DMG Blockchain Solutions Inc. (DMGI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the DMG Blockchain Solutions Fourth Quarter 2021 Financial Results and Corporate Update. [Operator Instructions] 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 approximately 1 hour after the end of the call. I would now like to turn the conference over to Jules Abraham, President of -- from CORE IR, the company's Investor Relations firm. Please go ahead, sir.

Thank you, Gary. Good afternoon, everyone, and thank you for joining us for the DMG Blockchain Solutions Shareholder Update Conference Call. Joining us today from DMG Blockchain Solutions is Sheldon Bennett, the company's Chief Executive 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 the DMG Blockchain Solutions most recently filed periodic reports and the company's recent press releases, particularly in the cautionary statements within. The content of this call contains time-sensitive information that's accurate only as of today, March 30, 2022. Except as required by law, the 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 Bennett, Chief Executive Officer. Sheldon?

Hello, thank you, Jules. Checking, can you hear me?

Mr. Bennett, your line is open. Please go ahead with your presentation.

Great. Thank you. Thank you for the introduction. Sorry, I had a little phone problem there, but I'm back on. Normally, I start the presentation going through the quarter. We [indiscernible] 2 quarters, and then I'll focus mainly on Q1, and I'll refer it back to Q4 as well. But I just want to do a couple of boards to everyone about the management seas trade order. This was an unfortunate event. I guess COVID got the best of us and hopefully, it didn't happen to other companies. But I just wanted our shareholders to be aware that we did plan like last year to file early in December, we were able to do that because we had all of our financial information together quite quickly. This year, we want to do the same, but our auditor informed us that they wouldn't be able to meet a deadline like that. So unfortunately, we didn't bring it ahead. Exactly the opposite happened in being late. I also want to let our shareholders know that a week before the deadline for our audit to be filed, we do have our audit committee meet with our auditor at that time. It looks like everything is starting for filing, we didn't see any issues that would stop the filing. Unfortunately, that's not what happened, our auditor turned around and wasn't ready to sign off on the audit. We've had 2 more audit committee meetings with the auditor over the seas trade period and eventually finish the audit and got excluding [indiscernible] from auditor. And we're thanking for our audit that can finish the audit. It can be a difficult period in professional services right now. Lots of companies are having a lot of difficulties with staff and with COVID. I'm hoping that's going to come to an end with COVID now seeming to seed a lot more in the population, and we're looking forward to continue to work with our auditor. It's also important to note that the auditors letter to our Audit Committee did not show any signs of issues within the management team or the management accounting reporting. So we still have a very strong robust system of accounting reporting. So I just want to get that out of the way because I'm sure there are a few people who are in scratching their heads and asking why did this happen? It was unexpected and unfortunate for all parties involved. But now we're past that. And I think the DMG look very good. So going back to my original plan of how I start this call, I usually just do a first little update and general update on our financial performance. And so good news for all of our shareholders. DMG has posted its first profitable quarter with just over $5 million of profit on $14.2 million of revenue. This is quite a milestone for the company. We've been working very hard for many years to get there. Within that milestone, our software posted over $400,000 in new revenues. So outside of Bitcoin mining. That's a nice start on the software side. And again, this is mainly looking at what we're doing on the pools. On top of that, our balance sheet is looking healthy. We've decreased our liabilities across the company and our debt. So I think we're doing very well as a company in terms of our profitability and financial performance as well as our balance sheet. In terms of our operations, as many of you know, I would like to break our operations into what I call Core and Core+. Core is discussing our mining and operations and Core+ is all of our software under the blocks your name. And so just to highlight, the miners are continuing to be delivered to Christina Lake every month. As many of you know, we've purchased 450 miners a month on a contract that was ending at the end of this year, ex cash. So our 45 petahash will be installing this month should be up and going any day they are mining [ several ] lives into Vancouver. And so they need to pick up and installed what [indiscernible] there. We are continuing to build up the infrastructure at Christina Lake. We ensure that we can meet the shipments of miners coming to us. And on average, we're producing around 2.17 Bitcoins a day. So a strong amount of coin production for the amount of miners we have up and running. And obviously, we're looking to increase that depending on what happens with overall hash rate. On the Core+ side, Mara Pool continues to generate revenue [indiscernible] doing a version to update to the UI to Mara Pool, which will help Marathon in managing their tools and their operations. As well, Tera Pool's beta is generating some revenue for the company and win some blocks. Right now, it is a beta that's been used internally. But we are looking hoping to get this pool out and launched with others next year -- sorry, not next year, next month, next year. Just maybe we'll work on it too long ago it next year. So we're hoping to have that out next month. We've done some upgrades as well in the UI. We've also integrated our mine management software, we call Helm into the platform so that companies can try the Helm product in the pool itself and decided they want to opt in or out, and these will be adjusted according to whether or not the option or out of Helm. As many of you know, Tera Pool is focused entirely on renewable energy. Renewable energy has been a hot topic in the world of Bitcoin mining and Bitcoin in general. And this is the first pool that it really takes on the challenge of renewable energy as a future standard of crypto mining. We've also been talking with some funds that are really interested in Tera Pool. It's a bit complicated to get into it, but a lot of funds that are interested in green coins are carbon neutral coins are interested in trying to figure out how to offtake from Bitcoin miners that have clean energy and so Tera Pool potentially becomes a conduit of ways in which cryptominers could directly work through us with funds that they would be willing to sell at points to. A lot of cryptominers want to [ HODL ] their funds, some want to sell. So this could be a way in which clean energy miners that want to sell coins to have a direct line to funds out there that are looking for coin. So we're working on how we could put that together and how we can make this very frictionless and easy for cryptominers to work with funds. As well, I've said before that 1 of our goals is to introduce DMG Exchange through blocks here. That's coming along a bit faster than we thought. So for some news on that, I think our exchange software and our partnership with Bosonic, we'll have some announcements soon. And just to remind everyone that in general, we are following our intended use of proceeds from our last phrases. So we're trying to keep to what we told the shareholders we do, but not deviate from that. Also Petra, which we've announced before, which gives optionality to users on exchanges. It's -- it works on test net. But once we get Tera Pool officially launched and rolled out, we'll be looking at [Technical Difficulty].

