Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the DMG Blockchain Solutions Q1 2023 update conference call. At this time, all participants are on listen -only mode. Should you need assistance, please press star and then one on touchtone phone to signal an operator. Participants of this call are being advised that the audio of this conference call is being broadcast live over the Internet. It's also being recorded for playback purposes. A web-based replay of the call will be available approximately one hour after the end of the call. Now I'd like to turn the conference over to Jules Abraham of CORE IR, the company's investor relations firm. Please go ahead, sir.
Thank you, Keith, and good afternoon, everyone. Thank you for joining us for the DMG Blockchain Solutions shareholder update conference call. Joining us today from DMG Blockchain Solutions are Sheldon Bennett, the company's Chief Executive Officer, and Steven Eliscu, 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's accurate only as of today, March 2nd, 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.
Thank you, Jules, and thank you to everyone who's joined the call today. I'm Sheldon Bennett, the CEO of DMG Blockchain Solutions. First, I would like to highlight on software. Terra Pool is again live and operating after its upgrades. Second, Petra is complete and operating on Terra Pool with an unexpected focus on Ordinals, which I'll get into shortly. Third, on mining, DMG grew its hash rate to just over 0.9 of an exahash, a level we are at today until we receive more miners from Bitmain. To review Q1 2023, which ended December 31st, 2022. As we have restarted Terra Pool, this has given us the opportunity and the ability to deploy our Petra technology, which we are using to place Ordinals on the Bitcoin blockchain.
Petra ensures those NFT creators who want to utilize the most immutable digital asset ledger can do so in a carbon neutral manner. This is a huge step forward for the industry as NFT creators have a new opportunity they didn't have previously for transacting their digital assets. These creations, whether they be art or music, stay recorded on the Bitcoin blockchain for all time, as miners are the guardians that ensure blockchain immutability. For DMG, NFTs can also become a recurring revenue opportunity as each time the NFT is to be transferred in a carbon neutral manner, the associated transaction fees may go to DMG and other Terra Pool members.
While we recognize that high transaction fees on the Bitcoin blockchain for placing NFTs may be very much short-lived, we are at the same time encouraged that transaction fees are demonstrating that they may become a much more substantial portion of our overall miner reward, which is what we believe Satoshi envisioned back in 2008. Petra technology is just another piece of the Core+ Bitcoin transaction monetization opportunity. We are pleased to have been able to intersect this opportunity at just the right time. We continue to look forward to furthering our Core+ strategy. As a reminder, our key objectives for the Core+ are, one, to grow our Terra Pool hash rate with the long-term goal of achieving 10% of the network share. Two, actively transact Bitcoin in a carbon-neutral manner through Terra Pool using our Petra technology.
Three, to create a carbon-neutral Bitcoin marketplace. In the near -term, Ordinals have risen as a short-term catalyst for Petra, and we are excited about its potential even after the hype dies down. We believe this helps validate that our strategy to monetize Bitcoin transactions is the right one. Given our foundation of our hash rate, Terra Pool and now Petra, we have the ability to guide the market in this direction. We believe achieving these goals will enable us to grow our Core+ revenue to be significantly larger in the long- term. For DMG's core strategy, we have a few updates on our mining infrastructure. We remain at 0.91 EH/s as we speak, as we still haven't yet received our final 42 PH/s of S19 XPs from Bitmain.
We plan to purchase additional miners from Bitmain using our accumulated credits, and we are working with them to decide which is the best miner we can receive with a reasonable lead time. To accommodate space for new miners, as our long-term goal is to grow to 2 EH/s, we are planning to add container capacity on our Christina Lake property outside between our building and substations. We are working to minimize the cost of the containers and expect the capital of the equipment and install labor to be modest.
Regarding immersion cooling, from which we expect to achieve up to 40% hash rate increase, selection of specific equipment we will use is still in the planning stage. We'll provide an update when we're closer to deploying our large-scale pilot tanks in Christina Lake. Even as we are focused on developing our Core+ strategy, we remain committed to growing our hash rate faster than network in the most capital efficient way possible. I'll hand it over to Steven to go over the company's performance.
