Intchains Group Limited

Hello and welcome to the Enchains Group Limited Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. Thank you. Now I will turn the call over to Alice Zhang of the Equity Group. Please go ahead, Alice.

Thank you, Operator. Good evening to everyone. Welcome to Incheon's second quarter 2025 earnings conference call. Please be advised that the discussions on today's call will include forward-looking statements. These statements involve known and unknown risk and uncertainties and are based on the company's current expectations and projections regarding future events that may impact its financial condition, operating results, and strategic direction. 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. Investors should review other factors that may affect its future results in the company's registration statement and other filings with CSCC. The company undertakes no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances or changes in its expectations. except as required by law. Please note that in today's call, we'll discuss certain non-GAAP financial measures. Please also refer to the reconciliation of non-GAAP measures to the comparable GAAP measures in the earnings press release. The presentation and webcast replay of this conference call will be available on the InChance website at www.ir.inchance.com. It is my pleasure to introduce InChance CFO, Mr. Charles Yan, who will provide an overview of second quarter and first half 2025 financial results, recent operational achievements, and then discuss the company's launch and growth strategies before opening the floor for questions. Charles, please go ahead.

Thank you, Alice, and welcome everyone. For those new to Interchange and our story, I would like to provide an overview of our three main business lines. altcoin mining machines, ETH accumulation, and Web3 application development. Our core business, Altcoin Mining Machines under the GoldShield brand, is our primary revenue contributor. We design altcoin mining machines incorporating in-house developed ASIC chips, which are used to mine a number of popular alternative cryptocurrencies, including Litecoin, Dogecoin, Alio, and more. And since first quarter 2024, we have implemented a strategic self-funded dollar cost averaging ETH accumulation strategy as part of our value creation strategy to generate return on our capital. We also have a Web3 application development business and have launched a one-stop blockchain payment solution, GoldShowPay, and a crypto wallet product, GoldShowWallet. Moving on to our financial results during the second quarter and first half 2025 period. Revenue for Q2 2025 were 43.2 million RMB or $6 million, impacted by lower sales from mining machines compared to Q2 2024. The declining oil price Theory Q2, combined with newly imposed short-term tariffs that delayed the export of our machines, negatively impacted mining machine sales and resulted in lower revenue. We would like to note that quarterly fluctuations in mining machine sales are a common industry-wide phenomenon and are often driven by a combination of external market conditions, including volatility in cryptocurrency price, changes in mining difficulty, seasonal demand shifts, and evolving regulatory environments. These factors can influence customers' purchasing behavior and investment cycles, especially in the altcoin segment. As such, short-term sales variability in our business should be viewed within a broader context of long-term growth trends and product innovation. Cost of revenue was 32.9 million RMB or $4.6 million for Q2 2025, a decrease of 20% from Q2 2024, primarily due to lower revenues recorded during the period. We also recorded an impairment chart related to excess mining machines inventory during the period. Total operating expenses were 26.4 million RMB or $3.7 million for Q2 2025, 10.2% lower versus Q2 2024. As a result, we recorded a loss from operations of RMB 16.2 million RMB or $2.3 million for Q2 2025 compared to the income from operations of $8 million for 2024 or Q2 2024. Interest income decreased to 3.1 million RMB or $0.4 million for Q2 2025 from Q2 2024, mainly due to cash used in acquired ETH-based cryptocurrencies. For the second quarter, we recorded a gain in fair value of cryptocurrencies of 42.8 million RMB, or $6 million, primarily a result of increased holding of ETH-based cryptocurrency units by 1,793 units since Q1 2025, while ETH price increased by around 34% during the period. As a result, net income from Q2 2025 was 38.3 million RMB or $5.3 million, which was affected by lower revenues and offset by gains of fair value of cryptocurrency as we increased ETH holding and saw a 34% increase in ETH price during the period. Moving on to first half 2025 matrixes. Revenues were 175.6 million RMB or 24.5 million US dollars, primarily supported by sales of our Allio series mining machines during the first half. Net income for first half 2025 was 4.3 million RMB or 0.6 million dollars, primarily impacted