Good day, ladies and gentlemen, and welcome to the Crown Capital's Q1 2023 results conference call. Please note that today's call contains forward-looking statements within the meaning of the applicable Canadian securities legislation. Forward-looking statements involve known and unknown risks and uncertainties, as well as other factors that may cause actual financial results, performance, achievements to be materially different from the estimated future results, performance, achievements expressed, implied by those forward-looking statements. For a description of the risks associated with Crown's business, please refer to the company's most recently filed Annual Information Form and its filings from Q1 2023 at SEDAR or on the company's IR website. For your information, today's conference is being recorded. At this time, I'll turn the call over to your host for today, Mr. Chris Johnson. Please go ahead.
Thank you, operator. Good morning. Welcome to today's call. I'm joined, as usual, by Michael Overvelde, our Chief Financial Officer. It was a solid start to 2023. We made good progress across all of our operating divisions. Revenue from our network services group was up 8% over the previous quarter and now represents 43% of Crown's total revenue in the period. The main driver of the revenue was the increase in the network builds and Community Network Partners, where we are bringing high-speed internet to small underserved communities across Canada. Our largest project is a network we're building in Northern Ontario under the Ontario Connects program in partnerships with the Government of Ontario. Work on this project continues to move ahead with the engineering design for the first phase, wrapping up and field activities ramping up.
Good construction weather has also returned to Alberta. We look forward to completing construction over at City of Brooks this year. Our subsidiary, Galaxy, continues to see year-over-year growth in revenue from enterprise customers and increased interest with the newer satellite infrastructure. Galaxy is developing world leadership in the development of Low Earth Orbit satellite technology as well as industrial applications with 5G connectivity. In Q1, Galaxy secured capacity on OneWeb's Low Earth Orbit constellation, which is a vital component to delivering new advanced internet services in Nunavut. Related to this, in late April, Galaxy announced its participation in Inuknet, a partnership with an indigenous-owned telecommunications company. Inuknet has an ambitious plan to have all 25 communities in Nunavut connected by the end of 2023. The largest contributor to total revenue in Q1 was our distribution services platform, Go Direct.
This segment represented 49% of revenue in Q1 and a strong sales growth in this period, up 28% over the previous quarter, mainly due to increased utilization at our newer facilities. Our warehouse in Calgary that opened in Q3 2022 was essentially empty at the end of 2022 and is now at full capacity. We are assessing options to expand this market. Our warehouse in Reno that was opened in Q4 2022, that was also essentially empty at the end of the year, is steadily adding customers. We anticipate this warehouse will be at capacity by the end of the third quarter of 2023. Finally, our warehouse in Columbus that opened in 2021 is also anticipated to be at capacity by the end of Q3 2023.
Because this business is in a ramp-up phase, profit levels are not indicative of normal operations, which are expected to occur the q-quarter following achievement of full capacity. With our distributed power platform, we had six operating projects quarter end, additional seven still under development, expected to become operational throughout the year at different times. Our focus remains on completing the project under development and optimizing the ones that are. As we near completion of projects under development, we continue to view strategic options for this platform, which does include the sale of some or all of the assets. As for the real estate platform PenEquity, the management company is now a subsidiary of Crown's umbrella after restructuring at the end of last year. As part of this process, a new company was formed and acquired the key staff and property management contracts.
As we move forward, we're securing other management contracts in addition to pursuing income from our own development projects. We achieved a major milestone with our very project, having recently re-received city council approval for additional density. We believe there's a chronic shortage of housing in Ontario, most notably in the affordable category, and our site in Barrie is well situated to serve this segment. We're now looking to advance this project, which includes reviewing strategic options. Excuse me. On the alternative lending side, good progress was made on the wind down of Crown Partners Fund, with repayments from three loans and the liquidation of warrants from another previously paid out deal. There now are three loans remaining, the largest of which is still undergoing a business restructuring, as discussed at our last quarterly call.
We believe this business has strong fundamentals, a deeply committed and competent management team, we are hopeful that the situation will resolve and possibly reverse the loss we incurred. The provision, I should say, not the loss, we incurred in 2022. With that, I'll turn over the call to Mike to review the financials.
