deployment. Even as we are focused on deploying Developing our core plus strategy, we remain committed to growing our hash rate in the most capital efficient way possible, as mining remains a foundational technology for everything else we do. I'll now hand over to Stephen to review the company's performance.

Thank you, Sheldon. I'm Stephen Elliskew, DMG COO. Now a few words about the company's overall position. We are encouraged that our cash plus crypto balance nearly doubled sequentially, which is giving us more room to spend on capital equipment so we can more rapidly deploy our recently purchased containers at our Christina Lake facility, as well as purchase the longest lead time items for our immersion cooling deployment. We expect to deploy immersion cooling technology in 12 megawatt tranches in our building. which can accommodate three tranches, each of which will provide half an exahash of mining based on current technology. We have not decided if we will deploy solely with new generation immersion miners or some combination of existing equipment retrofitted to work in immersion and new equipment. Outside of new miner purchases, we do not expect significant capital expenditures in the near term. When we decide to purchase immersion-specific miners, we do not expect the nameplate capital cost per hash to be materially different versus air-cooled miners. While Sheldon referenced that we have a non-binding agreement to develop a new data center site in Canada outside of British Columbia, it is too early to provide CAPEX guidance on development of that site. While we're still being very cautious regarding spending, we will be hiring more developers for our core plus business. As we see significant business opportunity that will require more resources. As discussed last quarter, we have been devoting resources mainly to our underlying software infrastructure. We're now transitioning from that to expand our capabilities to ensure we can properly support substantially more TerraPool members, Ordinals clients, as well as financial institutions. Finally, we continue to search for reasonable cost sources of debt to accelerate our hash rate growth plans. We are in active discussions with debt providers. Regarding revenue, in our March quarter, our revenue increased 6% sequentially to 7.6 million from 7.2 million in the prior quarter. Our self mining revenue increased 17% to 7.8 million from 6.7 million on a 26% increase on the average price of Bitcoin from recognized revenue, which was partly offset by a 7% decline in mine Bitcoin to 255.8, driven by a 13% lower network production of BTCs per exahash. You will also note in our financial disclosures a new line in our revenue breakout called net pool revenue, which was negative 0.7 million. This is the result of TerraPool members selling hashrate to TerraPool and being paid according to the full pay per share or FPPS payout formula, which was an amount greater than the amount of Bitcoin that TerraPool actually mined in the March quarter. As we discussed in our financial disclosures, we expect this net pool revenue line results to be either positive or negative depending on the quarter with the resulting fluctuations to some to zero over time. As TerraPool's hash rate increases, We would expect the volatility of net pool revenue to decline over time as well. On margins, our margin on our revenue less operating and maintenance costs was 40% in the March quarter, up from 39% the prior quarter. Excluding the net pool revenue line, it was 45%. As a proxy for cashflow from our business, assuming we're selling about 100% of our generated Bitcoin, our earnings before other items excluding depreciation, amortization and share based comp was 1.7 million or 22% on a percentage basis in the March quarter. It's up from 1.3 million and 18% in the prior quarter. On our earnings before other items, what was minus 4.6 million in the March quarter. This is a smaller versus minus 5.3 million in the prior quarter. Expenses excluding depreciation, amortization and share-based comp decreased to 1.3 million from 1.4 million as non-cash, I'm sorry, non-mining cash expenses remain relatively steady. Depreciation decreased 4% to $5.9 million. Future changes in depreciation will depend on the rate of capital equipment additions. Our net income loss narrowed to $3.8 million, which is an improvement from the $5.6 million loss in the prior quarter. Favorable Bitcoin pricing trends have provided a tailwind both for mining revenue as well as the realized digital currency gain losses that show up below the operating income line. On our balance sheet, our cash plus digital currency holdings increased 98% sequentially to 21.7 million from 10.9 million in the prior quarter, as the value of our Bitcoin held increased 65%. This asset increase was partly offset by a decrease and our property and equipment and long-term deposits to 61.5 million from 66.9 million in the prior quarter, as our depreciation exceeded the amount of new equipment deployed. Our total asset base increased 2% to 94.3 million from 92.1 million. Regarding our mine BTC, in the March quarter, we mined yearly 256 Bitcoin, a 7%, decreased sequentially as a realized hash rate of 0.89 exahash was incrementally up from the prior quarter, but this was more than offset by a 13% decrease in the network BTCs per exahash. In the current quarter, we expect a modest decline in hash rate due to unseasonably warm temperatures as a heat dome took hold in the Pacific Northwest. We have brought in additional cooling infrastructure to mitigate the ongoing warm temperatures for the remainder of the summer, but we still expect challenges. In the March quarter, DMG sold nearly 249 Bitcoin generating 7 million of cash and the average price of $28,270 Canadian. Thus DMG sold 97% of the Bitcoin amount in mind versus the prior quarter of selling 60% of the Bitcoin in mind. Our hosting revenue declined 21% sequentially in the March quarter to 0.4 million. We expect hosting revenue to remain near prior quarter levels, at least for the near term. And as discussed above, we're looking for opportunities to raise debt to help us accelerate our immersion cooling build out for our first 12 megawatts. I will now hand the call back to Sheldon to summarize her prepared comments and answer questions submitted prior to the call. Sheldon, you're muted.