This is conference operator, pardon me Mr. Bennett's line has disconnected from the call. [Operator Instructions] Pardon me, this is the conference operator. Mr. Bennett has rejoined us in the conference. Bennett go ahead.

Thank you. Sorry about that. I'm not sure why the call dropped, but I'm back. And if I remember correctly, I was just finishing up on my sort of overview of the finance and operations of the company and moving to the second part of our review today, which is looking at the financial results from Q4 on to Q1. So what I'll be covering for September 30, 2021, to December 31, 2021. And then will go from January 1, 2022, to March 31, '20. [Technical Difficulty].

Pardon me this is conference operator. Mr. Bennett's line has dropped again, one moment while we try to get him back on the call. Pardon me this is the conference operator, I've reconnected Mr. Bennett. Please go ahead.

Yes. Sorry about that, not too sure what's going on with the cellular network. But let's continue. As I said, we move in term consolidated financial statements. I just wanted to go through a few line items like I normally do. So normally, I pick a few things where there's some major changes. I assume everybody is fairly adept at reading financial statements, probably better than I am, to be honest. But I just want to go through a first few things on the assets from DMG's public raise last year, the bulk of our month of purchasing an exahash up crypto mining capacity from Bitmain. And you'll see DMG's cash position changing over time as these orders are paid for. You'll see Q3 with just over $47 million down to just over $19 million in Q4. And then Q1, we reported just under $1 million in cash. However, on the other side, DMG's digital currency, so that's our Bitcoin that we've been generating has grown with the deployment of miners. So in Q3, we had just over $11 million in Bitcoin, which is about 257 Bitcoins. In Q4, it rose to almost 18 million in Bitcoin, so 325 coins about that many. And now in Q1, we are at all time of over 26 million of Bitcoin or 432 approximate Bitcoins. Naturally, as we need cash to operate the company, we also will be needing to convert some Bitcoin to do that. So we do that in an opportunistic way. So we do look for price changes on the spikes and we look at selling of some Bitcoins for our operations. Normally, we're looking at sort of minimizing the cash right now and maximizing the Bitcoin as any Bitcoin companies doing it quite long on Bitcoin. We're not literally looking to [ HODL ] and only have Bitcoin. We're looking to have a healthy amount of cash in the bank to get through any lows and they happen at Bitcoin. So we don't want to be too Bitcoin heavy. But we are as you can see, increasing the Bitcoin holdings and decreasing the cash over time. Also, you'll see in the statements, there is a line on amounts recoverable of about $7.8 million. This is actually due to the non-delivery on the contract of purchasing miners. We've got a partial refund. We're working a full refund of the $7.8 million. We're hoping that will be done over the next quarter or so. But the company that was unable to deliver us has been talking with us and working through the refund of that purchase. In long-term deposits and property and equipment, just to clear up any questions on what's happening here. You'll see in Q3, DMG had over $31 million in deposits for equipment. In Q4, it dropped down to $24 million as we received equipment on the deposits that were paid to Bitmain then you can see Q1 going back up to approximately $31 million as we put in the Bitmain S19 XP order, so the new 140-terahash miners. So you're going to see these sort of numbers jump up and down as we put our payments in for equipment and then as it's delivered and moved in from deposits into property and equipment. On long-term investments there, you'll also see around $5 million. Just to clarify if anyone had any questions on that, those are the investments into [ Brain ] Bosonic. Brain was back in June and the investment used to be in the receivables until we actually receive shares, and that's why it popped into our long-term investments. On the equity side, I don't think we have much change there. Overall, if you look at DMG's financial position in terms of assets, we've increased up to $111 million, up from $111 million -- sorry, up to $119 million over the quarter. And as I said, we're holding around $27 million in cash and Bitcoin and obviously, Bitcoin can move.

