Intchains Group Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 20, 2024

There are 5 speakers on the call.

Operator

day, ladies and gentlemen. Thank you for standing by, and welcome to Inchain's Third Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. Joining us today is Mr.

Operator

Chaowei Yan, Chief Financial Officer of Inchain and Ms. Minqi Wang, Investor Relations Director. 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.

Operator

I would now like to call over to Min Ji Wang, Head of Investor Relations at Inchings Group Limited. Please go ahead.

Speaker 1

Thank you, operator. Good day, everyone, and Min Ji. Welcome to Inc. Trans Group Limited's Q3 2024 Earnings Call. For today's call, Mr.

Speaker 1

Cao Wei Yan, CFO of Inc. Trans Group Limited, will provide a comprehensive overview of the company's performance and financial results for the quarter. Before we proceed, I would like to remind everyone that today's discussion will include forward looking statements. These statements involve known and unknown risks and uncertainties and are based on the company's current expectations and projections regarding future events that may impact its financial condition, operating results and its strategic direction. The company undertakes no obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances or changes in its expectations, except as may be required by law.

Speaker 1

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. Investors should review other factors that may affect its future results in the company's registration statements and other filings with the SEC. We will discuss certain non GAAP financial measures. Please also refer to the reconciliation of non GAAP measures to the comparable GAAP measures in the earnings press release. The presentation and the webcast display of this conference call will be available on the interchange website at ir.

Speaker 1

Interchange.com. Now, let me turn the call over to our CFO, Mr. Cao Wei Yan. Please.

Speaker 2

Thank you, Ming Ti, and everyone for joining Interchange earnings conference call for the Q3 2024. On today's call, we will provide an overview of our operational and financial performance. After that, we will conduct a Q and A session to take your questions. In reviewing the Q3 of 2024, the cryptocurrency market was mostly range bound, with Bitcoin price remaining relatively stable, while other cryptos experienced a varying degrees of decline. The crypto industry's narrative primarily focused on national and institutional investments in ETFs, while some funds flowed into the Mimi sector due to a lack of prevailing application.

Speaker 2

However, as the Q4 began, the result of U. S. President's election strengthened global investors' expectations for pro crypto regulations, leading to renewed optimism about crypto's future development. In November 2024, Bitcoin price consistently broke all time highs, and sectors such as payment, Mimi and RWA also experienced rapid growth. We are confident about the upcoming development of the crypto market and actively preparing new assets and beginning primary efforts to build blockchain applications.

Speaker 2

As the company's growth strategy in the long term, InterChain's vision is to achieve growth that transcends crypto cycles through the developing applications based on Web3. While in the short term, the company is primarily focused on increasing ROI during crypto cycle. We enhanced ROI through continuously exploring promising crypto projects and accumulating ether. In Q3 2024, we continued to drive sales of our Ghost Shell branded computing equipment, designing for Caspar, LCM, Dogecoin and Litecoin Mining. This decision has allowed us to effectively capture the crypto market trends emerging in the Q4.

Speaker 2

To seize the current wave of cryptocurrency development, we will continue to actively explore new projects and expect to produce new assets by Q1 2025. Meanwhile, we will stick to our ether accumulating strategy, whether in the peak or 12th of the crypto cycle. In the Q3 2024, we continue to implement our strategy to accumulating ether, reaching 4,149 ether as of September 30, 2024, representing a 71.7% increase as of June 30. This month, we were excited to see that the total market cap of cryptocurrencies reached a historical high, with e store price surpassing the average cost of our holdings as of September 30. Furthermore, as part of our initial foray into blockchain application expansion, we launched Gold Shell Pay in this quarter, offering a one stop payment solution for merchants.

Speaker 2

Based on our confidence in the future of the crypto industry, we plan to launch a hardware crypto wallet in the Q4, which will further enhance Confluence payment product line and application ecosystem. We are confident that as interchange positioning and the business model become more defined, our company's growing potential and long term value will be fully realized. Moving forward, interchange will continue to lead the industry, collaborating with partners to drive robust growth across the crypto cycles. Now I will provide a brief financial overview on the Q3 of 2024. I am pleased to report that the company's 3rd quarter revenue was RMB60.3 million or RMB8.6 million, representing a year on year increase of 7.80% 81%, continuing the strong growth momentum from the Q2 of 2024.