by lower gross profit and the losses on fair value of cryptocurrency, as its price dropped by about 28% during the six-month period. Our balance sheet remains strong. As of June 30, 2025, our cash position, which consisted of cash and cash equivalent, deposits, and government securities listed in long-term investment and short-term investments, were $71.6 million. Also, as of June 30, 2025, we had current assets of $94.5 million, total assets of $148 million, and total liability of just $4.6 million. I would like to provide some color on our current and the long-term growth strategies before opening the floor for questions. We currently compete in the cryptocurrency segment through the development, launch, and ongoing enhancements of our Gold Show mining machines. In line with this strategic focus, we have invested $5.8 million in R&D so far this year. Since the beginning of the year, we have launched new products and several upgrades to our existing portfolio of mining machines, which together represented the primary source of our total revenues. Key highlights include the release of six major allele mining series following the debut of the first AE Box in February. Our Gold Shield Unite dual mining machine launched in Q1 2025 gained strong traction among the miner customers. As previously mentioned, at the beginning of 2024, we adopted an east dollar cost averaging accumulation strategy and started to build our strategic reserve. As of June 30, 2025, Interchange has total holding of ETH units of 8,816 units, representing a 25.5% increase from the end of first quarter. According to recent publicly available information, including a report published by Standard Chartered in July 2025, the company was identified as one of the top ETH treasury holders among public companies globally. Notably, the price of ETH has risen 34% since the end of first quarter of 2025. Looking ahead, our growth strategy rests on the same two core pillars. First is the launch of our new products and the continuous upgrade of the efficiency of mining machines and exploration of innovative new projects. Second is optimizing our ETH accumulation and yield generation strategies. On one hand, we remain firmly committed to long-term R&D investments, making every effort to stay ahead in the dynamic cryptocurrency market, leveraging our experienced R&D team and past investments. We have been able to quickly identify, assess, and act on opportunities in the development of altcoin mining machines, achieving 100% profitability across all such projects to date. As we continue to explore new altcoin projects, we are also planning new upgrades of mining efficiency for our existing mining products, such as the Dogecoin series, to expand our market share. On the other hand, we have taken several steps to increase our strategic ETH reserve and expand our long-term digital asset positioning and the yield generation strategy. As part of this effort, we recently announced the cooperation with FalconX, which focused on two key aspects. First, we are optimizing our ETH acquisitions through customized derivative-based trading strategies, such as funded put-selling, which may enable interchange to accumulate ETH at a favorable price while also potentially generate premium income. Second, we are enhancing ETH yield by combining lending activities with derivatives-based yield strategy, aiming to deliver superior returns compared to traditional passive ETH accumulation and staking method. Our goal is to achieve an increased annualized yield on our East Holdings, which could potentially be as high as 10%. 2025 has been a transitional year for us as we make strategic moves to ensure we are well positioned for long-term sustainable growth. While we expect revenue for the second half of the year to be impacted by software sales driven by altcoin price volatility, we see the value of investing into the future and have accelerated R&D investments to strengthen our technology leadership in the altcoin mining machine market, allowing us to advance new altcoin projects under development towards commercialization. At the same time, the expansion of our ETH Reserve and new ETH yield generating initiatives paved the way for improved overall profitability. We expect these strategic moves to reinforce our business pillars and translate into tangible growth in 2026. We believe that the ability to pivot quickly and innovate innovate across evolving crypto mining ecosystem is critical to long-term success, particularly in a market defined by rapid technological change and regulatory shifts. We remain focused on executing our long-term vision and delivering sustained value through technology leadership and a strong commitment to innovation to unlock long-term value and reinforce our leadership in the evolving blockchain ecosystem. By aligning our development roadmap with the needs of both enterprise and crypto native users, we aim to be a driving force in shaping the future. With that, operator, let's open it up for questions.