DMG Blockchain Solutions Inc.

ladies and gentlemen thank you for standing by good afternoon and welcome to the dmg blockchain solutions q1 2025 update conference call 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 webcast 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 Iliscu, 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's 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, March 4th, 2025. 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 is now my pleasure to turn the call over to Sheldon and Stephen. Sheldon?

Thank you, Chantel. Good afternoon. and thanks to everyone who has joined the call today. My name is Sheldon Bennett, and I'm the CEO and founder of DMG Blockchain Solutions. With a similar format as recent quarters, first, I will provide an overview of the company's achievements in the past quarter. I will then pass the call to Stephen, who will review the company's performance. We will end the call with our Q&A session based on questions submitted to us prior to the call, as well as those using Zoom chat. So now on to our highlights of recent achievements. First, our core plus software and service strategy. As a reminder, the goal of our core plus strategy is to monetize a carbon neutral Bitcoin ecosystem where TerraPool supplies carbon neutral blocks that are in turn filled in part by a systemic trust or digital asset custodian subsidiary by transactions from financial institutions which want the option to have a regulatory compliant and carbon neutral way of sending Bitcoin. As an update on systemic trust, we have completed the regulatory approvals to becoming a qualified digital asset custodian business. We are currently only one of three in Canada. We are currently focused on customer acquisition for STC and our goal is to announce our first customers to be onboarded by the June quarter with a meaningful revenue ramp up by the end of this calendar year. We're also working with Bosonic to be onboarded as a custodian and look forward to a mutual relationship where we can help increase the value of our Bosonic investment and have Bosonic as one of a number of exchanges with which Systemic Trust has as a partner. We are in the testing phase of utilizing Fireblocks wallets that incorporate DMG's Petra technology so that Bitcoin can be held by systemic trust and maintain its carbon neutral status by being sent through TerraPool for transactions processing. This is the last remaining component which we need to enable DMG's carbon neutral Bitcoin ecosystem. For TerraPool, we are focused on partnerships and customer acquisition. Our focus is to work with a limited number of larger mining entities looking to leverage the portion of their energy mix that is carbon neutral to have the opportunity to increase their revenue. Helm, DMG's data center management infrastructure software, is actively being upgraded to best in class software for maximizing the profitability of Bitcoin mining. We have focused on developing Helm into a comprehensive tool that For use with both air-cooled and direct liquid-cooled Bitcoin mining fleets that includes support for demand response programs, intelligent rules-based facility management, site mapping, and asset management, we are planning our first customer release of this tool for availability in mid-calendar 2025. We are actively using Helm in our Christina Lake facility so that we can hit the ground running with a mature product when we roll out Helm to other clients. For TerraPool clients, we see Helm as an upgrade to their existing solutions, which are either general-purpose offerings built on antiquated software stacks or were built from in-house use only. Long-term, we envision the role of Helm to be used with AI data centers in a way that uniquely maximizes profitability. Reactor is software for assuring the delivery of hash rate over the term of a hash rate contract. and gives TerraPool clients the option to sell hash rate and be paid upfront for delivering hash rate over the term of a contract, which is a useful treasury management tool that is unique for any pools to offer. We plan to offer our first release reactor optimized for large pool clients by mid-calendar 2025. We know we have plenty of demand for hash rate through our broker partners. Software changes we plan to make the original Reactor product are focused on optimizing our target use case as the product is already proven. We also plan to provide Reactor along with Heropool and Helm in a single seamless environment. Explorer, which is the original software required with the Bloxyre purchase back in 2018, remains a product on a roadmap for release later in calendar 2025 as we see it as a long-term revenue opportunity. Regarding our core infrastructure. First, regarding AI. Just last week, we announced that we signed a memorandum of understanding with an undisclosed counterparty to acquire 10 megawatts of prefabricated data center, or PDC. As it is essentially the infrastructure for a military grade data center, we are seeking offtake agreements that would require such capability. This asset would also significantly shortcut the building of our first data center by a year or more, and it gives us the credibility as a new entrant seeking high-value AI offtake agreements. A key sea change in the market is not only the demand for private AI, as corporations don't utilize for public large language modules, but also nation states are demanding their data remain sovereign within their borders. This is certainly true in Canada, especially in light of NVIDIA's comments last week. We see no shortage of emerging demand drivers that uniquely position us to capitalize on inherent demand that is being sweetened by the current geopolitical environment. In October, we signed a memorandum of understanding with the Malahat Nation to build up 30 megawatts of generative AI capacity split between the two parties. We are currently focused on lining up offtake agreements and are in discussions with multiple parties as we are seeking out execution partners in which we've also made very good progress. As discussed before, we believe this partnership with the Malahat has the potential to be a blueprint or similar development with other indigenous bands that can be replicated throughout Canada. We will be taking our time to do this right with the