Agm Group Holdings, Inc. Q3 FY2021 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by and welcome to the AGM Group Holdings, Inc. Third Quarter 2021 Earnings Conference Call. Currently all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at the time. As a reminder, we are recording today's call. If you have any objections you may disconnect at this time. Now I'll turn the call over to Ms. Tracy Gao, Investor Relations Director of AGM Group. Ms. Gao please proceed.

Thank you, operator, and hello, everyone. Welcome to AGM Group third quarter 2021 earnings conference call. Joining us today are Mr. Wenjie Tang AGM Group's Co-CEO; Mr. Chenjun Li, the company's Chairman and Co-CEO; and Mr. Steven Sim, the company's Chief Financial Officer. We released results earlier today. The press release is available from newswire services. A replay of this call will also be available in a few hours on our website. First Mr. Tang and Mr. Li will provide key highlights on the company, and then Mr. Sim will review the company's financial results. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risk and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding those and other risks and uncertainties is included in the company's public filings with the SEC. The company is not going to assume any obligation to update any forward-looking statement except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in U.S. dollars. With that, let me now turn the call over to our Co-CEO, Mr. Wenjie Tang. Go ahead Mr. Tang.

Thank you, operator, and good morning, everyone. Thanks for joining our third quarter 2021 earnings conference call today. I am very excited to share with you the remarkable progress we've made on all fronts since the announcement of our new business launch in August. Our unwavering mission is to become an integrated technology company that focuses on the development of blockchain-oriented ASIC chips, the production of advanced crypto mining equipment, and the Fintech software service. We were off to a great start financially, with revenue of $5.34 million generated in the third quarter. Notably, our first ASIC crypto mining machine—KOI MINER C16—garnered widespread attention and interest over a very short period, thanks to its cutting-edge technologies and top industry performance metrics. We've already secured a purchase order for 67,500 cryptocurrency mining machines, which has exceeded our expectations and is evidence that our strategies and efforts in transforming and upgrading our business are yielding very positive outcomes. Specifically, only 880 machines, approximately 1.3% out of our current total orders, for a total computing power of 79,200 TH per second are included in the revenues we are recognizing for the third quarter. The remaining orders will be reflected in future revenues as deliveries take place. We are confident that the current favorable market trend will continue to spur robust demand for our mining machines, which makes me very optimistic about our potential growth in the cryptocurrency mining sector. Meanwhile, we have also worked hard to promote the development of our legacy Fintech business as planned. Regarding our partnership with an Australian licensed broker for social trading and educational website services, we maintain our expectation that we will enter into a definitive agreement with this broker by the end of the fourth quarter of 2021. In addition, as we stated earlier this year, we have established wholly-owned subsidiaries in Singapore and Hong Kong. We are actively looking for candidates to expand our team in these regions to prepare for new blockchain and Fintech software development and consulting services in the Asia region. By leveraging our advantages in solid infrastructure and technology strategies, as well as a strong team, we are well positioned to address burgeoning customer needs and generate sustainable value for shareholders, while we strive to become a key supplier and contributor in the global blockchain ecosystem. With that, I'll turn the call over to our Chairman and Co-CEO, Mr. Chenjun Li, to provide some more details on strategic initiatives.

Thanks, Wenjie. Good morning, everyone. And thank you for joining us today. I'm very delighted with the positive market response we have gained in our cryptocurrency mining equipment. Within just three months after our new strategic initiatives, we have already secured substantial orders from well-known companies in the industry. The ever-growing orders signify that the quality of our products is recognized in the industry and further establish our leading position in the cryptocurrency mining sector. In the third quarter, not only did we see strong orders and demand, but we also built new strategic partnerships. Now let me summarize key partnerships we have announced so far. In September, we partnered with Highsharp Electronic Technology to expedite growth for both companies in the rapidly growing cryptocurrency market. Pursuant to the partnership, the top priority is that Highsharp will provide the latest ASIC chip technology and design services to us while we will engage in claims development. Subject to meeting certain sales targets, the two parties also plan to set up a joint venture where we will hold a 60% stake. Combined with Highsharp's key R&D team members, the upcoming joint venture will deliver advanced semiconductor solutions for supercomputing hardware. The strategic partnership mentioned above is a very significant milestone for us, laying a solid foundation for our future growth and success. Next, I'd like to share some insights regarding our supply chain capabilities against the backdrop of the global semiconductor shortage. It is true that the production of semiconductor wafers is not meeting demand right now. Any ASIC mining machine manufacturer must therefore prove itself as a key market player in order to secure adequate supplies. The manufacturer must demonstrate its ability to design chips specifically for mining and order from one of the few fabs in the market, such as Samsung, SMIC, and TSMC. These top fabs will not sell to anyone except purchasers with proven research and development capability and access to sufficient capital to deploy for large prepayments of wafer orders, designs, and the capabilities to build chips and mining machines. Despite being a relatively new player in the market, AGM, through our partnership with Highsharp, can tap into their previous and future orders from these critical suppliers to secure semiconductor wafer resources. Meanwhile, as production ramps up, we believe this supply crunch will ease in mid-2022. Now, let me discuss our move into the U.S. due to its relatively stable environment. We believe that North America is the key region for both Bitcoin mining and our business. We will establish a manufacturing base, which will be strategically important to bring us closer to our customers. We have decided to seek appropriate opportunities to establish production operations in the United States or Canada, which will not only strengthen our competitiveness in the global supply chain but also overcome logistical challenges. We will be able to serve our partners and end customers as well as reach a broader client group in the region. Most of our customers today are U.S. or Canada based. Therefore, production from this planned manufacturing base will mainly supply them. Our resellers and end customers are very supportive of this action, as it gives them more control over production and logistical issues, as well as delivery timetables. We are currently actively in discussions with potential partners in the U.S. and will communicate with the market once we have more concrete progress on this initiative. Given the large number of orders we have already received, the fourth quarter will be primarily focused on fulfilling deliveries of these mining machines. Looking ahead, we will continue to build up our order book, establish sustainable long-term relationships with our clients, and enhance our supply chain capabilities. In the short and medium term, we will work with Highsharp to get the joint venture set up and gradually design and produce chips. With these ongoing efforts, we are confident we will distinguish ourselves with our technical capabilities and become a market-leading company producing high-performance ASIC mining machines. Now, I will turn the call over to our CFO, Mr. Steven Sim, who will review and comment on our financial results.

