Intchains Group Limited

Bye. My name is Prila, and I will be your conference operator today. At this time, I would like to welcome everyone to the InChange Group Limited First Half 2026 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 during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the star one again. Thank you. I would now like to turn the conference over to Alice Zhang with the Equity Group. Please go ahead.

Thank you, operator. Good evening to everyone. Welcome to Incheon's first half 2026 earnings conference call. Please be advised that the discussions on today's call will include poor-looking statements. These statements involve known and unknown risks 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, and the company cautions investors that actual results may differ materially from those anticipated results. Investors should review other factors that may affect its future results in the company's registration statement and other filings with the SEC. The company undertakes no obligation to publicly update or revise any front-looking statements to reflect subsequent events or circumstances or changes in its expectations, except as required by law. Please refer to reconciliation of non-GAAP measures to comparable GAAP measures in the earnings press release. The webcast replay of this conference call will be available on the Enchance website at www.ir.enchance.com. It is my pleasure to introduce Incheon CFO, Mr. Chao Yan, who will provide an overview of first half 2026 financial results and a company's business strategy and focus for the remainder of the year. Before opening the floor for questions, Charles, please go ahead.

Thank you, Alice, and welcome, everyone. Let me start with a quick look at our first half 2026 results. The period reflected continued cyclical softness in out-court demand. which was also impacted by the PRC mining machine sales restrictions announced in February. Revenue was 11.1 million RMB and the total operating expenses were 42 million RMB with a basic and diluted net loss per ordinary share of 1.22 RMB. We ended the period with 461 million RMB in cash and cash equivalents The projects and government securities. A balance sheet that has allowed us to fund our next generation chip program entirely from internal resources. Now turning into the remainder of 2026. Our progress on new product development and where we are taking the business from here. We entered this cycle with a deliberate choice. Keep funding our next generation mining asset development and others. In July, we successfully completed the takeout of our new next generation mining asset, a major tactical milestone that keeps us on track for commercial launch in Q4, 2026. This chip is architected specifically to optimize performance, balancing efficiency, reliability, and supply availability using a mature process, and is designed to improve unit economics and returns on invested capital for retail and professional miners. The successful take-out transitions the ethics project from design completion to the start of the manufacturing process and sets the stage for silicon validation, followed by mass production and official commercial launch. With a capital and R&D intensive phase of this ethics chip development now complete, the company has initiated engineering sample production and a laboratory validation including performance, reliability, and thermal testing against internal benchmarks. Subjected to successful validation, InChance expects to commence initial production ramp and system-level integration in advance of a planned commercial launch targeted for Q4. Once launched through the sales of our GoldShield Miner series, we believe it will broaden our addressable market across retired and professional miners, enhance the and Qianwen Wang. Looking into the second half, we believe we are moving quickly to capture the opportunities ahead. Our new mining ethics is expected to begin contributing modest revenue in H2 2026. building a far more meaningful impact in fiscal 2027 as commercialization accelerates. Longer term, we believe that this platform further strengthens our position as a leading active supplier of purpose-built mining asset systems, driving superior operational efficiency for our customers and advising a more sustainable approach to proof-of-work infrastructure. It's a core part of our strategy to build a more resilient, diversified revenue base. Beyond this new project, we are also in the early stages of evaluating new growth opportunities in artificial intelligence, including potential acquisitions that would extend our core competencies in custom asset design and hardware systems integration into AI-enabled computing applications. Our goal is to reduce reliance on cryptocurrency market cycles over time and to position in-chains in a higher value computing market adjacent to our existing hardware expertise. This work is still in early stages and we look forward to share more details as our plans develop. On the cost side, we continued to make progress on our cost optimization efforts. As of June 30, 2026, we had realized approximately 23.1 million RMB in annualized labor cost savings through our organizational restructuring. The diversity of our non-core chief related business and the expanded use of AI-enabled tools across our business operations. We expect to continue these cost-disciplined initiatives throughout the remainder of the year. On our ETH Treasury holdings as of June 30, 2026, the fair value of our cryptocurrency assets excluding and other stable coins such as USDC and USDT worth 98.9 million RMB, including approximately 9,176 ETH. As of August 20, 2026, the company's total units of ETH staked were 4,556 with 3,556 ETH. deposited through our Gold Shield Staking Platform pending validation activation and 1,000 ETH staked on FalconX platform. Going forward, we expect to maintain a prudent ETH treasury and staking position, preserving our existing treasury holdings and continue generating staking yields. prioritizing capital allocation toward our next generation asset program and the new AI initiatives over additional ETH accumulation. We also announced today that our board of directors had approved a share repurchase program under which we may repurchase up to $15 million of our ADS over the next two years, funded from our existing cash balance. We believe that this program reflects our confidence in InChain's long-term strategic direction and our commitment to creating value for shareholders. And it's consistent with our disciplined approach to capital allocation, balancing returns to shareholders with continued investment in our next-generation ethics and new AI initiatives. Looking ahead to the second half of 2026, while we expect continued market headwinds, will remain focused on disciplined execution, commercializing our new ethics, prioritizing cost optimization, and advancing our evaluation of AI-related growth opportunities. We believe these initiatives will position agents for a more diversified and resilient business over the long term. With that, operator, let's open it up for questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press the star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press the star 1 again. Your first question comes from the line of Mark Palmer with Stonex. Please go ahead.

