Intchains Group Limited

Good day, ladies and gentlemen. Thank you for standing by and welcome to InChain's 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. Cha Wei Yen, Chief Financial Officer of InChain. Mr. Yen 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 would like to remind you that today's discussions will contain four looking statements. These four looking statements involve known and unknown risks, and uncertainties are based on companies' current expectations and projections about future events that the company believes may affect its financial conditions, results of operations, business strategy and financial needs. The company undertakes no obligations to update or revise publicly any forward-looking statements to reflect subsequent co-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 companies caution investors that actual results may differ materially from their anticipated results and encourages investors to review other factors that may affect 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. Chao-Wei Yen, the company CFO. Mr. Yen, please go ahead.

Thank you, operator, and everyone for joining InterChance 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 infrastructure provider, Interchange points to embrace an unprecedented array of opportunities. Leveraging our resources and technological advantages to the fullest, we aim to this opportunity to encounter along the industry and 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. The first quarter of 2044 brought several technological success. We integrated our latest 12 nanometer chip technology into Gold Shield branded computing equipment and the commercial trial production of our latest household box series products, utilizing K-HeavyHash and Blake3 algorithms for Casper and Alfim currency respectively. We launched the KA box for the 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 convert full scale production in the second quarter. All of these reaffirms our confidence in the prospects of our new products and their potential positive financial contribution in the coming quarters. As we move through 2024, we will continue strengthening our research and development efforts and introducing asset-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, Interchange 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 competitiveness to development of the Web3 industry. We firmly believe that ETH represents the future of Web3 industrialization. InterChance is anticipating a dynamic year ahead, one filled with possibility and promise. 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 innovative products to expand our product lineups. We are confident that through these concerted efforts, Interchange 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 24.3 million RMB or 3.4 million US dollar for the first quarter, representing a decrease of 6.8% from 26 million RMB for the same period of 2023. The decrease in revenue was primarily attributable to a one-off sale of intelligent rotor products in the first quarter of 2023, which generated 1.2 million RMB in revenue. When excluding this window of sale, revenue from our SFG products remained relatively stable between two periods, with no significant fluctuations in either the sales volume or average selling price of the SFG products. Cost of revenue was 15.3 million RMB or 2.1 million US dollar for the first quarter of 2024. Representing an increase of 15.2% from 13.2 million RMB for the same period of 2023. The increase was primarily driven by a 4.4 million RMB inventory write down for the certain production 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 USD for the first quarter of 2024, representing an increase of 168.3% from 14.2 million RMB for the same period of 2023. The decrease 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. Research and development expenses increased by 357% to 36.5 million RMB or 5.1 million US dollars for the first quarter of 2024, from 8 million RMB 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 1.6 million RMB or 0.2 million US dollars for the first quarter of 2024 from 1.3 million RMB for the same period of 2023, mainly driven by increased share-based incentive expenses. GNA expenses increased by 9.5% to 5.4 million RMB or 0.7 million USD for the first quarter of 2024 from 4.9 million RMB 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 5.4 million RMB or 0.7 million US dollar compared to new 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 a cumulative effect adjustment recorded to the opening balance of return earnings as of January 1st, 2024. The cumulative effect adjustment of 0.3 million RMB was recorded as an increase of the opening balance of returnings. 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's 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 4.2 million RMB or 0.6 million US dollar for the first quarter of 2024 from 3.5 million RMB for the same period of 2023 mainly attributable to our effective cash management our other income decreased by 96.6% to RMB 0.1 million or 0.1 million for the first quarter of 2024 from 4.1 million RMB for the same period of 2023. The decrease was primarily due to the decrease in grants received from the local government that have no repayment obligations. As a result of foregoing, we recorded a net loss of 14.8 million RMB or 2.1 million US dollar for the first quarter of 2024, compared to the net income of 4.7 million RMB for the same period of 2023. Basic and diluted net loss for ordinary share or 0.12 RMB or 2 cents US dollar for the first quarter of 2024. compared to basic and diluted net earning per ordinary share of 0.04 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 the operator for any questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star one one and wait for a 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. 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 InChain's first quarter of fiscal year 2024 financial results and business update conference call today.