Thank you, Sheldon. I'm Steven Eliscu, DMG's COO. Now a few words about the company's overall position. The company continues to manage its cash closely, with spending focused on our Core+ and immersion cooling initiatives while making incremental improvements to our mining operations. As Sheldon highlighted above, we plan to make some modest capital additions to our property to be able to quickly expand. Note that as we are planning to purchase containers cost effectively and some of the infrastructure we need for expansion is already owned by DMG, the actual cash layout for such an expansion is well below what would be expected for effectively doubling our mining capacity. From a Core+ perspective, we are continuing developments that are bolstering our capabilities.
Under the hood, we've upgraded our Terra Pool software, which includes making our infrastructure more scalable at lower costs and ultimately giving us more control over how we manage our pool and how we can inject Petra transactions into Terra Pool from a variety of sources. Our goal is to maximize revenue for DMG and pool members, making a green pool attractive, not just because it's carbon-neutral, but also because it's more profitable. Our balance sheet remains sound despite challenging market conditions, with a modest CAD 1 million of debt added in the December quarter. While we continue to search for low-cost sources of debt to accelerate our immersion cooling plans, we are focused on maximizing cash flow.
In our December quarter, our revenue increased 10% sequentially to CAD 7.2 million from CAD 6.5 million in the prior quarter, mainly as revenue from self-mining increased 22% to CAD 6.7 million from CAD 5.5 million on a 38% increase in mined coins to 274.7, partly offset by an 11% decline in the average price of Bitcoin from recognized revenue to CAD 24,286. Our margin on our revenue, less operating and maintenance costs, was 39% in the December quarter, down from 47% in the prior quarter.
As a proxy for cash flow from our business, our earnings before other items, excluding depreciation, amortization, and share-based comp, was CAD 1.3 million, or 18% on a percentage basis in the December quarter, down from CAD 1.8 million and 28% the prior quarter. Our earnings before other items was minus CAD 5.3 million in the December quarter versus minus CAD 4.7 million in the prior quarter. Expenses excluding depreciation, amortization, and share-based comp increased to CAD 1.4 million from CAD 1.3 million as non-mining cash expenses remained relatively steady. Depreciation increased 2% to CAD 6.1 million. Future changes in depreciation will depend on the rate of capital equipment additions.
Our cash plus digital currency holdings increased 4% to CAD 10.9 million from CAD 10.6 million in the prior quarter as the amount of Bitcoin held increased 32% to 453, which was partly offset by a 16% decline in the price used to value our Bitcoin held. Additionally, o ur property and equipment and long-term deposits decreased to CAD 66.9 million from CAD 72.6 million in the prior quarter, as our depreciation exceeded the amount of new equipment deployed. Our total asset base accordingly decreased to CAD 92.1 million from CAD 96.9 million the prior quarter.
In the December quarter, DMG mined nearly 275 Bitcoin, a 38% increase sequentially from 200 as a realized hash rate of 0.84 EH/s was up 50% from our September quarter, which was partly offset by an 18% decrease in the network BTC per exahash. In the December quarter, DMG sold nearly 160 Bitcoin at an average price of CAD 25,216, generating CAD 4.1 million of cash. DMG sold 60% of the Bitcoin amount it mined in the December quarter, versus the prior quarter selling 134% of the Bitcoin amount mined. Our hosting revenue declined 22% sequentially in the December quarter to CAD 0.5 million. We expect hosting revenue to remain near Q1 levels, at least for the near- term.
As discussed on our Q4 earnings call, we announced raising CAD 1 million of debt secured by one of our fully paid real estate holdings. We continue to evaluate capital raising opportunities and seek to avoid shareholder dilution. As we spoke to you a month ago about our longer-term goals for Core and Core +, we simply want to reiterate that we remain committed to these goals of expanding our fleet and converting to immersion cooling on our Core strategy, and we look to Core + as our longer-term driver of valuation. As Sheldon clearly articulated, our focus is on monetizing Bitcoin transactions. I will now hand the call back to Sheldon to summarize our prepared comments, and we'll answer questions submitted to us prior to the call.