Malahat as we want the definitive agreement to be based on a relationship where we can deliver on our commitments. Now for Bitcoin mine. During the December quarter, we had a realized hash rate of 1.62 exahash up 65% sequentially with a fleet efficiency of 22.9 joules a terahash, an improvement of 7%. We mined 97 Bitcoin, up 49% sequentially, as our hash rate increase was partially offset by a 15% difficulty increase. As the network produced about 60 Bitcoin per hexahash and a quarter, down 12% sequentially, our Bitcoin production was in line with what we would expect from our realized hash rate. With a fully energized fleet of 4,550 Bitmain T21 miners, We achieved our 1.7 exahash goal and have been able to reach 1.8 exahash in the current quarter by utilizing our first megawatt of hydro miners ahead of energizing the additional 5 megawatts of hydro miners at the end of this month, which should enable us to reach 2.1 exahash. Our fleet efficiency is currently just under 23 joules a terahash. We are targeting 21 joules when we fully energize our hydro miners. We consider this fleet to be within the ranks of our larger peers. Beyond this, we are looking at new sites for fleet expansion, especially as our vision is that our Christina Lake facility becomes an AI facility and that Bitcoin mining migrates to sites with lower cost energy. Regarding the site that DMG announced in May 2023, where we entered into a non-binding agreement that would result in development of a new data center site with access to low cost renewable energy located in Canada, the cost of energy has been significantly higher for the past few months versus what it had historically been. We are evaluating if this is a short-term blip or a secular change, and hence how we will proceed with the project. We continue to evaluate locating Bitcoin mining in other locations in both Canada and the US. To reach our three exahash goal in the coming year, we have been looking to deploy next generation miners with efficiency ratings below 12 joules a terahash in the second half of calendar year 25. However, given market uncertainties regarding the future profitability of mining, we will be very careful with respect to deploying the capital, especially as we have a potentially very lucrative AI opportunity emerging. If Bitcoin price significant industry restructuring, and hence we are proceeding with caution. And now for a summary of our strategy. First, BMG's core plus software and services. In calendar 2025, we are focused on customer acquisition and platform expansion for both TerraPool and Systemic Trust. We need very limited headcount expansion to do this, as for both platforms, we are initially focused on onboarding relatively few large customers. We are excited about how our software development is proceeding, and we expect a steady stream of new products and enhancements to our existing products. For DMG's core data center infrastructure, we are focused on AI becoming a major driver of our core strategy going forward, A fully facilitated PDC with GPUs has the potential to increase our asset base several times, and the JV with the malware had to be several times that, especially as we envision future AI data centers beyond the PDC to be based on liquid cooling utilized in the most advanced GPU devices. Bitcoin mining will remain foundational to our core strategy, while AI has the potential to rapidly eclipse Bitcoin mining, not just for DMG, but the entire industry. Bitcoin mining, if done right, can be an ROI enhancer to an asset base dominated by AI. Even as we just raised 17.2 million last quarter, to realize our vision, we will likely need to access the capital markets again. And as such, we may use a combination of cash, debt, and our equity to fund those investments. However, as demonstrated with the PDC acquisition, We can be creative where in this case, our initial outlay for the PDC is likely to be just a single digit percentage of the ultimate value realized from the asset. We also intend to utilize government sponsored financing as much as practical. Now I'll hand it over to Stephen to review the company's performance.

Thank you Sheldon. I'm Steven Illescu, DMG COO. First, a few words about the company's overall position. In the December quarter, our cash plus Bitcoin balance was 58.2 million, an increase of 62% sequentially and up 110% year over year. We have utilized more than half of our Bitcoin balance as collateral for our Signum Bank credit facility. which we utilize specifically for the purpose of purchasing our Bitmain T21 mining fleet and subsequent capital purchases. Note that we have expanded our use of our Signum credit facility by almost an additional 6 million in December quarter, and we're now up to $20 million. We are unlikely to expand this debt level further and we'll actually look to reduce it as we proceed through the year. For our mining operations, our near-term focus is to reach 2.1 exahash. As we believe hydro mining and direct liquid cooled AI servers are the future of high performance computing, this deployment positions us to execute on that future. So far, we are pleased with the performance of our operating hydro miners but we have very limited data so far. Now for a few words on AI. As Sheldon detailed, we are making progress on infrastructure, offtake agreements, and execution partners. Our AI ambitions are taking shape in a way that gives us an opportunity to carve out a defensible niche that is well-suited for DMG to execute upon. Now to review our financial results. In our December quarter, our revenue increased 97% to 11.6 million from 5.9 million the prior quarter. Mainly, our self-mining revenue increased 106% to 11.3 million from 5.5 million the prior quarter, resulting from the 49% increase in the amount of Bitcoin mined to 97 Bitcoin. and a 38% increase in the realized price for that Bitcoin. Our hosting revenue decreased 25% sequentially to 0.2 million in our December quarter. We expect hosting revenue to decline to near zero this year as our existing customers retire their fleets and we utilize our capacity for self-mining and AI. Operating and maintenance costs increased 44% to 6.7 million from the prior quarter as we operated 65% more hash rate with an offsetting 7% increase in miner efficiency and 22.9 joules per terahash. Note that while we