Thanks, Chris Johnson. Good morning, everyone on the line. Our Q1 financial statements, MD&A, were all filed last night. Chris Johnson has already touched on the notable developments for Q1, so I'll stick to highlights here as usual. Starting with the P&L, just remind everyone that we acquired Go Direct Global in late Q2 of last year, so that business was not in our Q1 2022 numbers, and that is the main reason that total revenues and several expense categories are so much higher on a year-over-year basis this quarter. Looking at revenues, our distribution services segment was the largest contributor in Q1, again, with revenue of CAD 8.4 million. It's up 28% quarter-over-quarter, which, as Chris Johnson highlighted earlier, was due to an overall increase in capacity utilization
Also to some inflationary price increases that came into effect at the beginning of the year. From a profitability perspective, the distribution services segment had a net loss before income taxes of CAD 0.9 million in Q1, which includes a non-recurring gain of CAD 0.6 million that relates to the remeasurement of the long-term debt of one of the Go Direct subsidiaries. I'll note that this segment's pre-tax loss does include CAD 1.3 million of depreciation expense and CAD 0.4 million in finance costs. As a management team, we're keenly focused on generating improved profitability and cash flow from the Go Direct platform, which we expect will be achieved throughout 2023, largely through increased capacity utilization across the network, which is well underway.
Our other main source of revenue, as Chris noted, is network services revenue that increased by 8% year-over-year, by 10% quarter-over-quarter. The year-over-year growth mainly attributable, as Chris mentioned, to the commencement of new projects to Community Network Partners, and that more than offset a decline in the contribution of WireIE, which as you recall, experienced a net cancellation of customer contracts in mid 2022. In Q1, this segment contributed net income before income tax of $0.8 million. That includes depreciation expense totaling $0.7 million. That's down from net income before income taxes of $1.3 million in Q1 of last year, but is higher than in Q4 when it earned $0.2 million before decommissioning costs.
Based on the multiple growth initiatives that Chris highlighted, this segment is well-positioned for meaningful top-line expansion this year and beyond. As for the other revenue categories, interest revenue is comprised primarily of interest earned by Crown Partners Fund. It was CAD 542,000 in Q1, up from CAD 319,000 last year. That's on a higher average level of yielding investment in the fund. Fees and other income increased from CAD 451,000 a year ago to CAD 883,000 in Q1. That's due mainly to the addition of property management revenues earned by our new subsidiary, PenEquity Inc, which again acquired the property management contracts of PenEquity Realty Corp, effective beginning of the year.
For Q1 2023, our share of Crown Partners Fund earnings totaled CAD 1.4 million. That's a fairly normal or average level, especially compared with the CAD 4.4 million loss that we recorded as our share last year. I will note that the carrying value of our investment in Crown Partners Fund decreased by seven and a half million in Q1 to CAD 27 million, and that this decrease was due to loan repayments received by the fund and distributed out to its limited partners, including Crown. Our share of distributions from the fund in Q1 was CAD 8.9 million. Of course, that more than offset our CAD 1.4 million share of its earnings.
All of this amounted to a modest net loss in the quarter of CAD 0.7 million or CAD 0.13 per basic share, compared with a loss of CAD 2.6 million or CAD 0.38 per basic share same period last year. Total equity at quarter end, CAD 49.9 million. That's CAD 8.85 per basic share, down slightly from CAD 8.98 at year-end. As previously announced during Q1, we entered a new senior secured corporate credit facility with Canadian Western Bank. It's up to CAD 40 million. It includes up to CAD 30 million of term debt and up to CAD 10 million on a revolving credit line, plus a letter of credit facility. This replaced our previous credit facility and effectively doubled our credit capacity from CAD 20 million to CAD 40 million.
As at the end of Q1, we had CAD 25 million drawn against the term loan, representing our initial advance, and nothing drawn in the operating loan. We also had a cash balance of CAD 16.8 million on a consolidated basis, of which, two and a half million dollars is the property of Crown Partners Fund. We were carrying more cash than usual at the end of Q1 for two reasons. One is that that CAD 25 million loan advance provided us with a surplus cash balance after repaying our previous corporate loan. Two is that we received a sizable distribution from Crown Partners Fund close to quarter end, representing the pass-through proceeds it received from some loan repayments.
On the subject of liquidity, I'll note that in April, we announced that we're seeking approval from debenture holders to amend certain terms of our convertible debentures, including extension of the maturity date of the debentures, from June 30th of this year to December 31st, 2024, plus an increase in the interest rate from 6% to 10%. The details of the proposal and the benefits for debenture holders are well laid out in our filings on this. For Crown, an extension of the maturity date of the debentures will improve our near-term liquidity while providing us with additional time to raise capital from the wind down and/or sale of non-core assets, the proceeds of which will be available to help fund the cash repayment of the debentures.