Thank you, Steven. Just to reiterate a few key points. As Steven opened, the company is highly focused on tight cash management. Two, DMG mined 275 Bitcoins in Q1. That's up 38% from the prior quarter, which is a new record for us. Three, of the 1 EH/s of miners ordered, almost all have been delivered. We only have one shipment we're waiting on. Four, a dditionally, as a proxy for cash flow from our business, our earnings before other items, excluding depreciation, amortization, and share-based compensation, was CAD 1.3 million or 18%. While this is down, the improved Bitcoin price is also supportive of a margin increase. Cash and BTC on hand at the end of the quarter was CAD 10.9 million, with total assets of CAD 92.1 million.
While all those metrics are positive, I want to close my prepared comments by reiterating how excited we are to be moving to the next steps of our Core+ strategy with the execution of Petra transactions on the Bitcoin mainnet. Petra is a key enabling technology for carbon-neutral Ordinals, which is a new addition to DMG's overall monetization opportunities. Now on to our Q&A. We have a few questions posed to us. We encourage questions to be sent to us anytime throughout the quarter or throughout the year. Just email them into investors at dmgblockchain.com. Question number one, and I'll take them on. Steven can jump in as he likes, or maybe I'll defer a couple to Steven. He might be a bit better to answer them.
Question one, there seems to be somewhat of a backlash against ESG initiatives, especially where financial institutions charters are now being challenged. Does this negatively impact your strategy? Good question. We've been seeing news reports about this, but in general, we don't believe that this impacts our strategy at all. DMG is focused on what is right for our business and specifically initiatives that are ultimately going to be demanded by regulators.
Decarbonization, keeping back bad actors out of the mainstream, you know, crypto economy is very important for us and we see that this is not going to change and this is part of our ESG initiative. We believe these are secular trends that will ultimately drive our business and focusing where we can get the most revenue at high margins, such as embracing the optional Ordinals and keeping them carbon neutral is a great example of that. Steven, do you have any additional comments?
Yeah, I would just say that even as there's a lot of general talk, specifically what DMG is focused on, the issues of reducing carbon in the Bitcoin ecosystem and being able to ensure that bad activities such as money laundering, human trafficking aren't being facilitated using Bitcoin, that we can play a positive part in enabling that. That is just continues to play to what DMG is focused on.
Thank you. Another question. Foundry USA Pool network share keeps growing. How can you possibly compete with Terra Pool against such a behemoth? That's a great question. Generally, you know, my thoughts on that is, you know, being the biggest isn't necessarily being the best, especially in the world of crypto, which is a world of decentralization. A large player leads to fears of centralization. Foundry has thrived because it's North American-based, and it has built a good platform. Ultimately, pools have a low switching cost, and given the potential we believe for miners to earn more money on Terra Pool than potential other pools out there, we believe that we can grow Terra Pool and compete with Foundry Pool.
Yeah. I would just add that we're not just building a pool and growing a pool. We're also building an ecosystem and building an ecosystem around clean block mining and being able to take the carbon out of Bitcoin transactions. That's something where we're going to stay very focused on. We think we have something that's unique, and we're going to grow that as our objective.
There, there's a similar question. I think it's kind of an add-on question to the Foundry question, which is, why has it been so difficult to get more large miners on Terra Pool? I think that's just a function of building a pool software from scratch and getting to work properly and to scale with our Helm and our Petra and our clean block mining. We did go through a few months of serious software upgrades, which took longer than expected, so we've lost a bit of momentum from when we initially told the market about our partnership with Argo in developing Terra Pool. We do clearly aim to get that momentum back as we believe we have a compelling value proposition in Terra Pool.
It will take a bit of time, but, as we're operating Terra Pool now, and as we're applying our Petra technology, to blocks for mining, we now believe we have the foundation to build and attract more green mining, miners out there, carbon-neutral miners out there onto the Terra Pool platform.
