Intchains Group Ltd (ICG) 2023 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by and welcome to Intchains' third quarter 2023 conference call. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Joining us today is Mr. Chaowei Yan, Chief Financial Officer of Intchains. Mr. Yan will provide an overview of the company's performance and the details of the company's financial results. After that, we will conduct a question and answer session to take your questions. During the question and answer session, Mr. Yan will deliver the answers in Chinese, and the company's representative will provide corresponding English translations.

Before we continue, I'd like to remind you that today's discussion will contain follow-looking statements. These follow-looking statements involve known and unknown risks and uncertainties, and are based on the company's current expectations and projections about future events that the company believes may affect its financial condition, results of operations, business strategy, and financial needs.

The company undertakes no obligation to update or revise publicly any forward-looking statements to reflect subsequent occurring events or circumstances or changes in its expectations, except as may be required by law.

Although the company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the company's registration statement and other filings with the SEC. With that, I'll now turn the call over to Mr. Chaowei Yan, the company's CFO. Mr. Yan, please go ahead.

Thank you, operator, and everyone for joining Intchains' Earnings Conference Call for the third quarter of fiscal year 2023. On today's call, we will provide an overview of our operational and financial performance for the third quarter of fiscal year 2023. After that, we will conduct the Q&A session to take your questions.

We are now in the third era of internet development, which is known widely as Web3. This era integrates the decentralized community governed ethos of the first era with the advanced modern functionality of the second era, unlocking a new wave of creativity and entrepreneurship.

We are very excited to have successfully joined Web3 industry, leveraging our strong chip capabilities as an entry point. Now, we are deepening our penetration into additional Web3 applications and integrating blockchain technology with traditional industries to transform people's lives further unleashing our value.

Moving on to our financial performance. In the third quarter of 2023, market conditions continue to hover around all-time lows. Against this backdrop, both our revenue and gross profit margin decreased quarter over quarter for 2023. We recorded third quarter revenue of RMB6.8 million with a negative growth margin of RMB8.2 million. However, our recent order growth and increasing industry visibility in the downstream market demonstrate an accelerated recovery starting from the fourth quarter, which should also propel improvement of our revenues.

Our product development efforts, new business explorations, and peer collaboration initiatives in the past several quarters have begun to bear fruit underscoring our business rebound and return to its growth paths.

First and foremost, we continue to innovate and make technological breakthroughs during the third quarter of 2023. We completed the tape-out of our latest chip in October, which contains innovative algorithms. The mass production will commence in the fourth quarter of 2024. Our new generation chips incorporate advanced new algorithms and process nodes, representing an industry-wide product and technology iteration.

Secondly, as I have mentioned previously, Intchains has been actively seeking collaboration opportunities in the downstream industry value chain. In line with this strategy, we are currently signing a letter of intent and finalizing the negotiation with a Singapore-based company regarding our proposed acquisition of Goldshell, a Web3 infrastructure brand.

This transaction involves the potential acquisition of over 20 registered trademarks of Goldshell across the United States, Singapore, European Union, United Kingdom, Hong Kong, and China. This transaction also involves Goldshell's website and application, and social media accounts with a large user and community base. We anticipate that we will execute the acquisition agreement in the fourth quarter of 2023.

Following the completion of this transaction, we will be able to enter the downstream production and sales sector across cryptocurrency mining equipment and other Web3 infrastructure-related hardware and software products.

Goldshell is a well-known brand in the blockchain infrastructure industry with a strong market reputation and customer base. Meanwhile, Intchains possesses industry-leading chief research and development technology and capabilities.

As such, we believe that Goldshell acquisition will create a combination with powerful synergies. Once completed, this transaction will broaden our offerings for existing customers with new products and brand choices, while enabling us to more effectively acquire new customers.

Last but not least, I want to mention that our latest tape-out and potential Goldshell brand acquisition are just two of our many initiatives in our flourishing pipeline. We will report on additional developments when the time is right. Now, I will provide a brief financial overview of the third quarter of 2023.

Our revenue was RMB6.8 million or US$0.9 million in the third quarter, a year-over-year decrease of 94.6%. The decrease was mainly due to the challenging cryptocurrency market, which resulted in a decrease in sales volume and average selling price of our asset chips that were primarily used in cryptocurrency mining machines.

Cost of revenue decreased by 8.3% year-over-year to RMB15.1 million or US$2.1 million in the third quarter due to the decrease in sales volume of our asset chips, largely offset by an inventory right down, totaling RMB10.3 million.

Total operating expenses decreased by 16.7% year-over-year to RMB19.7 million or US$2.7 million in the third quarter, primarily due to the decrease in research and development expenses, partially offset by increase in sales and marketing expenses and G&A expenses.

Specifically, research and development expenses decreased by 41% to RMB11.4 million or US$1.6 million for the third quarter of 2023 from RMB19.2 million for the same period of 2022. The decrease was primarily attributable to the different stage of our research and development projects during the respective period.

Sales and marketing expenses increased by 74.3% year-over-year to RMB2.2 million or US$0.3 million in the third quarter, mainly due to the increase in personnel expenses. G&A expenses increased by 93.8% year-over-year to RMB6.2 million or US$0.8 million in the third quarter, largely due to increase in personnel related costs and professional expenses, partially offset by the decrease in tax surcharges. Interest income increased by 50.3% year-over-year to RMB4.6 million or US$0.6 million in the third quarter, mostly attributable to the increase in our cash balance and our effective fund management.

Other income decreased by 83.6% year-over-year to RMB1.4 million or US$0.2 million in the third quarter, primarily due to the decrease in grants received from the local government. The grants were issued in support of eligible IC industry projects with no repayment obligations.

Our net loss for this quarter was RMB19.1 million or US$2.6 million. The basic and diluted net loss per ordinary share was RMB0.16 or US$0.02 cents in the third quarter. Each ADS represents two of our company's Class A ordinary shares.

To sum up, during the third quarter, our business was under pressure, especially due to the challenges facing the Web3 industry. However, we believe the industry was irrevocably progressing despite those short-term fluctuations. Each Web3 industry player can capitalize on emerging opportunities to become a tech giant. Our diverse, innovative, and growing product portfolio put us in a prime position to capture the Web3 recovery opportunities.

Moving forward, we will remain focused on advancing our cheap technologies while further expanding our product and service offerings to serve upstream and downstream along the value chain, ultimately driving our long-term sustainable growth. Thank you for your continued support. We look forward to updating you on our progress in the future. Now I'd like to turn the discussion over the operator for any questions. Thank you.

Thank you. We will now begin the question and answer session. (Operator Instructions) Please stand by while we compile the Q&A roster. Our first question comes from the line of [Liz Kenyon]. Please go ahead, [Liz].

Thank you for taking my question. Yes, can you please share your management guidance for the quarter?

Okay, thank you for your question.

(Translated) We expect the overall industry recovery rate will accelerate in the fourth quarter, providing improvement in our revenue. From what we can see for now, our performance in Q4 is exactly much better than in Q3. As the company is currently in critical development period regarding diversifying its business penetration, helped with the elevated industry volatility.

It is challenging to provide the company financial outlook for the fourth quarter. However, we are ongoing product development efforts, new business explorations, and the peer collaboration initiatives in the past several quarters have begun to bear fruit, underscoring our business rebound and return to its growth trajectory.

Thank you, Mr. Yan. Let's move to the next question. (Operator Instructions) I'm showing no further questions. And with that, we conclude today's conference call. Thank you for participating. You may now disconnect.