Intchains Group Limited

Good day, ladies and gentlemen. Thank you for standing by and welcome to IncChain's second quarter 2023 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. Chao-Wei Yan, Chief Financial Officer of IncChain. 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. Yen 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 four 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 forelooking 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'll now turn the call over to Mr. Zhao Wei Yan, the company's CFO. Mr. Yan, please go ahead.

Thank you, operator. and everyone for joining InterChance Earnings Conference call for the second quarter of fiscal year 2023. In today's call, we will provide an overview for our operational and financial performance for second quarter of fiscal year 2023. After that, we will conduct a Q&A session to take your questions. During the second quarter, the blockchain industry experienced a gradual recovery following a long period. Notably, many supporting policies and regulations released in July further reinforced investors' confidence. But it will take some time for these initiatives to benefit other types of digital currency and the entire blockchain industry beyond Bitcoin. However, as we have already witnessed the blockchain's broadening application in various industries, especially finance, we believe enhanced blockchain technology will continue to unleash more opportunities across a growing array of industries. As blockchain technology continues to develop, its integration with other industries is also accelerating, unleashing massive new industry opportunities. Whatever and wherever those opportunities may be, they will create a strong demand for supportive infrastructure, including hardware such as chips as well as software. As a fast-growing company and a provider of high-performance computing ASIC chips and related software and hardware, Interchange broke into the industry with its advanced chip development capabilities. We then differentiate ourselves from our peers with a rich pipeline of diverse product offerings and innovative technology, continuously iterating our ASIC chips to empower our clients' success. As the industry evolves, we strive to broaden the boundaries of technology and extend our penetration across the entire industry value chain. Our goal is to capitalize on our market know-how and advance the technical capabilities to grow Interchains into a leading Web3 infrastructure provider. During the second quarter, we established an in-house team in Singapore to advance our product offering expansion and global business exploration efforts. We believe that expanding application scenarios will drive increasing demand for our chips, which continue to advance our R&D and augment our service capabilities. Therefore, we have been proactively seeking potential partners who specialize in the Web3 industry and exploring downstream growing opportunities. Moving forward, we will remain focused on the integration of downstream industry value chain resources and accelerating the expansion of our coverage beyond the chips to mining machine and many other across the downstream. While pursuing this expansion and sustainable long-term growth, we also made solid progress with our high-performance computing platform, XIHE, during the second quarter. Our latest chip integration, featuring major advancement in processing, is nearly complete. This generation will upgrade our existing products while fueling new blockchain projects with unprecedented new algorithms. We expect to complete takeout in the third quarter of 2023 and mass production before the first quarter of 2024. Looking forward, the second half of the year 2023, despite industry uncertainties, Interchange will remain focused on our existing business while also promoting technology innovation and development, further unlocking our core competitiveness. We will continue to empower our clients with diversified hardware and software developed for Web3 application scenarios. As we extend our service up and down, the industry value chain. Together with all industry participants, we are confident that we can promote the healthy and sustainable development of the Web3 industry as a whole. Now I will provide a brief financial overview of the second quarter of 2023. Our revenue was RMB 13.9 million or USD 1.9 million in the second quarter, a year-over-year decrease of 91.3%, The decrease was mainly due to the challenging cryptocurrency market, which resulted in decreases in sales volume and average selling price of our ASIC chips that were primarily used in cryptocurrency mining machines. Cost of revenue increased by 7.5% year-over-year to RMB 13.7 million, or US dollar 4.2 million in the second quarter, attributable to an inventory write-down of RMB 22.5 million partially offset by the decrease in sales volume of our asset chips. Our total expenses decreased by 2.1% year-over-year to RMB 13.3 million or USD 2.4 million in the second quarter, primarily due to the decrease in research and development expenses, partially offset by increase in sales and marketing expenses and general and administrative expenses. Specifically, research and development expense decreased by 37.8% year over year to RMB 9 million or US dollar 1.2 million in the second quarter. Mainly because we decreased the expense in line with different phases in our development cycle. This was partially offset by an increase in personnel related expenses. Sales and marketing expenses increased by 124.3% year over year to RMB 1.3 million or US dollar 0.2 million in the second quarter, mainly due to the increasing personnel related expenses. General and admin expense increased by 164.2% year over year to RMB 7.1 million or US dollar 1 million in the second quarter. largely due to increased in personnel related costs and professional expenses, partially offset by the decrease in tax surcharge. Interest income increased by 66.3% year over year to RMB 4.4 million or US dollars 0.6 million in the second quarter, mostly attributable to effective fund management as well as our fund raising via public funds. Other income decreased by 85% year-over-year to RMB 0.3 million or USD 0.04 million in the second quarter, primarily due to a decrease in the amount of local government grants with no repayment obligation we received in support of our qualified IEC industry projects. Our net loss was RMB 20.5 billion or USD 2.8 million in the second quarter. Basic and diluted net loss per ordinary share was RMB 0.17 or USD 0.02 cents in the second quarter. Each ADS represents two of our company's Class A ordinary shares. The second quarter presented challenges for our business, particularly with respect to the Web3 industry. However, blockchain technology has applications extending far beyond crypto, and our diverse, innovative, growing product portfolio positioned us to capture emerging opportunities as the Web3 industry recovers. Moving forward, we will remain focusing on advancing our chip technology while expanding our product offerings to serve the upstream and downstream of our value chain, ultimately driving our long-term sustainable growth. 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 the operator for any questions.