Yeah, I was going to take the next question, Sheldon. We have a question here about that we first were talking about green Bitcoin funds, then we switched to talking about a green Bitcoin marketplace, and just having a more definitive timeframe as to when we could put all of this together. To answer this, we've had a lot of interest since creating Terra Pool about being able to sell green mined Bitcoin. With the Petra technology enabling Bitcoin to stay green by continuing to move it through Terra Pool, the logistics would be straightforward. We've learned subsequently that that's not necessarily the case, especially as what we really want to do is create a mechanism to have a market clearing price such that we can talk about the premium for green mined Bitcoin as 5% or 7% or whatever the market would determine.
That ended up where that was, we would need to supply a significant amount of Bitcoin as much as we have on our balance sheet. We probably would need a significant amount more to really establish a green Bitcoin fund. What we thought instead is we can establish a marketplace, and this would allow us to build more incrementally and utilize the Bosonic network, where the green Bitcoin can be identified and sold, specifically having that Bitcoin routed through our pool. What we've learned there in terms of moving that strategy forward is we need to build a complete ecosystem of miners, custodians, exchanges, financial institutions that could all work with utilizing the Petra technology and Terra Pool. This is a large task. It's not going to happen overnight.
We're still committed to this path because we think it's the right thing to do. Ultimately we do believe that Bitcoin created in a carbon neutral manner has the potential for a price premium. At least in the near- term, we're going to focus on utilizing Petra such that Bitcoin that's already created can be moved through Terra Pool in a carbon neutral manner. Even if carbon was attached to it in prior creation and movements, at least on a go-forward basis, that Bitcoin can now be moved without carbon. We think there is demand for this is going to be part of our focus in the near- term.
Thanks, Steven. That's a great answer and a long answer, and you know, it does show a couple of things. One, it is difficult to build an ecosystem in a short period of time, but it's possible as we have completed some of the parts, you know, with the pool and Petra and working with Bosonic, we're going to keep pushing forward on that. We're hoping to have more news out as the months go by. The next question, what is your cost to mine a Bitcoin? This is a common question we get. We might just make it a standing question. As we said last quarter, and it's essentially the same for this quarter, it's around $10,000 per coin is our cost to mine a Bitcoin.
T he change of that cost is largely a function of network difficulty, which hasn't really changed a lot, or significantly. I mean, changes every two weeks, but not significantly to change that overall cost. We do expect this quarter that difficulty and that cost of a coin to start to increase from the last two quarters. Can you give an update on your corporate development activities? This is quite a general question. Generally, you know, anything that we're doing Is related to either adding crypto mining capacity, crypto miners, or accelerating our software and all of our projects in Core+. you know, my general answer to a general question would be we're still doing all of that.
It takes a bit of time, you know, when we look at potential partnerships, and kind of M&A that may happen. There's not as much M&A happening as I thought. Well, I don't think there will be a lot, but as others may have thought there would be. It was nice to see the Hut 8 M&A project that seems to be going ahead. You know, obviously, we're always interested in different opportunities, but we'll not disclose anything until that opportunity was material enough for our shareholders to know about. I think Steven has a comment as well.
What I would say is we haven't slowed down in terms of always looking for ways to increase the value of the company that go beyond our internal operations, and we're certainly, always examining potential opportunities. There's no slowdown in terms of this.
Yeah. I think that's a good for the next question that we have on the list here. Can you give an update on DMG's expansion to new, assuming low cost electricity sites? We never really stopped looking for low cost sites. You know, one goal is to fully reach the capacity of Christina Lake, which we had said earlier, we are on our way to do that, and fully build out the infrastructure there. We think we can do that at low cost. We do look for other sites. It's always hard to find a site that is meeting all the needs that we want. You know, low cost being important, but all the other infrastructure questions are very important as well.
We don't have a super sense of urgency to get something done right away as we are finishing out Christina Lake. That being said, you know, we are looking at places in the U.S. and Canada that we could potentially partner with or purchase ourselves to expand beyond what Christina Lake can do. We do understand a halving coming and, you know, a halving coming every four years after that. Low cost is paramount to what we're looking at. We haven't been looking outside of North America, to be honest. We're not really looking at some of these far off jurisdictions that others may be looking at. That could change over time, but right now we're more focused on areas where we really understand the rule of law and the protection of our assets, and we feel comfortable that we're doing the right thing with our investors and trust in that we'll make decisions that won't impact the value of DMG.
