Intchains Group Ltd (ICG) 2024 Q2 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by, and welcome to Intchains second quarter 2024 earnings 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 the 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 translation.

Before we continue, I'd like to remind you that today's discussion will contain forward-looking statements. These forward-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.

As a reminder and investor presentation and a webcast replay of this conference call will be available on the Intchain IR website at www.intchains.com.

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 second quarter of 2024. On today's call, we will provide an overview of our operational and financial performance. After that, we will conduct a Q&A session to take your questions.

In reviewing the second quarter of 2024, the cryptocurrency market has experienced a series of remarkable market trends and movements. While bitcoin and other liquid cryptocurrencies could slightly compared to the strong growth since the beginning of the year. The market still demonstrated a significant growth compared to the same period last year, exerting a positive influence on the overall WEB3 industry.

The second quarter also saw a substantial increase in activity across the WEB3 domain, driven not only by technological advancement within the industry, but also the growing interest and the participation from both internal and external stakeholders.

In March of this year, the computing equipment products that incorporate our latest chips for Alephium, Kaspa, Litecoin and Dogecoin were officially launched for sale. As of June 30, 2024, chips ASIC exceeded 274,019 units. This outstanding performance is a clear testament to the market's strong recognition of our product.

Moreover, the AL BOX and KL BOX have also won the favor of individual users due to the exceptional hashrates and ultra-low power consumption driven by the impressive sales of these two products the company’s overall revenue in second quarter increased by over 785% year-over-year.

Furthermore, since the company adopted a strategy of holding cryptocurrency, primarily Ethereum as a key long-term asset reserve for the group, we have closely monitored the volatility and the momentum of the cryptocurrency market and optimize the timing for our asset allocation.

As of June 30, 2024, the company has accumulated a total holding of 2,417 Ethereum. These results position not only enhance the company's financial flexibility and risk resilience, it also illustrates our strong confidence in blockchain infrastructure and the long-term value of ETH.

Going forward, the company will continue to follow this asset holiday strategy, making timely adjustments to our portfolio to capitalize to the opportunities we see with the WEB3 industry. We will also closely monitor industry trends and a review market risks ensuring that our investment portfolio can adapted to the evolving market environment and create long-term value for our shareholders.

As we move into the second half of 2024, we remain steadfast in our commitment to technological innovation and expanding our footprint within the industry value chain. In response to the evolving market and the technological landscape, we are proactively developing new WEB3 products beyond mining machines to enhance efficiency and improve customer experience for our industry partners.

We hope to accelerate the adoption of blockchain technology while supporting more enterprises in achieving their digital transformation goals. We are confident that as Intchains positioning and business model become more defined our company's growing potential and long-term value will be fully realized. Moving forward, Intchains will continue to lead the industry, collaborating with partners to drive robust growth across the sector.

Now I will provide a brief financial overview of the second quarter of 2024. Our revenue was RMB123 million or USD16.9 million for the second quarter 2024, representing an increase of 785% from RMB13.9 million for the same period of 2023. The substantial growth was primarily driven by a significant increase in the average selling price of our ASIC chip to products, which was attributed to the sales of our latest ASIC chips products, which commanded higher average selling price compared to the older ASIC chip products.

Cost of revenue was RMB40.9 million or four of USD5.6 million for the second quarter 2024, representing an increase of 33.2% from RMB30.7 million for the same period of 2023. The increase was primarily caused by the impact of inventory write-down, prepayment write-down and a provision for provision for inventory purchase commitments, which amounted to RMB30.3 million or USD4.2 million for the second quarter of 2024 compared to RMB22.5 million for the same period of 2023.

The percentage increase in cost of revenue was substantially lower than the percentage increase of in our revenue, which was primarily due to the higher gross margin for our latest ASIC chip products.

Our total operating expenses were RMB24.3 million or USD3.3 million for the second quarter, representing an increase of 40.2% from RMB17.3 million for the same period of 2023. The increase was primarily due to an increase in research and development expenses, sales and marketing expenses, and general and administrative expenses.

Our research and development expenses increased by 47.6% to RMB13.2 million or USD1.8 million for the second quarter of 2024 from RMB9 million for the same period of 2023, primarily due to the increased share-based incentive expenses, labor costs and expenses related to our R&D projects.