realized a small decline in our utility costs as we began to utilize non-firm power, our hosting costs for 120 petahash of our fleet were higher than expected, reflected in the higher than historical non-utility operating and maintenance costs. Note that our non-firm power is subject to self-curtailment, and as we disclose in our financial statements and press release, we curtailed once for three consecutive days, which occurred last month. We have had no subsequent curtailment events, and we expect our Christina Lake energy costs could be slightly lower on an annualized basis, but likely higher in the current quarter as a result of utilizing non-firm power. Also note that the 15 megawatts of firm power will support our AI memo of understanding with the Malahat. and we're working with our utility to secure additional firm power for future AI growth. Our margin percentage on our revenue as operating and maintenance costs was 43% in the December quarter, up from 21% the prior quarter, and back in line with recent history. Our energy costs to mine a Bitcoin was about 46,000 US, similar to the prior quarter. As a proxy for cash flow from our business, which assumes we're selling about 100% of our generated Bitcoin, our earnings before other items excluding depreciation, amortization, and stock-based comp was 2.6 million, or 22% on a percentage basis, versus minus 1 million and minus 17% in the prior quarter. Our cashflow from operations was minus 2.7 million in December quarter versus plus 1.3 million the prior quarter, as we sold $4 million less Bitcoin than we earned. Note that we also raised $23 million from equity and debt combined, which were subsequently used for CapEx and investment into a short-term investment instrument. The net increase in cash flow from financing over cash flow from investments was largely reflected in the increase in our cash balance. Non-mine expenses, excluding depreciation, amortization, and stock-based comp, were $2.4 million in the December quarter, up 6% from the prior quarter of $2.3 million, largely on increased interest payments on our Signum loans. In our 2025 financial year, we still expect expenses to rise nearly 50% from 2024 levels as we continue to make investments in systemic trust. Additionally, we want to make a comment on our software development costs as we look forward. We have a world-class development team that is largely focused on optimizing architecture, test coverage, security, and user experience. For writing code, we're largely leveraging the publicly available AI tools. This is giving us a huge productivity boost and is now table stakes really for any software developer. So even as we have an ambitious software roadmap, we expect our research costs to stay very well managed, where cost growth will mainly be the effort of growing our cloud resources to support client growth. Depreciation expense of $4.3 million in the December quarter decreased 25% from the prior quarter as a declining balance method depreciates a smaller portion of our assets with time. As a percentage of revenue, our depreciation expense was 37%, which we believe is highly competitive among our peers and demonstrates a rapid improvement in capital efficiency as we grow house rate. Note that in the current quarter, we will begin to depreciate our S21 and S21 plus hydro miners. So that as we continue to make new investments, Bitcoin mining related depreciation may increase in our 2025 financial year. Our earnings before other items was minus 2.5 million in December quarter and improvement versus minus 7.3 million the prior quarter on the higher fall through from revenue and lower depreciation expense. Our net income was minus 3.1 million or minus 2 cents per share versus minus 5 cents per share the prior quarter. Note that the 0.9 million FX loss in the December quarter was associated with our Signum loan, which is denominated in USD. Now a comment on the accounting rules related to the unrealized revaluation gain on Bitcoin, which you may be wondering as you reviewed our latest financial statements. Note that the gains related to the increase in digital currency in the first quarter of fiscal 2024 were offset against historical losses incurred in prior periods. Gains are recognized on the income statement to the extent that they offset any historical losses, after which those gains are then recognized on the balance sheet as they were in the first quarter of fiscal 2025. This accounting rule impact drove most of the $10 million difference in net income between the December quarter and the quarter a year prior. Regarding our balance sheet, our cash plus digital currency holdings increased 62% to 58.2 million from the prior quarter and 110% from the prior year. The value of our property and equipment and long-term deposits increased 9% to 60.9 million from the prior quarter and increased 24% from the prior year as we purchased and deployed new mining equipment. Accordingly, our total asset base increased 32% to 137.1 million from the prior quarter and 51% from the prior year. In the December quarter, we sold 78 Bitcoin generating 7.3 million of cash. Thus, we sold 81% of the Bitcoin amount mined versus the prior quarter selling 143% of the Bitcoin mined. As a treasury policy, investors should continue to expect us to sell most or all of the Bitcoin we mine, and that our Bitcoin holdings should decline as a percentage of our total asset base over time. We do not expect to purchase Bitcoin on the open market, as investors are free to do so independently of their investment in DMG. Regarding raising new capital, as Sheldon indicated, how we raise capital going forward will likely look different than it has historically. In the past, we could count on the Bitcoin network to generate revenue that in turn would allow us to raise capital. For a future where AI could be a major component of our business, our capital raising will be tied to offtake agreements which will be one based on us bringing access to power and fiber, infrastructure, including the PDC, as well as collective expertise and track record brought by ourselves and our execution partners. This is very different and we believe we're well positioned to make this transition. Now I will hand the call back to Sheldon to summarize our prepared comments and we will answer questions. Sheldon?