Intchains Group Limited (NASDAQ:ICG) Q1 2025 Results Conference Call May 22, 2025 8:00 PM ET

Company Participants

Minty Wang - Director of Investor Relations
Chaowei Yan - Chief Financial Officer

Conference Call Participants

Mark Palmer - The Benchmark Company
Matthew Galinko - Maxim Group

Operator

Ladies and gentlemen. Thank you for standing by, and welcome to Intchains' First Quarter 2025 Earnings Conference Call. Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today are Mr. Chaowei Yan, Chief Financial Officer of Intchains; and Ms. Minty Wang, Director of Investor Relations. Mr. Yan will provide an overview of the company's performance and financial results. Following his remarks, we will open the floor for a question-and-answer session.

I'll now turn the call over to Minty Wang. Please go ahead.

Minty Wang

Thank you, operator. Good day, everyone. I'm Minty. Welcome to Intchains Group Limited's First Quarter 2025 Earnings Call. On today's call, Mr. Chaowei Yan, our CFO, will present a comprehensive overview of the company's performance and financial results for the quarter.

Before we begin, please note that today's discussion will include forward-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 could affect its financial condition, operating results and strategic direction. The company undertakes no obligation and publicly update or revise any forward-looking statements to reflect subsequent events and changes in expectations, except as required by law. Although the company believes these expectations are reasonable, there's no guarantee they're provided to be accurate. Actual results may differ materially from these anticipated. Investors should refer to our registration statements and other filings with the SEC for additional factors that may affect future performance.

We will also discuss certain non-GAAP financial measures. Please refer to the reconciliation of these non-GAAP measures to the comparable GAAP figures in our earnings press release. The presentation and a replay of this call will be available on our website at ir.intchains.com.

With that, I will turn the call over to Mr. Chaowei Yan. Please go ahead.

Chaowei Yan

Thank you, Minty, and thank you all for joining Intchains' First Quarter 2025 Earnings Conference Call. Today, I will provide an overview of our operational and financial performance, followed by a Q&A session.

We are pleased to report solid operational performance despite a challenging macroeconomic environment and a significant volatility in crypto market, particularly an 18% decline in the total market cap of cryptocurrency during the quarter. Our revenue reached $18.2 million, a 78.5% quarter-over-quarter increase and our highest since 2023. In our previous earnings call, we guided Q1 2025 revenue to be between $15 million to $16 million. Our results exceeded the upper end of that range.

Gross margin grew by 286.9% with gross margin improving to 56.9%, up from 26.2% last quarter. This reflects our continued focus on the product optimization and operational efficiency. Our operating income turned positive at $5.1 million, a strong recovery from the loss in Q4 of 2024. While net income was impacted by noncash revaluation loss on Ethereum, we remain committed to our Ether accumulation strategy, increasing our holding by over 23% to 7,023 ETH. This long-term approach remains central to our value creation strategy.

For context, our business operates across 3 core segments. Firstly, we produce home miners for high-potential altcoins such as Aleo and Doge under the Goldshell brand. Secondly, we reinvest profits to accumulate Ether, optimizing our asset structure. Last but not the least, we actively explore Web3's innovations to drive long-term growth.

As the pioneer in home mining product and a long-term Ether holder, we occupy a unique position in the U.S. capital market. Our differentiated strategy focused on blue ocean altcoin mining sector enables us to maintain gross margin higher than industry average for bitcoin miners, regardless of market cycles. This strategic focus has allowed us to achieve a cumulative net profit for 2019 to 2024 that outperformed our peers, making us one of the few consistently profitable mining companies.

In early 2025, we further solidified our leadership in altcoin mining machines. Since launching the Aleo series miners in February, we have released 5 iterations, strengthening our market position. According to a third-party -- according to third-party miner evaluation website, our AE MAX miner currently ranked fifth in daily profitability among all the mining machines, outperforming most of bitcoin miners.

In March, we launched the Goldshell Byte, our innovative Doge mining machine that support Aleo, Doge and Litecoin. With hot-swappable mining cards, users can switch between cryptocurrencies based on market condition to maximize returns. So this product showcases our technical strength to developing advanced altcoin mining machines. Looking ahead, we plan to continue refining our Dogecoin miners through chip upgrades and enhanced product design, aiming to become the top 10 player in Dogecoin mining equipment.

Now let's review our financial results for the first quarter of 2025. During Q1, the price of Ether, Dogecoin and Aleo fell by 46%, 49% and 75%, respectively. However, prices have shown signs for recovery in Q2. Despite these headwinds, we delivered a strong result. Revenue for Q1 was $18.2 million, exceeding the high end of our guidance and making our highest quarterly revenue since 2023. This performance was largely driven by the successful launch of our Aleo miner series, which accounted for nearly 75% of our total revenue. The product's strong margin and timely launch helped us respond quickly to market demand. Revenue increased 78% quarter-over-quarter, significantly outperforming industry peers.