Speaker 2

Revenue from the overseas accounted for 66.2% in the Q3 of 2024. Our global expansion strategy has been well continued since the Q2. Our sales volume of ASIC chips for the Q3 was 207,838 units compared to 165,056 units for the same period in 2023, representing an increase of 26%. Revenue for Q3 was driven not only by the increase of sales volume, but more importantly by the rise in the average selling price. The gross margin was 67.7% in the Q3, reaching the high risk level since Q1 2023, primarily due to the higher gross margins for our latest ASIC chips products launched in 2024 compared to the older ASIC chips products.

Speaker 2

In terms of total operating expenses, it was US37.7 million dollars or 5 point $4,000,000 for the Q3, representing an increase of 90.8 percent for the same period of 2023. The increase was primarily due to the loss on fair value of cryptocurrency and the increase of share based incentive expenses. The loss on fair value of cryptocurrency for the Q3 was RMB 13,100,000 or US1.9 million dollars It was primarily due to the volatility of the cryptocurrency market with Easter price falling 24.2% from the end of Q2 to the end of Q3. While in November, as mentioned before, the Easter price surpluses the average cost of our holdings as of September 30, 2024. Our net income for the Q3 was RMB3.2 million or US450 $1,000 and the non GAAP adjusted net income was US19.1 million dollars or US912 $1,000 both turning from a loss to a profit compared to the same period of last year.

Speaker 2

This was primarily due to the faster revenue growth in the Q3 compared to the growth in cost of revenue and operating expenses. This quarter we started to disclose non GAAP adjustments, non GAAP adjusted net income and primarily excludes share based compensation expenses. We believe non GAAP net profit reflects the company's ongoing operational performance. Basic and diluted net earnings per share was RMB0.03 for the Q3 of 2024 compared to the basic and diluted net loss ordinary share of RMB0.16 for the same period of 2023, each ADS representing 2 of the company's Class A ordinary shares. Looking ahead, we will continue to focus on product and project innovation and foster the adoption of blockchain technology for our clients and partners.

Speaker 2

We look forward to updating you on our progress. Thank you for your continued support.

Speaker 1

Thank you, Mr. Yan. At this point, I would like to open the floor for questions. You are welcome to ask questions in Chinese or English, and we will provide English translation when necessary for convenience purposes only. In case of any discrepancies, please refer to our management statements in the original language.

Speaker 1

Now, operator, we may start the Q and A session. Thank you.

Operator

Thank you, management. We will now begin the question and answer session. The first question comes from the line of Michael Chang from Keolonghui Research. Please ask your question.

Speaker 3

Hi, it's Marto from Telugu Research. Congrats on the company's strong growth in Q3. Firstly, I noticed that the company launched an app called GoshiaoPay in Q3 and you said you plan to launch a hardware crypto wallet in Q4. So my question for you is that can you tell us

Speaker 2

a little bit more about

Speaker 3

the functions of your Goshiao Pay and your hardware crypto wallet and what differentiate yourself from the other app and wallets in the market? Thanks.

Speaker 2

Okay. Thank you for your question. First, the Golden Show Pay was released in the Q3. And it is a one stop payment platform serving global merchants. Currently, it supports our merchants to receive cryptos, including Bitcoin, Ether, Dogecoin, Litecoin, Polygon and both USD coin and Tether USD.

Speaker 2

Gold Show Pay service including not only limited to payment process but for the risk monitoring and data analytics. However, it's still in the early stage. We did not expect it to generate revenue in the short term. And for the hardware wallet, it's doing confidential, it's doing development process. But what we can say is that both Gold Show Pay and Gold Show Wallet is an important step for us to explore our product line and develop our application ecosystem.

Speaker 2

And of course, both products will not have any custodian function and the users should store their security key by their own. Yes. Thank you.

Speaker 3

Okay, got it. Thank you. Operator, I'll pass. Thanks for the more questions.