Sales and marketing expenses increased by 48.5% to RMB1.9 million or USD0.3 million for the second quarter of 2024 from RMB1.3 million for the same period of 2023, mainly driven by increased business promotion expenses, increased share-based incentive expenses and labor costs.

The G&A expenses increased by 25.5% to RMB8.9 million or USD1.2 million for the second quarter 2024 from RMB7.1 million for the same period of 2023, mainly driven by the increased tax surcharges, as well as increased share-based incentive expenses and labor costs.

Loss on fair value of cryptocurrency for the second quarter was RMB0.3 million or USD0.04 million, compared to nil in the same period of 2023.

Interest income decreased by 5.6% to RMB4.1 billion or USD0.6 million for the second quarter of 2024 from RMB4.4 million for the same period of 2023.

[Other income, net] (corrected by company after the call), decreased to RMB0.1 million or USD0.02 million for the second quarter from RMB0.3 million for the same period of 2023, mainly due to the decrease of government grants, which was partially offset by a change in fair value of short-term investments.

As a result of foregoing, we recorded a net income of RMB50.4 million or USD6.9 million for the second quarter 2024, compared to the net loss of RMB20.5 million for the same period of 2023.

Basic and diluted net earnings per ordinary share were RMB0.42 or USD0.06 for the second quarter of 2024, compared to basic and diluted net loss per ordinary share of RMB0.17 for the same period of 2023. Each ADS represents two of our company's ordinary shares.

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.

(Operator Instructions)

Mark Palmer, Benchmark.

Yes. Thank you for taking my question and congratulations on the strong quarter. I wanted to ask you about the demand environment you're seeing for your ASIC chips and mining equipment. What are you seeing in terms of the impact of the more buoyant crypto markets thus far in 2024? And how is that translating into increased demand for the types of mining equipment for which you provide chips? (interpreted)

Okay. Mark, thank you for your question and let me have short reply to you, maybe I will answer in Chinese and our staff will translate to English. (interpreted)

Hello. Mark, thanks for your questions. And as it is my pleasure to answer your questions. Yes, and as we can say that the second question of the 2024, the crypto market is showing a low stop -- a low rates in the markets, but our products shows the main competitive in industries and our especially for our AL BOX and KL BOX weighing the market organizations and the customer's had a favorite on it.

And also back to the current quarter, the market trend is a low down street, so but they believe that they will show, they have a strong confidence for our products and they have a strong financials, especially in the future.

Thank you. And one more question. The company has meaningfully diversified both its business line and the geographic footprint through the acquisition of GoldShell? What are your thoughts about the company's potential next steps in terms of further diversification into new product lines as it continues to focus on expanding its role within the WEB3 infrastructure space? (interpreted)

Thank you for your question. And actually in this quarter, our revenue was 72% have come from the oversea market and the comparative with last quarter that there was a significant increase this over 90% revenue will come from China.

Yeah. So this is the main advantage that we acquire the Gold Shell brand, because we have the ability to expand into overseas markets. And furthermore, we believe we will have other project planning in other area beyond the cryptocurrency mining machine, which will also Gold Shell brands to make sales. So I believe in the future, our product line will be more diversified with the GoldShell brand. Thank you.

Thank you very much.

Thank you.

(Operator Instructions) (inaudible) Final Link.

Hi Chaowei. I'm not sure whether you can hear me clearly, but I have one question for you, we observe that the company has sold more chips during Q2. Could you please share more plans on these ASIC allocation strategy? This is my first question. Thank you.

Thank you, for your questions and I would like to translate your question to Chaowei. (interpreted)

(interpreted) This is our answers to your questions. Yes, our company Intchains, leverage our operating cash flows to accumulate Ethereum and other growing crypto currencies. From our first quarter of 2024 they hold the 825 ETH. And up to the line June 30, 2024, the current holding Ethereum is 2,417. So basically our Ethereum asset strategy, is considering our cash flows and continues to hold and accumulate the Ethereum and we will not sell the Ethereum. So this is our answer for your question.

Okay. Thank you.

Right. Thank you for your questions. And I'm not showing any further questions in the queue. I would just conclude this period and conference for today. Thank you once again for joining Intchains second quarter 2024 financial results and business update conference call today. Have a great day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.