Special meeting of the debenture holders in respect of this proposed amendment is next week, May 16th, after which we plan to issue a release, announcing the results. In closing, thank you again for your time and continued interest in Crown. 2023 is shaping up to be a year of strong growth for our company, driven by the initiatives Chris highlighted in our two main segments, and we look forward to updating you on developments with our Q2 earnings in August. That, operator, we'll turn it over to questions.
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you would like to withdraw your question, please press the star followed by the two. One moment, please, for your first question. Your first question comes from Nick Corcoran from Acumen Capital. Please go ahead.
Good morning, guys, and thanks. Take my questions.
No problem.
My first question is on the network services. Is this progressing as you expected, and when do you expect shovels to be in the ground?
Yeah, it is. Well, I didn't have much of an expectation when we first were awarded the contracts. Like, as we got the project management teams up and running and got a scale of how much engineering design had to go into it, absolutely what's happening now is meeting our expectations and shovels are going in the ground imminently. It's not many different components to each segment of the build. With the view that we're gonna get this built and turned on as quickly as humanly possible. Some works gonna start imminently and others will kind of take place over July maybe to finish it.
How should we think about the revenue build as the project kind of progresses through the phases?
I think it should build pretty, kind of like It should build linearly to the houses we're passing. I think in the markets we're going in, the penetration rates are fairly predictable. It's just, it's a question of as we pass, make available to houses, we expect the customers to be there at a certain percentage. I don't have the exact schedule in terms of how many turn on by month or even by quarter for this year. It's just there's, you know. It starts relatively small and then, and then really it's through 2024 is the bulk of the connections are being passed and then falling into 2025.
That helps. Then maybe thinking about distribution services, is there any seasonality in that business that we should think about?
Some, let's just say some customer seasonality, like some overall macro, like you're essentially tracing a retail cycle somewhere through it. Not that we're fulfilling retail, but customers are buying things in the same cycle that affects retail. Definitely the Q4 is the busiest and there's a bit of a shadow period in Q1. Then you have certain customers who are highly seasonal, like, you know, we have one, for example, that we see a bump around Mother's Day, we see a bump around Christmas, and they're pretty quiet throughout the rest of the year. There's others who just are very, very consistent, that it's more of a commodity product that their consumers buy on a recurring fulfillment or refillment basis, so it's pretty steady.
If you look across the business, it's gonna have a bit of a wave up in Q4, down in Q1, but the rest of it should be pretty steady.
That helps. Then in that business, as the warehouses fill up, how should we think about, the fixed versus variable costs and the underlying profitability?
Well, the fixed cost is really just lease cost and a bit of SG&A. We've definitely have scale now that the SG&A is not really a mover. As we incrementally open warehouses, it's just that fixed cost of lease. It varies by the customer mix and what you're doing and how you look at your full cycle of revenue, if it's storage versus packaging versus freight revenue. I would say on average, 50%, give or take, gets you to break even and you start making money. Like clearly in my remarks, like as we fill warehouses, that's not full revenue.
Like what you'll end up having is a load and in phase our customers are you're receiving, but they're not processing orders out of there, so we're not able to pick up the service and the freight revenue. Once we're full, then you're, A, you're getting 100% of your storage revenue, but you're also likely fully operational on your service revenue and your freight.
Think about the three warehouses you talked about in Calgary, Reno, and Columbus. Are you processing orders in all those warehouses or are you just kind of a load in phase?
Yeah. Reno's still in loading phase. Calgary flipped in April to full both ways. That one happened very quickly. Like it was loading fairly slow, and then it just got slammed. We've got a lot of other market appetite for that, for Calgary. We are very, very full, over full there right now. Reno as it is still loading and Columbus has been doing... It's a combination. It's a big facility. Like it's by comparison, Columbus is 250,000 sq ft. Calgary is 50 and Reno is 100 approximately. Columbus is it's been doing both ways for a while.
Good. Then you talked about potential expansions in Calgary. Can you give a little bit more detail on the timing of that?
Yeah, we're looking. It's just a general theme across North America is distribution housing logistics space is very, very tight. It is, you know, from when we signed our lease last year, this year we've seen a move. We've seen a move in every one of the markets we've been in, except for Reno, which is pretty recent. Just rates up significantly. We are dealing with that, and space options are not, you know, plentiful. But I do think that we'll probably end up finding a short-term solution for just the current. It's on a sort of month-to-month payment basis before we make plans to do a significant scaling in that market, which may happen by the end of the year.
Great. That answers all my questions. Thanks for taking my-
Okay, no problem.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. There are no further questions at this time. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, you may now disconnect your lines.