Operator

Thank you for the questions. One moment for the next questions. Next question comes from the line of Cao Cao from Maxim. Please go ahead.

Speaker 4

Yes, thank you. So my question is also related to the cryptocurrency wallet to be launched in the short future. So could you give us some projections about what the cost and how the revenue would be like driven by this project? And also is this project to be developed in the house or the company is have a third party partner to launch this cryptocurrency wallet? Thank you.

Speaker 2

Okay. The Company's management firmly believes that in the future of blockchain applications, which is also one of our reasons behind our long term Ether accumulation strategy. Over the past few years, the company primarily focused on providing mining assets for Altcoins And this practice has proven that it's successful. But however, we are not remain confined to our comfort zone. So instead we have continuously sought the next growth curve for our company.

Speaker 2

So as we mentioned in previous years, we did not venture into blockchain applications because our primary focus was on achieving business survival through asset sales. Now the sufficient cash reserve and sustain us to we have sufficient cash reserve to sustain us through the cycle and the market that has developed a certain level of awareness of blockchain applications. The management believes it is time to begin exploring blockchain applications, starting with payments. Golden Shoe Pay is designed to offer merchants to a one stop payment solutions, providing risk monitoring data, operating and other functions with service fee collected in the process. And our hardware wallet is another product set to be released in the Q4.

Speaker 2

But the further details will be disclosed upon lunch. So currently all these are in trial stage. We do not expect both GohtushoPay and Wallet to will contribute materially to our profits during this phase and it's difficult to provide a specific commercialization timeline. So, but we aim to continue exploring various application directions and the breakout of our current operational comfort zone and then achieve long term stable growth. Thank you.

Speaker 3

Thank you.

Operator

Thank you for the questions. Your questions comes from the line of David Lai of Primaya Partners. Please go ahead. Hi. I wonder the company has been saying that it has one of the strategies accumulating EBITDA, which is a little bit different from more popular strategy, which is accumulating Bitcoin like MicroStrategy.

Operator

So can the management elaborate on that strategy in particular? And also some other company also adopting like some leveraging or even some other financing to do that. So is the company also planning to do so?

Speaker 2

The first question is why we choose the ether accumulating, right? So regardless of whether it's in bull or bear market, the company remains sticking to accumulating ether. And the reason for accumulating ether is, firstly, we position us as an Altcoin development company. Our primary business focused on providing ASIC chips for promising PoW coins. As PoS is one of the main consensus mechanism besides PoW, we aim to share growth of PoS sector by accumulating Etherbio.

Speaker 2

Therefore, investing investing in interchange is in a sense similar to investing in enhanced Altcoin portfolio, which offers a higher beta in rural markets. Secondly, the company's founder has a technical background and firmly believes in widespread application of the crypto industry. We have also begun initial trials in blockchain applications. Currently, Ethereum remains the dominant public chain for Web3 applications, making our strategy of accumulating ether a natural fit. Finally, the outflow market is relatively untapped and over complete crypto cycle.

Speaker 2

The company has consistently generated operating profits and maintained self sustaining growth. As a result, the company has a healthy cash reserve. This reserve allows us to navigate crypto bear market smoothly and tends to lower overall ROI during bull market. Accumulating ether serves as one way to improve our ROI. And finally for the financing, possibility of financing strategy to accumulate assets, at present the company primarily use its own cash to accumulate assets.

Speaker 2

However, we are aware that some U. S. Listed companies have deployed a financing strategy to accumulate cryptocurrency, like micro strategy and their surprise this year indicates that investors give full recognition on their approach. So as such we will consider joining their successful experiences and may explore financing options for asset accumulation at the appropriate time. Thank

Operator

you. Thank you for the questions. At this time, it appears to be no more questions from the line. Allow me to hand the call back to the management for closing.

Speaker 1

Okay. Thank you, operator. If there were no more questions online, maybe let's call it a day. And also, I want to say that if you have further questions, you can contact us through e mail or maybe you can after this conference, you can visit our website to refer to the materials we listed. Thank you, operator, and thank you, everyone.

Operator

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

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Earnings Conference Call
Intchains Group Q3 2024
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