Mr. Bennett, your line went silent again. Are you still connected? No. Okay. Once again, he's disconnected. I'm going to try and get them back on the line. One moment, please. Pardon me, this is the conference operator. Able to rejoin Mr. Bennett to the call. Please go ahead, sir.

Hi, everyone. So I guess third time wasn't a charm. It's not working that well for some whatever reason, so I'm going to try and wrap up revenue and we'll have to skip Q&A. Hopefully, I don't drop off again. But just as I was saying, our revenue in Q3 was $1.7 million. We moved that up to $4 million, just over $4 million in Q4. And then our revenue last quarter, Q1 for us, ending December 31, was $14.2 million. Just so you know that revenue of $14.2 million was greater than all of our revenue last year. Our last year revenue for the 12 months was $10.2 million. So that's -- the big difference is a $4 million difference that we've done in 1 quarter instead of 12 months. As well, we lost about $9.5 million on our $10.2 million of revenue last year, as opposed to a $5 million profit on our $14.2 million in revenue in this quarter. So this is all very good news for the company. It's a real win for us and everybody in the company is very happy. And hopefully, the shareholders are really happy and impressed with the gains we've been making. Outside of that, when you look at our total expenses, if you look at Q3 of June, you'll see that it's around $5 million. And then in Q1, which is December is about $9 million, which is about a $4 million increase over the 6 months. This is mainly due to [ miner ] depreciation expenses and not a significant cost in running our operations. So this is miners plus we've increased the amount of power we're using. So when you take a look at the total expenses that increase that you're going to see up to almost $9 million is really coming from depreciation and the increased cost of running more miners in our fleet. Again, we don't have a net loss for the quarter. We have a net gain of $5 million. So this is our first net quarter positive revenue. So we're pretty excited about that. In the past, I've looked through the table on our MD&A and sort of showed quarter-after-quarter how we've been dropping our net loss. And now we've turned that net loss around to an actual just over $5 million net income, our gain. So I just want to highlight that after a few years, we finally got the company into a positive cash flow, positive profit position. And then I just wanted to say a couple of things, and hopefully, that it will stay online. So first cash and cash equivalent, which is Bitcoin, we're sitting at over $27 million. We have 1 exahash or miners orders with over 50% delivered, we'll be bumping that up to over 60% delivered here in a few days when we get our new shipment that's in Vancouver, up to Christina Lake and turned on. We mined 88 coins in all of the financial year last year, whereas we mined 183 coins just in Q1 of this year. So there's a big change in our operations. We are continuing to follow our use of proceeds that we outlined to our shareholders. As well, we're now starting to see new revenues to our mining pools, and we're hoping to start increasing them with the onboarding and public opening of Tera Pool soon. as well, we're looking at after Tera Pool, bringing on Petra. And there's a few other products, including our exchange and our wallets that we're working hard to get up and running. For those of you that are following the software side, I also want to note that Adrian has been working hard. I think he's onboarded 6 people over the last month or so. He did another 6 or so few months before that. So the software side of the company is really growing at headcount, and that's helping us execute quicker and getting the software out. I know the questions on software time lines, software revenue, what is it going to look like? So as we have more developers now, we'll have better understanding to be able to communicate better on time lines for products and what we think the quarterly revenues will look like by the different product streams. I haven't cut off again, so that's great. I'm not too sure if we should go into Q&A or not. Am I everything okay for me going to some Q&A questions. I'll take that as a yes. So I'll try a couple of Q&A questions. How many clients/exahash are under mine manager? Right now, we're running around 10,000 miners under mine manager around 1 exahash. Any plans on increasing the hash rate?

Okay. Once again, it looks like we have lost Mr. Bennett. At this point, I believe we should just conclude. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.