Yeah. The other comment I would add to what Sheldon said is, as we shift to immersion in terms of the overall cost structure for mining, it shifts the business from being more capital intensive to being more operational intensive. That operational intensity is going to require us to be more focused on finding new low cost electricity sites. This isn't something we're doing because it would be nice to have lower cost electricity combined with the halvening and what we think is an industry move to immersion cooling. This is going to be a requirement in the long- term.
Thanks, Steve. Do you want to take the next question or you want me to take a stab at this one?
I think you're the regulatory expert. I'll leave it to you.
Canadian regulatory is easier than U.S., okay. The question is, do you see any regulatory changes with either Canadian or U.S. governments that could affect your business? It's a great question. You know, our business right now is more Canada-centric, we are very aware that, you know, what the U.S. government has or does, will do, has done, has a direct impact on what's happening in cryptocurrencies and Bitcoin in particular. You know, our feeling and our belief is that, you know, DMG long -term will be a net beneficiary of any kind of increased focus on regulation or ESG by, you know, governments or institutions that sees this to be important. The whole stack of our Core+ is focused in on regulatory issues.
That was the reason we started building this out as a public company, was to meet regulatory issues that we saw coming, as best we could with our software stack for Bitcoin. You know, as Bitcoin is here to stay, you know, we believe governments will want Bitcoin miners to have the lowest impact on environment. We think everybody wants that, whether we're Bitcoin or not. There seems to be a lot of interest in Bitcoin miners' power use and low impact on environment.
Second, you know, we see the trading of Bitcoin to be the same way, you know, where governments and financial institutions would like to see a Bitcoin minimizing bad actors being involved and protecting consumers, especially consumers that have been impacted by exchange bankruptcies. Not just exchanges, you know, there have been other bankruptcies in the ecosystem that's hard on consumers. Do you want to say something, Steven?
I would. Just with regards to the U.S., certainly the environment has become more hostile post FTX. If you look at at least some stablecoins being considered securities, that is concerning, as well as the proposal of the Digital Asset Anti-Money Laundering Act and miners being considered money services businesses. We're going to watch very closely for regulatory developments throughout North America. We think long- term that as long as these more fringe activities don't negatively impact Bitcoin, the overall environment will play to our advantage, but the uncertainties remain.
Yeah. Just to add to that, you know, DMG's Terra Pool, our clean block mining via using the WalletScore technology, Petra, and its ability to give optionality in transactions, these all help to address the issues and enable financial institutions or, you know, broadly anyone in the Bitcoin ecosystem to, you know, conform, I would say, better or comply better with, you know, both ESG requirements and, you know, regulatory requirements. You know, that's our general feeling. I think in Canada, you know, there is a working group around some of the issues that are happening with the federal government.
Probably doesn't have as much media on it as things that happen in the U.S., but we are kind of disagreeing with the federal government and how it would be, or at least potentially asking pool operators and miners questions around KYC on every miner transaction that would happen in a block. These are things that we're working on as a group, as well as questions around ITCs that are recoupable or not, if you're a crypto miner. The results of these discussions aren't over yet, it's ongoing, but we're hoping that at least Canada mining industry will make its point understood and be treated fairly, just like any other business in Canada when it comes to ITCs.
Our last question, I think this is almost a standing question up there with what does it cost to make a Bitcoin, is what are your top objectives for 2023? It hasn't really changed from our Q4 earnings call. You know, one is the continuing to focus on our cash management. Two is to grow beyond our 1 EH/s. You know, we'd really like to get to 2 EH/s, and we'd really like to do this with some immersion cooling to lower our CapEx costs to reach that. Three is to increase our software revenue with Terra Pool back up and running and Petra running on Terra Pool, bringing in new revenues. We're really focusing on increasing our software revenue.
Four, which is a bit more, I'm not sure what word to use, but it's a little longer goal, and maybe a bit more difficult as we've learned over the last few quarters, is to establish a marketplace for carbon neutral Bitcoins, both sort of buying, selling and moving them. Those are our topic objectives for 2023. I think we're well on our way. That ends the questions on this call, and I thank everyone for attending and our call is now over.