Intchains Group Limited (NASDAQ:ICG) Q1 2024 Earnings Conference Call May 16, 2024 9:00 PM ET

Company Participants

Chaowei Yan - Chief Financial Officer

Conference Call Participants

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Intchains' 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. Chaowei Yan, Chief Financial Officer of Intchains. 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. Yan will deliver the answers in Chinese, and the company's representative will provide corresponding English translation.

Before we continue, I would like to remind you that today's discussions will contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties that are based on company's 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 concurring 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, we cannot assure you that such expectations will turn out to be correct. And the company caution 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. Chaowei Yan, the company's CFO. Mr. Yan, please go ahead.

Chaowei Yan

Thank you, operator, and everyone, for joining Intchains' earnings conference call for the first quarter of fiscal year 2024. On today's call, we'll 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 ensured a fresh start as the industry's anticipated upward cycle has arrived. As a leading long infrastructure provider, Intchains is poised to embrace an unprecedented area of opportunities, leveraging our resources and technological advantages to the fullest.

We aim to see an 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 2024 brought several technological success. We integrated our latest 12-nanometer chip technology into Goldshell-branded computing equipment and the -- commenced trial production of our latest household Box series products. Utilizing KHeavyHash and WEB3 algorithms for Kaspa and Altium 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 this 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-art encryption technology.

Turning now to our financial initiatives. To fully unleash the value of our capital, Intchains will expand its investments in cryptocurrencies. Going forward, ETH-based cryptocurrency will serve as a crucial long-term asset results 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. Intchains is anticipating a dynamic year ahead, one filled with possibility and promise. We will continue to increase our investment in asset 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, Intchains 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 RMB24.3 million or $3.4 million for the first quarter, representing a decrease of 6.8% from RMB26 million 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 RMB1.2 million 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 RMB15.3 million or $2.1 million for the first quarter of 2024, representing an increase of 15.2% from RMB13.2 million for the same period of 2023. The increase was primarily driven by RMB4.4 million 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 RMB38.1 million or $5.3 million for the first quarter of 2024, representing an increase of 168.3% from RMB14.2 million for the same period of 2023. The increase 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 crypto currency.

Research and development expenses increased by 357% to RMB36.5 million or $5.1 million for the first quarter of 2024 from RMB8 million for the same period of 2023. The increase was primarily due to the higher expenses related to mask a cost for our R&D projects, as well as increased personnel-related expenses.

Sales and marketing expenses increased by 27.2% to RMB1.6 million or $0.2 million for the first quarter of 2024 from RMB1.3 million for the same period of 2023, mainly driven by increased share-based incentive expenses.

G&A expenses increased by 9.5% to RMB5.4 million or $0.7 million for the first quarter of 2024 from RMB4.9 million 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 RMB5.4 million or $0.7 million, compared to same period of 2023.

We early adopted the amendment required by the new accounting policy of cryptocurrency using a modified retrospective transition method with accumulative effect adjustment recorded to the opening balance of return earnings as of January 1, 2024. The cumulative effect adjustment of RMB0.3 million was recorded as an increase of the opening balance of return earnings, yes.

We measure the critical currency at a fair value and includes the gain and loss from remeasurement in net income. The gain pertains to the change in cryptocurrency 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 RMB4.2 million or $0.6 million for the first quarter of 2024 from RMB3.5 million for the same period of 2023, mainly attributable to our effective cash management.

Our other income decreased by 96.6% to RMB0.1 million -- or RMB0.1 million for the first quarter of 2024 from RMB4.1 million for the same period of 2023. The decrease was primarily due to the decrease in grants received from the local government, which have lower obligations.

As a result of foregoing, we recorded a net loss of RMB14.8 million or $2.1 million for the first quarter of 2024 compared to the net income of RMB4.7 million for the same period of 2023. Basic and diluted net loss per ordinary share of RMB0.12 or $0.02 for the first quarter of 2024, compared to basic and diluted net earnings per ordinary share of RMB0.04 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 operator for any questions.

Question-and-Answer Session

Operator

Thank you once again for joining Intchains' first quarter of fiscal year 2024 financial results and business update conference call today. Have a great day.