Thank you. To ask a question, please press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Once again, to ask a question, please press star 1 1 on your telephone. Our first question comes from the line of Janet. Please ask your question, Janet.

Hi, management. Thank you for taking my question. Could you share some color on the potential downstream opportunity you mentioned? Thank you.

Thank you, Janet. I'm Daniel. I will help you to do the translation for both parties. Mr. Yan, please tell us about the potential opportunities mentioned by your company.

In the second quarter, our Singapore working team, through active operation and a focus on Web3 infrastructure, had some in-depth communication with our industry-friendly and capable professional team.

During the second quarter, we proactively conduct in-depth discussions with Singapore-based professional teams specializing in Web3 infrastructure. Their expertise complements us, and they share our passion for the Web3 industry. We are now very close to achieving a consensus on our joint strategic goals and execution planning.

If everything goes well, we believe that these measures will not only accelerate the extension of our products to ISEC chips, but also promote our business expansion on the Web3 industry chain. At the same time, we will be able to use our advanced products and service capabilities to acquire more customers and increase the company's popularity.

If everything goes smoothly, we believe this initiative will allow us to accelerate our product offering expansion beyond asset chips and deepen our penetration along the value chain in Web3 industry. Furthermore, we will be able to extend our reach to additional clients with advanced products and service capabilities. enhancing our brand awareness. We will share more information in accordance with applicable requirements. Thank you, Mr. Yan. Let's move to the next question.

Thank you. Our next question comes from the line of Lise. Lise, please ask your question.

Hi. Hi. Thank you for taking my question. Could you share the development progress of your latest XIHE product, please?

Thank you for your question. Mr. Yan, about the development progress of the company's latest XIHE product.

The company's latest XIHE development project started last year. At the beginning of the year, it has established a more advanced chip manufacturing process than the current chip manufacturing process.

We commenced the development of our more advanced next-generation chips on our XIHE platform last year. We have been closely monitoring the market recovery while continuously iterating the project algorithm combinations.

Given the current market conditions,

We have decided to complete the takeout in the third quarter and realize the initial sales income in the first quarter of next year. We believe our investment in products, our boundary expansion along the value chain, and our deep industry penetration during the bear market will ultimately propel our long-term growth. Thank you, Mr. Yan. Let's move to the next question.

Thank you. And that concludes the question and answer session. Thank you very much for joining this conference call. If you have any questions, please contact the company MP Chanter Financial Communications. Have a great day.