Intchains Group Q2 2024 Earnings Call Transcript

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August 15, 2024

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to InkChain's 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.

Operator

Xiaowei Yan, Chief Financial Officer of Ink chains. 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.

Operator

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 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 statements and other filings with the SEC.

Operator

As a reminder, an investor presentation and a webcast replay of this conference call will be available on the Inchain's IR website at www.incchange.com. With that, I'll now turn the call over to Mr. Xiaowei Yan, the company's CFO. Mr. Yan, please go ahead.

Speaker 1

Thank you, operator, and everyone for joining Interchange's earnings conference Call for the Q2 2024. On today's call, we will provide an overview of our operational and financial performance. After that, I will conduct we will conduct a Q and A session to take your questions. In reviewing the Q2 of 2024, the cryptocurrency market has experienced a series of remarkable market trends and movements. While Bitcoin and other liquid cryptocurrencies could slightly compare to the strong growth since the beginning of the year.

Speaker 1

The market still demonstrated significant growth compared to the same period last year, exerting a positive influence on the overall Web3 industry. The Q2 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 chip for iOFIM, KASPA, Litecoin and Dogecoin were officially launched for sale. As of June 30, 2024, chip sales have exceeded 274,019 units. This outstanding performance is a clear testament to the market's strong recognition of our products.

Speaker 1

Moreover, the AL box and the Ka box have also won the favor of individual users due to exceptional harsh rates and ultra low power consumption. Driven by the impressive sales of these two products, the company's overall revenue in Q2 increased by over 7 85% year over year. Furthermore, since the company adopted a strategy of holding cryptocurrency, primarily ether as a key long term asset reserve for the group, we have closely monitored the volatility and the momentum of the cryptocurrency market and optimized the timing for our asset allocation. As of June 30, 2024, the company has accumulated a total holding of 2,000 417 ether. This result position not only enhances company's financial flexibility and risk resilience, it also illustrates our strong confidence in blockchain infrastructure and the long term value of ether.

Speaker 1

Going forward, the company will continue to follow this asset holding strategy, making timely adjustment to our portfolio to capitalize to the opportunities we see within Web3 industry. We will also closely monitor industry trade and review market risks ensuring that our investment portfolio can adapt to the evolving market environment and create long term value for our shareholders. As we move into the second half of twenty twenty four, we remain steady fast 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.

Speaker 1

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 sector. Now I will provide a brief financial overview of the Q2 2024. Our revenue was RMB123 million or $16,900,000 for the Q2 2024, representing an increase of 785 percent 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 products, which was attributed to the sales of our latest ASIC chip products, which commanded higher average selling price compared to the older ASIC chip products.

Speaker 1

Cost of revenue was RMB40.9 million or US5.6 million dollars for the Q2 of 2024, representing an increase of 33.2 percent 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 provision for commitment purchase commitment, which amounted to RMB30.3 million or US4.2 million dollars for the Q2 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 in our revenue, which was primarily due to the higher gross margin for our latest asset chip products. Our total operating expenses were RMB24.3 million or US3.3 million dollars for the 2nd quarter, representing an increase of 40.2 percent 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.

Speaker 1

Research and development expenses increased by 47.6% to RMB13.2 million or US1.8 million dollars for the Q2 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 and D projects. Sales and marketing expenses increased by 48.5 percent to RMB1.9 million or US0.3 million dollars 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 and A expenses increased by 25.5 percent to RMB 8,900,000 or US1.2 million dollars for the Q2 of 2024 from RMB 7 point 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 Q2 was RMB0.3 million or US0.04 million dollars compared to new in the same period of 2023. Interest income decreased by 5.6 percent to RMB 4,100,000 or $0.6 million for the Q2 of 2024 from RMB 4,400,000 for the same period of 2023.

Speaker 1

Other income decreased to RMB0.1 million or US0.02 million dollars for the Q2 from RMB0.3 million for the same period of 2023, mainly due to the decrease of government grants, which was partially offset by change in fair value of short term investments. As a result of forward going, we recorded a net income of RMB50.4 million or US6.9 million dollars for the Q2 of 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 US0.06 dollars for the Q2 of 2024. Compared to basic and diluted net loss per ordinary share of RMB0.17 for the same period of 2023, each ADS represents 2 of our company's ordinary shares. Thank you for your continued support.

Speaker 1

We look forward to updating you on our progress in the future. Now, I would like to take the discussion over the operator for any questions.

Operator

Thank you. We will now begin the question and answer session. We'll take our first question now from the line of Mark Palmer from Benchmark. Please ask your question, Mark.

Speaker 2

Yes. Thank you for taking my question and congratulations on the strong quarter. I wanted to ask you about the demand environment you are 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 ships?

Speaker 1

Okay. Okay, Mark. Thank you for your question. And let me have a discuss have a short reply to you. Maybe I will answer in Chinese and our staff will translate to you in English.

Speaker 3

Hello, Mark. Thanks for your questions and this is my pleasure to answer your questions. Yes, and as we can say that the Q2 of the 2024, the crypto market is showing a low stop, a low state in the market, but our products show the main competitive in the industries and our especially for our AI box and the KA box, when the market organizations and the customers had a favorite on it. And also back to the current the quarters, the market trend is a low down street. So but we believe that they will show they have a strong confidence for our products and they have a strong financials especially in the future.

Speaker 3

Thank you.

Speaker 2

And one more question. The company has meaningfully diversified both its business line and its geographic footprint through the acquisition of Gold Shell. 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?

Speaker 1

Thank you for your question. And actually in this quarter, our revenue our overseas revenue was achieved about 72%. Our revenue was 72% come from the overseas market and compared with last quarter that was a significant increase because last quarter about 90% over 90% revenue will come from China. Yes. So this is the main advantage that we acquired the gold show brand because we have the ability to expand the overseas market.

Speaker 1

And furthermore, we believe that we believe we have we will have other projects playing in other area beyond the cryptocurrency mining machine, which will also go to show brand to make sales. So I believe in the future, our product line will be more diversified with the Golden Shores brand. Thank you.

Speaker 2

Thank you very much.

Speaker 1

Thank you.

Operator

Thank you, Mark. We'll take our next question from the line of Xianwen Wang from Finolink. Please go ahead.

Speaker 3

Hi Charles. I'm not sure whether you can hear me clearly, but I have one question for you. We observed that company has sold more EASE during Q2. Could you please share more plans on ease as an asset allocation strategy? This is my first question.

Speaker 3

Thank you. Thank you for your questions. And I would like to translate your questions to our CFO. This is our answers to your questions. Yes.

Speaker 3

Our companies in chance leverage our operating cash flows to accumulate Ethering and other growing cryptocurrencies. From our Q1 of 2024, we hold the 825 Ethers and up to the line, June 30, 2024, the current holdings, the interim is 24.17. So basically our issuing asset strategy is considering our cash flows and continues to hold and accelerate the issuing and available note selling issuing.

Operator

Right. Thank you for your questions. And I'm not showing any further questions in the queue. I will just conclude this period and conference for today. Thank you once again for joining Itjin's Q2 2024 Financial Results and Business Update Conference Call today.

Operator

Have a great day.

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Intchains Group Q2 2024
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