Cost of revenue rose modestly from $77.5 million in Q4 to $7.9 million in Q1, growing at a much slower pace than revenue due to the high margins of Aleo miners. Operating income turned positive at $5.1 million, driven by top line growth and reduced R&D expenses as several early-stage projects concluded. Among crypto mining companies, we are one of the few to report positive operating income in Q1 2025.

Net income was negative $4.7 million compared to a profit in the previous quarter, primarily due to the $9.8 million noncash loss from revaluation of our cryptocurrency holdings, mainly due to the Ethereum price drop of 46%. Despite the downturn, we maintained a steady pace of Ethereum -- Ether accumulation. As of March 31, 2025, we held approximately 7,023 units of ETH, up 23.2% quarter-over-quarter. Non-GAAP income -- net income was negative $4.4 million, also declined from the previous quarter.

As of March 31, 2025, our cash, cash equivalents and short-term investments totaled $74.9 million, up from year-end 2024. Thanks to positive operating income, our USDC and cryptocurrency holdings other than Ether amounted to $16.1 million -- including Ether amounted to $16.1 million. As of May 21, 2025, our total assets represented 100.7% of our market capitalization.

Looking forward, several catalysts could drive long-term upside in 2025. First is anticipated interest rate cuts potentially improving liquidity conditions. Second is our broader regulatory support for crypto-linked ETF beyond bitcoin. Third is new blockchain applications in payment and AI agent. Fourth is continued advancement in 0-knowledge proofs and Ethereum protocol upgrades. And finally, the passage of New Hampshire bitcoin reserve bill, the first at the U.S. state level, may encourage similar moves as well.

Ethereum has also undergone significant update, including the Pectra upgrade completed in May, anticipated Layer 1 scaling and new leadership at Ethereum Foundation. We remain confident in Ether's future and broader blockchain ecosystem and will continue to our long-term Ether accumulation strategy.

Looking ahead, we are optimistic about sustaining momentum into Q2 and beyond. Market sentiment is improving, and our rapid product iteration, especially in AE and Doge series, positions us well for future growth. However, taking into account tariffs and crypto market volatility, we project the first quarter -- first half of 2025 revenue of approximately RMB 180 million to RMB 200 million.

In conclusion, we remain focused on innovation, disciplined execution and long-term value creation. As we navigate the evolving crypto and Web3 landscape, our strategy is anchored in technological leadership, operational excellence and prudent capital market -- capital management.

Thank you for your attention. We look forward to keeping you updated on our progress as we continue to grow across crypto market cycles.

Minty Wang

Thank you, Mr. Yan. We'll now begin the question-and-answer session. You're welcome to ask questions in either Chinese or English. For convenience, English translation will be provided when needed. In case of discrepancies, please refer to the original language used by the management.

And then, operator, please begin the Q&A session. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from the line of Mark Palmer from The Benchmark Company.

Mark Palmer

Yes. And congratulations on the strong operating performance during what was a challenging quarter in the cryptocurrency industry. With regard to the mix of the company's revenue going forward, insofar as about 75% of revenue was derived from Aleo chips and miners during the first quarter, and at the same time, the company continues to develop new iterations of Doge miners, how should we think about the mix of the company's mining rigs in the second quarter and perhaps during the balance of the year?

Chaowei Yan

Yes. Thank you for your question, Mark. Yes. Firstly, we are very optimistic about the Dogecoin future development, and we'll upgrade our Doge miner progress continuously. So we aim to become the top 10 supplier of Dogecoin miner in this industry. But we will also identify promising innovative projects in the future, not only Aleo miner. So we also hope to lead the market launching of corresponding miners. This is similar to how we launched the Aleo series miner in Q1. So creating substantial returns for miners and contributing to project ecosystem and all while earning our share of the reward. So in conclusion, our future revenue will come from Doge miners, Aleo miners and new miners maybe launched in second or third quarter. Yes. Thank you.

Mark Palmer

And one other question. I just wanted to touch base on Goldshell Byte, the new dual miner that you introduced in March. Could you talk a bit about the potential of that miner in terms of revenue generation and how we should think about the timing of that rollout?

Chaowei Yan

Yes. Yes. Yes. The Goldshell -- in March 2025, our company launched Goldshell Byte. And this product currently supports mining of cryptocurrencies such as Aleo and Dogecoin. But in the future, maybe with potential compatibility for more projects in the future through the swappable mining cards. So the primary motivation behind this product was addressing a common pain point for individual miners. Every time they switch projects, they typically need to purchase entirely new machines, which also take up significant space at home.