Yes. Hello. Good evening, and thank you for taking my question. announced the new share repurchase program and also discussed ongoing R&D activities as well as the potential for M&A, especially focused on AI and AI-driven businesses. Can you talk a bit about what your capital allocation priorities are and, more broadly, what your capital allocation strategy looks like going forward? Thank you.

Thank you, Mark. Thank you for your question. And firstly, for the share repurchase program, we planned $15 million for the share repurchase program. and for the R&D or R&D in current asset, we will handle this as usual. We will do the takeout and buy the inventory and then sell them. So the capital cost of the current business, it will be remain the same with our and many more prior projects. And finally, for the AI initiatives and MMA, it will depend on the project we engage. Currently, we have several projects to assess, and every project have different capital requirements. So, currently, for the AI part, we cannot give accurate estimation. Thank you.

follow up question, please. Charles, you made reference to the fact that you're anticipating that there will be a pickup in the impact from the newly developed ASIC product in 2027. Can you talk a bit about how you're currently thinking about 2027, particularly with regard to the diversification of revenue that you made reference to, reducing reliance on crypto cycles. And also, what should we be watching for over the next few quarters in terms of milestones or signs of your progress?

Thank you. Yeah.

Yeah, personally, our next milestone of the product is the product launch. It will happen in Q4 2026. And it will contribute some revenue for the second half, but it will not be very big. But for the 2027, the whole mass production will be on track. In 2027, our expectation is the revenue will be better than the last cycle. Last cycle, I mean, maybe 2025 and 2024. And this is our business basics. And in addition, for other revenue base, will continue to stake ETH and will contribute meaningful revenue compared with this year and last year. And finally, the AI initiatives, if it has a meaningful process, it will also contribute additional revenue. I think in the current stage, We cannot estimate the current figure of that part, but I believe that 2027 will be a good year or the best year among five years of the company.

Yeah, thank you. Thanks very much. Yeah.

And your next question comes from the line of Matthew Galinko with Maxim Group. Please go ahead.

Hey, thanks for taking my questions. Maybe firstly, can you, just given the environment we've been in for crypto, can you discuss any changes you're seeing in competition in the ASIC design business?

Yeah.

Currently, what I can say now is that our new next generation ethic, the foundation of this new cryptocurrency is very good, and the competition of this new cryptocurrency It's not intense. We may not the first one entering into that area, but we believe that our products have a leading performance among all competitors. And I think we are very confident on this new asset or new mining machine for this new coin and for 2027. And on the other hand, I think The crypto environment currently has some soft demand issues. And now I think for the second half and next year, the market will recover together with our business and our revenue and the ETH price. This is all our company's business. Yes, thank you.

Great and I guess as a follow-up to drill a little bit more into the capital allocation decisions, how do you view your ETH treasury holdings with respect to other investment opportunities including M&A you know additional ASIC development if you see opportunities you know is the are treasury holdings potentially convertible into you know, cash for M&A or other initiatives if, you know, it suits or do you, you know, intend to, you know, hold that and sort of pick data and not really consider it as part of the any kind of spend. Thank you.

Yeah. Yes. I think we will not sell ETH personally, but we're using our own fund to buy ETH. So if we did not generate operating cash, it's difficult for us to pay more money on it. So our current strategy is to sell mining machine and obtain profit and use that profit to buy the ETH. So for the Capital Allocation, we will not further use current cash to buy-ease, but this is our current strategy. I cannot ensure if we will change in the future, but currently we are using this strategy. Our current cash was used in R&D, mining machine sales, and A.I. Initiatives. Thank you.

Thank you. And maybe last question for me. In addition to the new machine that you're rolling out in Q4 and, you know, you expect to contribute to 27, do you expect any, you know, if we get a recovery in the crypto market, do you expect to have decent contribution from other, Do you think that 27 is going to be just predominantly driven by the new launch?

I think if the currently if the not currently cryptocurrency is in the bear market so if the market did not recover if the market did not recover I think Our main product is this new product. Our main revenue will come from contributing to this new product. But if the market recovers all the price, the Dogecoin price, the Alio coin price recover, then we will have other contributions from this prior product line. Because we have finished the PayPal, so it's very quick for us to to order more waiver from our staff.

Yeah. Thank you. Great. Thank you. Thank you.

And I'm showing no further questions at this time. I would like to turn it back to Charlton for closing remarks.

Yeah. Thanks again to all of you for joining us. We are always open to a dialogue with investors. Please feel free to reach out to us or to our investor relations firm, The Equity Group, for any additional questions. We look forward to speaking with you all again on our next call. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.