Intchains Group Limited

Ladies and gentlemen, thank you for standing by and welcome to Inchins' fourth quarter and full year 2022 earnings conference call. This conference is being recorded today, Tuesday, April 18th, 2023. If you have any objections, you may disconnect at this time. Joining us today from Inchins are the company's chairman and chief executive officer, Mr. Chiang Ding, and the company's chief financial officer, Mr. Chao-Wei Yan. On our call today, Mr. Ding will give you an overview of the company's performance. Mr. Yan will share 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. Ding and 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 some information discussed on this call 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 predictions 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 would like to turn the call over to Mr. Chiang Ding, the company's chairman and chief executive officer. Mr. Ding, please go ahead.

Okay. Thank you, operator, and everyone. for joining InterChair's own conference call for the fourth quarter and four year 2022. In today's call, I will provide an overview of our performance for the fourth quarter and four year of 2022. After that, our CFO, Ms. Yen Tsao-Wei, will share the details of the company's financial review. Finally, we will conduct a Q&A session to take your questions. The cryptocurrency industry has experienced several upheavals in 2022, involving companies such as Terra, 3iOS Capital, and FTX. In the fourth quarter of 2022, the whole industry entered an interim period with relatively low volatility. 2022 was also a challenging year for MTS. Following the rising performance in 2021, we were inevitably impacted by the industry's downturn cycle. We achieved revenue of RMB 474 million in 2022 with a gross margin of 82%, which is comparable to that in 2021. Our net income, which is RMB, Our diversified product portfolio strategy allows us to meet our customers' needs by adjusting our product price and thus we will still be able to maintain profitable for the single quarter despite the unfavorable market conditions in the fourth quarter 2022. We achieved revenue of RMB 133.7 million and net income of RMB 12.7 million the fourth quarter 2022, which was in line with the management anticipation. In 2023, we complete our initial public offering of 1,140,560 ADS, underwrite partial excised over-allotment options to purchase additional ADS. We are delighted with the success of the offering. and appreciate the acknowledgement and continued support from our investors. The proceeds from the initial private opening will be used for the continued development of products on our XIHE and WAN2 platforms, as well as the expansion of our business in Singapore. Looking ahead, despite the current volatility in the cryptocurrency industry, there is a certain degree of price bounce overall. We believe this shift will be gradually reflected in our 2023 performance through our order cycle. Meanwhile, We will continue in large investment in our ID capability and launch new exciting products when time is right. We have also planned expanding our business in Singapore. We believe that we will, as always, capture much opportunity and create long-term value for our shareholders. We greatly appreciate your continued support for our company. At this time, I would like to turn the call over to our CFO, Ms. Cao Yen, who will provide a detailed review of the financials for the fourth quarter and four years of 2022 on behalf of the management team. Ms.

Yen, please proceed. Thank you, Mr. Ding. Good evening, everyone. On behalf of the management team, I will provide a brief financial overview of the fourth quarter and the full year 2022. Let's first take a look at the financial overview for the fourth quarter. Our revenue is down 88.8% to RMB $33.7 million, or US dollar $5.9 million in the fourth quarter. Such decrease was primarily attributable to the continued broader decline of the cryptocurrency market, which caused the decrease in the sales volume and average sales price of our asset chips that were primarily used in cryptocurrency mining machines. Our cost of revenue down 69.9% to RMB 20 million or RMB 2.9 million in the first quarter, which was in line with the decrease in the sales volume of our asset chips. Our total expenses down 66.4% to RMB 12.7 million, or US dollar 1.8 million in the fourth quarter, primarily due to the decrease in research and development expenses. And the research and development expenses down 64.1% to RMB 10 million, or U.S. dollar 1.4 million in the fourth quarter, primarily due to the reduction in direct materials and payout expenses in connection with our research and development projects. Our sales and marketing expenses down 6.8 percent to RMB 1.1 million or U.S. dollar 0.16 billion in the fourth quarter. Our general and administrative expenses down 81.2% to RMB 1.7 million or U.S. dollar 0.25 million in the fourth quarter, primarily due to a decrease in tax surcharges and professional expenses. Other income up 4,697.7% to RMB 10.6 million or US dollar 1.5 million in the first quarter, primarily due to an increase in government grants we received from the local government. Such government grants were granted to us to support qualified projects in IC industry with no repayment obligations. As a result of the foregoing, our net income RMB 12.8 million or US dollar 1.8 million in the fourth quarter. Our basic and diluted net earning per ordinary share was RMB 0.11 or 0.02 dollars in the fourth quarter. Each ADS represents two of our company's class A ordinary shares. Now, let's look at our full year 2022 financial results. The revenue for 2022 down 25% to RMB $473.7 million, or $68.7 million in 2022, primarily due to the decrease in the sales volume of our asset chips, which was in line with the broad decline of the cryptocurrency market in 2022. Cost of revenue. down 23.6% to RMB 87 million or US dollar 12.6 million in 2022, primarily due to the decrease in the sales volume of our asset chips. Operating expenses down 9.3% to RMB 64 million or US dollar 9.3 million in 2022, primarily due to the decrease in research and development expenses. And the research and development expenses down 9% to RMB 48.4 million or US dollar 7 million in 2022, primarily due to the reduction in direct materials and tape out expenses in connection with our research and development projects, which was partially offset by increased staff cost of research and development personnel. Our research and development expenses as a percentage of our revenue was 10.2% in 2022 as compared with 8.4% in 2021. Sales and marketing expenses up 35.4% to RMB 4.1 million or US dollar 0.6 million in 2022. Primarily due to the increase in staff costs of sales and marketing personnel. Sales and marketing expenses accounted for less than 1% of our total revenue in 2022. General and administrative expenses down 19.8% to RMB 11.6 million or US dollar 1.7 million in 2022. Primarily due to the decrease in tax surcharge and professional expenses. General and administrative expenses accounted for 2.4% of total revenue in 2022. Other income up to RMB 29.8 million or US dollar 4.3 million in 2022, primarily due to the increase in government grants we received from local government. Net income was RMB 355.2 million or US dollar 51.5 million in 2022. Basic and diluted earning per share was RMB 3.02 or US dollar 0.44 in 2022. As mentioned by Mr. Ding, currently we can see some improvement in price of the cryptocurrency, which will gradually boost our performance through customer orders. Our revenue in the first quarter of 2023 to be approximately RMB 26 million or US dollar 3.8 million. Looking ahead, we remain confident that although we may still encounter certain near-term macroeconomic uncertainties, the long-term opportunities in global market remain abundant. We will continue to invest in research and development of new products and business expansion. seize the market opportunity and strive to create long-term value for our shareholders. Thank you for your continued support and we look forward to updating you our new progress in the future. Now, I'd like to turn the discussion over to operator for any questions.

Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Your first question comes from Lou Victory, a private investor. Please go ahead.

Thank you so much for your presentation. Could you share with us what being your company's R&D and your strategic plans for the upcoming year 2023? Thank you.

Hi. Thank you for your question. My name is Qian. I will translate the questions and answers to both parties. For each question, we will take about a minute to think about it and begin to answer it. Mr. Ding will prepare and answer this question. Mr. Ding, the first question is, what is the focus of the company's research and strategic plan in 2023? Please answer. OK.

In fact, the main business of smart companies is in the blockchain industry. The Web3 industry with blockchain technology as a core

is still in a very early stage. POW-based cryptocurrency mining is the infrastructure for early blockchain applications, including Bitcoin, Litecoin, and Ethereum before changing the consensus mechanism. Okay, please continue, Mr. Ding.

The high-performance computing chip that serves the POW consensus mechanism is part of the overall production of the blockchain industry. The high-performance computing chip

is a part of the blockchain industry which serves the POW consensus mechanism. The diversification of the technical format of the consensus mechanism is continuously developing with the continuous development of industrial innovation. Industrial innovation provides more new opportunities but also brings more incentives and possibilities At the same time.

At the same time. Leveraging our core competitiveness and expertise, InterChance Group provides integrated solutions consisting of high-performance ASIC chips

and ancillary software and hardware for blockchain applications. We are conducting R&D of our product offerings on our Wangshu and Xihe platforms.

From the perspective of the product, PoW products are still our main business line and income source in the short term. At the same time, the company is also focusing on other blockchain business directions.

From our product's perspective, PoW products are still our core business line and a source of revenue in the short term, but we also expect to increase involvement in other blockchain business fields. Thank you for listening. Mr. Ding has finished the offering of the first question. Please ask the next one.

Thank you. Your next question comes from Diane Mal Kirkland, a private investor. Please go ahead.

Hi, thank you for your presentation. I actually have, I think my first question is, I would like to know whether you anticipate any challenges in 2023, and what would be your plan to cope with the challenges from the competitors? Thank you.

Thank you for your question. Mr. Ding will prepare and answer your question. What will be the competitive attitude of the company in 2023? And how will you deal with the challenges of the entrepreneurs?

The blockchain industry is in a very early stage. There are many opportunities. The market is very busy. We know that the biggest challenge of the blockchain industry is that the supervision is not perfect.

The blockchain industry is still in its early stages, with dozens of opportunities and large market capacities. We believe the biggest challenges in the blockchain industry other imperfect supervision and exploration of business models after the full integration of new blockchain applications and existing operating format.

In the high-performance computing and computing chips, the competition between different methods and different technologies is relatively only at the level of advanced chip technology. We believe As for computing power chips, the competition between different algorithms and the processes is relatively only in the field of chip technology.

We believe that a deep understanding of blockchain applications and the process of value recreation are the core of competitiveness.

In the field of high-performance computing and algorithmic chip, the past practice has shown that the charging team has a much stronger competitiveness in the field of advanced engineering, algorithmic chipization, and other engineering technologies. We have achieved significant results in 22nm processing by optimizing the algorithm and the back-end implementation, allowing us to compete with 16nm and even 12nm chips. We have also completed a comprehensive development process of advanced chips. In the market situation, we will be able to quickly use advanced supply to make chips.