Have a great day. you Thank you.

Thank you. Bye.

Good day, ladies and gentlemen. Thank you for standing by and welcome to InChain's 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. Cha Wei Yen, Chief Financial Officer of InChains. Mr. Yen 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 would like to remind you that today's discussions will contain four looking statements. These four looking statements involve known and unknown risks, and uncertainties are based on companies' current expectations and projections about future events that the company believes may affect its financial conditions, results of operations, business strategy and financial needs. The company undertakes no obligations 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's cautioned 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. Chow Wei-Yen, the company's CFO. Mr. Yen, please go ahead.

Thank you, Operator, and everyone for joining InterChance 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 infrastructure provider, Interchange points to embrace an unprecedented array of opportunities, leveraging our resources and technological advantages to the fullest. We aim to see the opportunity to encounter along the industry and 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. The first quarter of 2044 brought several technological success. We integrated our latest 12 nanometer chip technology into Gold Shield branded computing equipment and the commercial trial production of our latest household box series product. utilizing K heavy hash and Blake 3 algorithms for Casper and Alfim currency respectively. We launched the KA box for the 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 new products and their potential positive financial contribution in the coming quarters. As we move through 2024, we will continue strengthening our research and development efforts and introducing asset-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, Interchange 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 competitiveness to development of the Web3 industry. We firmly believe that ETH represents the future of Web3 industrialization. Indochance is anticipating a dynamic year ahead, one filled with possibility and promise. 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 innovative products to expand our product lineups. We are confident that through these concerted efforts, InterChain 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 24.3 million RMB or 3.4 million US dollar for the first quarter, representing a decrease of 6.8% from 26 million RMB for the same period of 2023. The decrease in revenue was primarily attributable to a one-off sale of intelligent rotor products in the first quarter of 2023. which generated 1.2 million RMB in revenue. When excluding this one-off sale, revenue from our asset-chip products remained relatively stable between two periods, with no significant fluctuations in either the sales volume or average selling price of the asset-chip products. Cost of revenue was 15.3 million RMB, or $2.1 million for the first quarter of 2024. representing an increase of 15.2% from 13.2 million RMB for the same period of 2023. The increase was primarily driven by a 4.4 million RMB inventory write-down for the 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 USD for the first quarter of 2024, representing an increase of 168.3% from 14.2 million RMB for the same period of 2023. The decrease 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. Research and development expenses increased by 357% to 36.5 million RMB or 5.1 million US dollars for the first quarter of 2024 from 8 million RMB 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 1.6 million RMB or 0.2 million US dollars for the first quarter of 2024 from 1.3 million RMB for the same period of 2023, mainly driven by increased share based incentive expenses. GNA expenses increased by 9.5% to 5.4 million RMB or 0.7 million USD for the first quarter of 2024 from 4.9 million RMB for the same period of 2023 mainly driven by increased share-based incentive expenses. Gaining unfair value of cryptocurrency for the first quarter of 2024 was 5.4 million RMB or $0.7 million compared to new 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 a cumulative effect adjustment recorded to the opening balance of return earnings as of January 1st, 2024. The cumulative effect adjustment of 0.3 million RMB was recorded as an increase of the opening balance of returnings. 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's 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 4.2 million RMB or 0.6 million USD for the first quarter of 2024 from 3.5 million RMB for the same period of 2023, mainly attributable to our effective cash management. Our other income decreased by 96.6% to RMB 0.1 million or 0.1 million for the first quarter of 2024 from 4.1 million RMB for the same period of 2023. The decrease was primarily due to the decrease in grants received from the local government, which have no relevant obligations. As a result of foregoing, we recorded a net loss of 14.8 million RMB or 2.1 million US dollars for the first quarter of 2024, compared to the net income of 4.7 million RMB for the same period of 2023. Basic and diluted net loss for ordinary share or 0.12 RMB or two cents US dollar for the first quarter of 2024. compared to basic and diluted net earning per ordinary share of 0.04 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 the operator for any questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 and wait for a 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. 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 InChain's first quarter of fiscal year 2024 financial results and business update conference call today. Have a great day.