Thank you, Chenjun, and thanks everyone for being on the call. I will summarize some key financial results for the third quarter of 2021. In my comments on the quarterly results, I'll refer to the third quarter of 2021 as the three months ended on September 30, 2021. All comparisons are to the prior year third quarter ended September 30, 2020 unless otherwise stated. Our solid performance in the third quarter reflects the success and profitability of our transition and engagement into the ASIC chip design and cryptocurrency mining equipment manufacturing space. We generated $5.34 million of revenue, mainly due to sales of crypto mining machines and computing hardware. Our total computing power rose to 79,200 TH per second compared to nil in the same period of 2020. After the company announced in August to initiate a new growth strategy to become a key participant and contributor in the global blockchain ecosystem, we are still in the process of further upgrading the company's business. However, we have already gained a considerable amount of orders for our mining equipment. As aforementioned, most of the orders will reflect in the third quarter's revenue, but will be considered in the future as we deliver the equipment to our clients. Cost of revenues was $4.62 million compared to $10,883 in the same period of 2020. Gross profit rose to $0.71 million from $21,138 in the prior year, primarily due to the substantial increase in revenues. Our gross margin was 13.4% in the third quarter of 2021. Once our joint venture with Highsharp is established, we should be fully capable of designing and building at the AGMH joint venture level, which means we should embrace a higher margin business. Total operating expenses were $0.34 million, up 17.1% from the previous year. In particular, selling, general, and administrative expenses increased by 20.2% to $0.33 million in the third quarter of 2021, mainly due to expenses resulting from the establishment of a new Wholly Foreign Owned Enterprise. As we cut investment in Fintech R&D, research and development expenses were $10,304, a decrease of 35.6% from $16,007 in the same period of 2020. It is worth noting that we had not invested in cryptocurrency mining machine R&D until September 30, 2021. We will only expect to do so once the joint venture is established. Fueled by the increase in revenue, income from operations was $0.37 million, compared to a loss from operations of $0.27 million in the same period of 2020. Net income was $0.2 million, compared to a net loss of $0.32 million in the same period of 2020. As of September 30, 2021, and June 30, 2021, we had working capital of $3.23 million and $3.02 million, including cash and cash equivalents of $1.4 million and $0.4 million, respectively. As we have now turned to profit, our healthy financial position enables us to meet our net working capital needs for the near to midterm. Next, let me share some long-term perspectives and thoughts regarding our business. Going into Q4 2021 and 2022, our imperatives will be delivering the substantial number of mining machines ordered and ramping up our production capacity while securing more purchase orders. This will form the basis of our financial growth and stability in the mid to long term, maximizing shareholder value for the company. As we seek to sustain our future growth trajectory, we will keep investing in and improving our R&D, cutting-edge technologies, and manufacturing capabilities to drive further development in our core crypto mining equipment manufacturing business and other initiatives as well as capitalize on the vast opportunities in the cryptocurrency mining sector. This concludes our prepared remarks. Let's now move the call to questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from an analyst at Long Run Asset Management. Please go ahead with your question.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of an analyst from Long Run Asset Management. Please ask your question.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of an analyst from Long Run Asset Management. Please ask your question.

Thank you. Your next question comes from Delvi Chen from Right Time Funds. Please ask your question.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from an analyst from Long Run Asset Management. Please ask your question. Your next question comes from Delvi Chen from Right Time Funds. Please ask your question.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of an analyst from Long Run Asset Management. Please ask your question. Thank you. Your next question comes from the line of Delvi Chen from Right Time Funds. Please ask your question.

Gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of an analyst from Long Run Asset Management. Please ask your question. Thank you. Your next question comes from the line of Delvi Chen from Right Time Funds. Please ask your question.

Our first question comes from the line of an analyst from Long Run Asset Management. Please ask your question. Thank you. Your next question comes from the line of Delvi Chen from Right Time Funds. Please ask your question.

Our first question comes from the line of an analyst from Long Run Asset Management. Please ask your question. Thank you. Your next question comes from the line of Delvi Chen from Right Time Funds. Please ask your question.

Please ask your question.

Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Wenjie Tang for closing remarks.

Thank you. Thank you all for participating in today's call and for your support. We appreciate your interest and I look forward to reporting to you again next quarter from our offices.

Thank you all again. This concludes the call. You may now disconnect.