In the field of HPC algorithm chips, our proven tricking record indicates that our team has strong competitiveness in the implementation of advanced technology algorithm chips and other technologies. We have achieved remarkable results in the development of 22 nanometers ethic chips. which allow us to compete with 16 nanometers and 12 nanometers ASIC chips. We have also completed the comprehensive development process of some advanced technology chips. We will be able to quickly use advanced technology to complete the takeout according to the market situation.

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Finally, our team has extensive knowledge of the blockchain industry. There are many subdivided industries in blockchain applications. There are potential opportunities for us. The improvement of our technological capabilities is a key component of our development. We expect to further enhance our capabilities in more cross-order technology research and development. We firmly believe InterChance Group is well-positioned to explore and capture new market opportunities in the future. Thank you for your careful listening. Mr. Ding has finished this question. Please move to the next one. Hi.

Thank you for your answer. I still have one more question. With the transformation of EDH from POW to POS, do we expect to see any change in the company's future strategic development plan? Thanks.

Thank you for your question. Mr. Ding will prepare and answer your question. Mr. Ding,

From the transition of POS from POW to POS in 2018, it is actually a private project that has been planned and officially completed in September 2022. However, everyone knows that this year, 23 years ago, the whole bottom-up reduction action was completed. This page has information about the future development trend of the industry.

The transaction of Ethereum to PoS has been planned by 2018 and completed in September 2022. And we all can see the change in around 2023. So this is information with a certain future development tree of this industry.

PoW is a strong choice for a new supply chain without a consensus background. because it provides security, centralization, and fairness. At the same time, there are also many blockchain application projects that are leading to the actual demand for efficient computing and physical applications. A chip-based hardware system will be a great advantage in the future development of the blockchain.

For new public chains without a consensus background, POW is still one of the powerful choices because it provides security, decentralization, and fairness. At the same time, there are also many blockchain applications that are importing effective computing power to solve the actual needs of specific applications. The cheat-based hardware system will continue to play an important role in the future development of the blockchain industry.

因此,充电集团将继续利用我们在PUW的区块链应用方面的专业知识和经验,为未来的区块链应用提供需要的 Because of that, InterChance Group will continue leveraging our expertise and experience in POW-based blockchain applications.

to provide hardware and software system solutions for future blockchain applications. InterChance Group has been committed to having a comprehensive plan for the future development of blockchain. POW has never been the only one choice for us. Thank you for your careful listening. Mr. Zing has finished this question. Please ask the next question.

Your next question comes from Ava Smith, a private investor. Please go ahead.

Hi, good morning, Managing Team. I got two questions today. The first one is, could you please share more details about the outlook for the first quarter of 2023 financial performance or the full year of 2023 performance? Thank you.

Thank you for your question. We will prepare and answer your question. According to Mr. Ding, this question our CFO will answer for you.

Because of the high volatility of the cryptocurrency industry, the company's annual performance in 2023 cannot be accurately estimated. In the Q1 of 2023, our overall income is 26 million yuan and 3.8 million US dollars.

The financial performance for the full year of 2023 cannot be accurately estimated because the cryptocurrency market is highly volatile. As we mentioned before, we expect to achieve 26 million RMB or 3.8 million US dollar in revenue for the first quarter of 2023.

We have seen a rebound in the price of cryptocurrencies

But under our current business model, our financial performance will be gradually improved after time lag with the price fluctuation. At the same time, we will continue to increase our involvement in other blockchain business field this year. Looking ahead, we are confident in our capability and believe we will see the growth opportunities in this industry. Thank you for your careful listening. Mr. Yan has finished answering this question. Please ask the next one.

Thank you. And my second question is, I have a question for your further development plan. Do you have potential acquisition plan or target that you are interested in?

Thank you for your question. Mr. Ding will prepare and answer your questions. Mr. Ding, the next question is whether the company has a specific acquisition and purchase plan. Mr. Ding, please prepare and answer.

Because the blockchain industry is going to be in the early stages, there are a lot of new teams and projects that are continuing to emerge. The blockchain industry is still in its early stage.

so we can see many new companies and the projects that continue to emerge. We believe the strategic acquisitions will accelerate our business expansion. We are currently evaluating the principles and the strategies of potential acquisitions. We will disclose the latest progress through press releases or SEC filings as appropriate. Thank you for your careful listening. Mr. Ding already finished this question. If you have more, please move on.

Thank you. Seeing no further questions, let me turn the call over to the company's Chief Financial Officer, Mr. Yan, for closing remarks.

Okay, thank you very much for joining this conference call. If you have any questions, please contact us through email at ir.interchange.com or reach our IR Council, Ancients Investor Relations, at dinashou at ancientsir.com. Management will respond to your questions as soon as possible. We appreciate your interest and support in Interchange and look forward to speaking with you again next time.

Thank you again for attending Incheon's fourth quarter and full year 2022 earnings conference call. This concludes our call today and we thank you all for listening in. Goodbye.