Intchains Group Q1 2024 Earnings Call Transcript

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May 16, 2024

Key Takeaways

  • Inchain completed trial production of its 12 nanometer chip–powered Gold Shell computing equipment and Household Box series, with full-scale production set to begin in Q2.
  • The company announced an ETH reserve strategy, expanding its cryptocurrency investments to use ETH as a long-term asset reserve and bolster Web3 competitiveness.
  • Q1 revenue was RMB 24.3 million, down 6.8% year-over-year primarily due to a one-off sale in 2023, while underlying SFC product sales remained stable.
  • Cost of revenue rose 15.2% to RMB 15.3 million after a RMB 4.4 million inventory write-down, signaling expectations of adverse market conditions for certain products.
  • Total operating expenses surged 168% to RMB 38.1 million—driven by a 357% increase in R&D costs and higher share-based expenses—leading to a Q1 net loss of RMB 14.8 million.
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Earnings Conference Call
Intchains Group Q1 2024
00:00 / 00:00

Transcript Sections

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Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Intchains' first 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 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 would like to remind you that today's discussions will contain forward-looking statements.

Operator

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. 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. With that, I'll now turn the call over to Mr.

Operator

Chaowei Yan, the company's CFO. Mr. Yan, please go ahead.

Chaowei Yan
Chaowei Yan
CFO at Intchains

Thank you, operator, and everyone for joining Intchains' earnings conference call for the first quarter of fiscal year 2024. On today's call, I will provide an overview on our operational and financial performance for the first quarter. After that, we will conduct a Q&A session to take your questions. In 2023, we weathered a downturn in the Web3 industry. However, 2024 has ushered a fresh start as the industry's anticipated upward cycle has arrived. As a leading strong infrastructure provider, Intchains is poised to embrace an unprecedented array of opportunities. Leveraging our resources and technological advantages to the fullest, we aim to see an opportunity to encounter along the industry and the industrial value chain. Our goal is to secure a more prominent position in the Web3 industry and promote the industry's prosperity as well as our own.

Chaowei Yan
Chaowei Yan
CFO at Intchains

The first quarter of 2024 brought several technological success. We integrated our latest 12-nanometer chip technology into Goldshell branded computing equipment, and commenced trial production of our latest household BOX series products. Utilizing kHeavyHash and BLAKE3 algorithms for Kaspa and Alephium currency respectively, we launched the KA-BOX for sale at the end of March and AL-BOX in April. Both products have received widespread market recognition. As the trial production and the internal debugging of the 12-nanometer chip concluded, our products, equipped with 12-nanometer chip, along with various types of computing equipment, will commence full-scale production in the second quarter. All of these reaffirms our confidence in the prospects of our of our new products and their potential positive financial contribution in the coming quarters.

Chaowei Yan
Chaowei Yan
CFO at Intchains

As we move through 2024, we will continue strengthening our research and development efforts, and introducing ASIC chip products suitable for Web3 industry applications. Additionally, we are actively advising collaborations with external teams to explore the tremendous potential of blockchain-enhanced applications, leveraging state-of-the-art encryption technology. Turning now to our financial initiatives. To fully unleash the value of our capital, Intchains will expand its investments in cryptocurrencies. Going forward, ETH-based cryptocurrency will serve as a crucial long-term asset reserve for the group. We are implementing an ETH reserve strategy beyond the funds necessary for daily operations, to enhance the company's competitive competitiveness to development of the Web3 industry. We firmly believe that ETH represents the future of Web3 industrialization. Intchains is anticipating a dynamic year ahead, one filled with possibility and promise.

Chaowei Yan
Chaowei Yan
CFO at Intchains

We will continue to increase our investment in ASIC chips and computing equipment, covering products related to ZKP, FHE, and AI to meet the growing market demand. At the same time, we will actively explore other areas of Web3 applications, continuously introducing new, new innovative products to expand our product lineups. We are confident that through these concerted efforts, Intchains will enhance its long-term value and solidify its competitive position in the market. Now, I will provide a brief financial overview of the first quarter of 2024. Our revenue was CNY 24.3 million, or $3.4 million for the first quarter, representing a decrease of 6.8% from CNY 26 million for the same period of 2023.