So in response, we introduced the standardized miner with flexible mining cards, allowing the miner to easily switch cards based on the market conditions. So from a company's perspective, this product helps us to standardize the hardware design while leveraging our technical expertise across multiple cryptocurrencies. And for crypto industry, we hope this project will lower the barrier to enter the industry and encourage more people to participate in the crypto mining, ultimately contributing to the decentralization for more blockchain projects.

Minty Wang

And Mark, in conclusion for your first question, we think that for the first half of this year, most of our revenues were generated from the Aleo series miners. And for the second half of this year, we're seeing some revenues come from -- we're seeing some revenues of -- some revenues may come from the Goldshell Byte product, but it's kind of hard to -- for us to give you a specific guidance. But for the first half of this year, we think the Aleo series miners will be -- still be very competitive in the market among all the PoW machines.

And for the whole year, just as Charles stated, we may launch some new innovative miners in this quarter or maybe in the next quarter. So we think regarding to the revenues of the whole year, we think our revenue will be compromised from the sales of the Aleo miners, innovative miners and the Dogecoin miners. But percentage of these miners will depend on the market price of these miners. So it's kind of hard to -- for us to give you a precise percentage, yes.

Operator

We will now have the next question from the line of Matthew Galinko from Maxim Group.

Matthew Galinko

Congratulations on the strong quarter. I noticed that inventories remain pretty high, down a little bit from the fourth quarter. But I was curious if you could comment on what we could expect from the inventory through the balance of the year.

Chaowei Yan

Yes. In fact, most of our inventory are inventory for Dogecoin miners, and some of them are Aleo miners related chip inventory. So now we can have strong performance during this quarter. But in the future, we will adjust our price, depends on the market condition. So what I can -- what we can predict is we will try our best to sell these inventories to the market instead of to write-off the inventory. But it still depends on the market condition on that on the next quarters. Thank you.

Matthew Galinko

Got it. And I guess as a follow-up question also on Goldshell Byte, can you talk about the kind of where you're getting the feedback from the market that, I guess, consumers want that kind of all-in-one style device for mining or ability to mine multiple currencies? Is it direct feedback you're getting from existing customers? Is it kind of broad industry expectations? Or talk a little bit about that feedback.

Chaowei Yan

Okay. Yes. Yes. Goldshell Byte was very welcomed by many individual miners. It will undoubtedly explore our customer base because we receive so many feedback from new customers. And all these will be a good entry for these new customers. So in the -- our market strategy is that we use home miner to attract new customers and use professional miners to maintain them because for profit perspective, maybe the small miner like Goldshell Byte will not have a big return, but it will be a good entry for some new customers. So this is our market strategy.

So I think the Goldshell Byte individually maybe will not have a big proportion of our total revenue stream. But eventually, the launch of this kind of product will broaden our customer base and will have a final -- or will have a positive impact on our revenue. Thank you.

Minty Wang

And still Goldshell Byte is kind of profitable product for the individual miners because -- yes, because you can check the daily proceeds through Goldshell Byte. If you use 2 Aleo mining cards, you may get about -- you may get about $0.50 to $1 daily profit per day. And you may get your cost of that, I think, within 400 days.

Chaowei Yan

Yes, 300 to 400 days.

Minty Wang

Yes, yes, 300 to 400 days. I think it's still more profitable for some bitcoin or other cryptocurrency mining machines.

Chaowei Yan

Yes. But for individual users, maybe they don't care about this 10 days. But it's an interesting product. And if they want a higher return, they will purchase our box miners or other miners instead, yes.

Minty Wang

Yes, just like the switch in the manufacturer.

Chaowei Yan

Yes. Yes. In terms of return, yes.

Operator

[Operator Instructions] We will now take our next question from the line of [Theresa Lo] from [Eastgate]. All right. Theresa has left the call.

[Operator Instructions] We now have a follow-up question from the line of Matthew Galinko from Maxim Group.

Matthew Galinko

I just wanted to ask about R&D spending this year. I think Q1 was down from Q4. But just given your, I think, plans to launch additional new products and the success of the Aleo miner, should we expect kind of a return to higher R&D spending at some point this year? Or can you sort of level set us?

Chaowei Yan

R&D expense. Yes, maybe we cannot predict this because last year and the first half of this year, we launched 3 new projects rapidly. So this year, currently, we have some projects in progress. But now we cannot actually predict when to do the wafer tape-outs at this time. Yes. Thank you.

Operator

[Operator Instructions] I'm not showing any further questions. And with that, we conclude our conference call for today.