Chaowei Yan
Chaowei Yan
CFO at Intchains

The decrease in revenue was primarily attributable to a one-off sale of Intchains intelligent router products in the first quarter of 2023, which generated 1.2 million CNY in revenue. When excluding this one-off sale, revenue from our ASIC products remained relatively stable between two periods, with no significant fluctuations in either the sales volume or average selling price of the ASIC products. Cost of revenue was 15.3 million CNY, or $2.1 million for the first quarter of 2024. Representing an increase of 15.2% from 13.2 million CNY for the same period of 2023.

Chaowei Yan
Chaowei Yan
CFO at Intchains

The increase was primarily driven by a 4.4 million RMB inventory write-down for certain products in the first quarter of 2024, reflecting our expectation of adverse market conditions facing such products. Total operating expenses were 38.1 million RMB, or $5.3 million for the first quarter of 2024, representing an increase of 168.3% from 14.2 million RMB 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, partially offset by the net gain in fair value in cryptocurrency.

Chaowei Yan
Chaowei Yan
CFO at Intchains

Research and development expenses increased by 357% to CNY 36.5 million, or $5.1 million for the first quarter of 2024, from CNY 8 million for the same period of 2023. The increase was primarily due to the higher expenses related to market costs for our R&D projects, as well as increased personnel-related expenses. Sales and marketing expenses increased by 27.2% to CNY 1.6 million, or $0.2 million for the first quarter of 2024, from CNY 1.3 million for the same period of 2023, mainly driven by increased share-based incentive expenses.

Chaowei Yan
Chaowei Yan
CFO at Intchains

G&A expenses increased by 9.5% to CNY 5.4 million, or $0.7 million for the first quarter of 2024, from CNY 4.9 million for the same period of 2023, mainly driven by increased share-based incentive expenses. Gain on fair value of cryptocurrency for the first quarter of 2024 was CNY 5.4 million, or $0.7 million, compared to nil in same period of 2023. We early adopted the amendment required by the new accounting policy of cryptocurrency, using a modified retrospective transition method with cumulative effect adjustment recorded to the opening balance of retained earnings as of January 1st, 2024. The cumulative effect adjustment of CNY 0.2 million...

Chaowei Yan
Chaowei Yan
CFO at Intchains

CNY 0.3 million was recorded as an increase of the opening balance of retained earnings. Yeah. We measured the cryptocurrency at a fair value and included the gain and loss from remeasurement in net income. The gain pertains to the change in cryptocurrency fair value from the adoption date, which was mainly due to the increase of price of the ETH. Interest income increased by 17.2% to CNY 4.2 million, or $0.6 million for the first quarter of 2024, from CNY 3.5 million for the same period of 2023. Mainly attributable to our effective cash management.

Chaowei Yan
Chaowei Yan
CFO at Intchains

Our other income decreased by 96.6% to CNY 0.1 million or CNY 0.1 million for the first quarter of 2024, from CNY 4.1 million for the same period of 2023. The decrease was primarily due to the decrease in grants received from the local government, which have no repayment obligations. As a result of the foregoing, we recorded a net loss of CNY 14.8 million, or $2.1 million for the first quarter of 2024, compared to the net income of CNY 4.7 million for the same period of 2023.

Chaowei Yan
Chaowei Yan
CFO at Intchains

Basic and diluted net loss per ordinary share, CNY 00.12 or $0.02 for the first quarter of 2024, compared to basic and diluted net earning per ordinary share of, zero point zero four RMB for the end of 2023. Each ADS represents two of our company's Class A 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 to operator for any questions.

Operator

Thank you. We will now begin the question and answer session. To ask a question, please press star one one and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your questions to management in Chinese, please immediately repeat your questions in English. I'm not showing any further question in the queue. I will just conclude this period and conference for today. Thank you once again for joining Intchains's first quarter of fiscal year 2024 financial results and business update conference call today. Have a great day!

Analysts
    • Chaowei Yan
      CFO at Intchains
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