Agm Group Holdings, Inc. Q4 FY2021 Earnings Call

Good day, ladies and gentlemen. Thank you for standing by and welcome to AGM Group Holdings Incorporation's Fourth Quarter and Full Year 2021 earnings conference call. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. Please note this call is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the call over to Tracy Gao, Investor Relations Director for AGM Group. Ms. Gao, please proceed.

Thank you, Operator. And hello, everyone. Welcome to AGM Group’s Fourth Quarter and the full year 2021 Earnings Conference Call. Joining us today are Mr. Wenjie Tang, AGM Group Co-CEO, Mr. Chenjun Li, the company's Co-CEO, and Mr. Steven Sim, the company's Chief Financial Officer. We released the results earlier today with the press release available from the 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 brief you on the company's key highlights. And then, Mr. Sim will review the company's financial results. Before we continue, please note that today's discussion includes 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 risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding those risks and uncertainties is included in the company's public filings with the SEC. The company doesn't 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. Thank you, Tracy, and good morning, everyone. Welcome to our fourth quarter and full-year 2021 earnings conference today. 2021 was a unique year for AGMH as we smoothly transitioned our business into a technology company that develops and produces blockchain-oriented chips and advanced cryptocurrency mining machines. We are happy with our progress in the second half of 2021. From developing strategic plans, cultivating key customer relationships, establishing critical corporation partnerships, and scaling up sales in production, we are very delighted to announce that 2021's full-year revenues were $36.71 million, with $31.37 million coming from the fourth quarter. We achieved strong deliveries of cryptocurrency mining equipment, demonstrating our solid execution capabilities in navigating worldwide logistics congestions and the semiconductor shortage. The delivery of mining machines was 4,896 in the last three months, and still, the delivery is a small part of a purchase order from our ASIC cryptocurrency mining machines, which feature industry-leading technology and superior performance, receiving excellent feedback across a growing client base. As we continue to ramp up our efforts to meet a considerable number of outstanding orders, more shipments will be recognized in revenues. 2021's performance laid out a great foundation for our future development towards becoming a leading integrated technology company emphasizing blockchain-oriented ASIC chip R&D, advanced crypto mining machine production, and FinTech software services. For us, 2021 was just the beginning of a new journey. With our cutting-edge technologies and a team of industry veterans, we will further increase our supplies and strengthen our presence in the global blockchain ecosystem while creating long-term value for our shareholders. With that, I will turn the call over to our Chairman and Co-CEO, Mr. Chenjun Li, to provide more details on our strategic initiatives.

Thank you, Wenjie. Good morning, everyone, and thank you all for joining us today. This was a strong year and a strong quarter for our business. Although the presence of Bitcoin and other digital assets is likely to remain uncertain in the near term, the significant amount of investment in the financial sector has poured into this industry over recent years. The increasing institutional participation should bolster sentiments and reduce the lines and magnitude of any potential bear markets. We have seen growth in participants and market demands in crypto mining. It has also been encouraging to see increasing efficiency in delivering our cryptocurrency mining machines, which follows the vigorous demands. The results are a testament to our shift into designing ASIC chips and manufacturing cryptocurrency mining equipment. The accumulated deliveries of mining machines reached 4,896 in 2021, representing computing power of 440,000 terahash. The solid performance was within our expectations as we have been enhancing supply chain capabilities and investing in advanced products while also stretching our reach to move to North America. Next, please allow me to elaborate on this further. To establish technical know-how and a solid supply chain, we have fostered closer strategic partnerships within the blockchain ecosystem. For instance, we are deepening our cooperation with the strategic partner HighSharp Electronic Technology Company, which ensures successful deliveries by optimizing the integrity of raw material purchase and supply chain management. Such relationships are extremely critical as global logistics and supply disruptions have made it tougher to purchase and process the raw materials such as semiconductor wafers and other mining machine components. Additionally, we are planning to set up a joint venture with HighSharp in the U.S. Before establishing the JV, AGMH has effectively developed a global client base and met the preconditions necessary for gaining $100 million in U.S. mining equipment orders ahead of our March 22 deadline. The remarkable progress has significantly enhanced our position and brand influence in the space. With that, we will follow our plans for establishing the JV, which will aim to fully integrate HighSharp's capabilities and assets, including all our capability, personnel, past and future chip design capabilities, and the future of Bitcoin mining machine patents into AGMH. This JV will enable us to lock in prices, as well as enhance our R&D capabilities and supply chain sourcing, which will be a significant step forward from traditional partnerships and allow us to leapfrog our peers. Although specific terms and conditions are still under discussion, we expect AGMH to hold 60% of the JV and HighSharp to own 40%, with potential integration consideration for the future. Once the JV is established, we will broaden production and design capabilities to take more orders, significantly enhancing our competitive advantages. In the coming quarters, we expect to upgrade our advanced cryptocurrency mining equipment to increase its hash rate, as we believe hash power is the core element driving the entire industry. The hash rate of our C16 miner is 113 PH/s, among the highest in the industry. By leveraging first-class technologies, we are very optimistic about the demand for upgraded products. Next, I want to share some updates on our strategic move into North America. We are in the planning stage of relocating our headquarters, research center, and manufacturing facilities to North America. We have identified several local manufacturers willing to cooperate with us and have asked them to provide components so that we can evaluate their capability and product quality. Meanwhile, we are also considering the possibility of building our own factory, which we will assess with a comprehensive evaluation process concerning site selection, factory construction, production equipment purchase, and local government policies and environmental protection requirements. We expect to complete our cost and benefit management evaluation by Q2 2022 and choose the best option to get closer to our customers in the cryptocurrency mining sector, balancing reasonable labor and production costs, while factoring in several external impacts on business operations. Regarding our research and development, we are also shifting our focus to North America. We will assess costs associated with hiring talents and the revenue policies in the region. Thanks to the dedicated support from our partners and the talents at AGMH, we are able to accelerate the process of our business transformation. The year 2022 is the next chapter for our company. In the first two quarters, our foremost task remains to deliver mining machines. As we continue to acquire new customers and receive new orders, we will actively explore more sizable trends for our top-tier partners who can pay for larger orders or have recurring demands. We will provide customizable options for their specific needs. Looking ahead to direct sales in 2022, we will continue to develop our supply chain capabilities while seeking new growth avenues in the cryptocurrency ecosystem, with our commitment to expanding the business and swiftly adapting to new technologies. We are very positive about the emergence of more advanced products and diversified offerings that will help us thrive in this dynamic market. 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 fourth quarter and full-year 2021. In my comments on the quarterly results, I will refer to the fourth-quarter 2021 as the three months that ended on December 31, 2021. All comparisons are to the same period of the prior year unless otherwise stated. We delivered stellar results in the fourth quarter, ending a strong year for our business as 2021 revenues reached an all-time high. Fueled by our new growth strategies, full-year revenues were $36.71 million, an increase of about $36.66 million from 2020. We also turned to profitability with a net income of $3.53 million in 2021 compared to a net loss of $1.07 million in 2020. In the fourth quarter, our revenues increased by $31.36 million year-over-year to $31.37 million, primarily driven by an increase in sales of cryptocurrency mining machines and standardized computing equipment. Our total computing power delivered totaled 440,000 terahash in the fourth quarter compared to none in the same period of 2020. Thus far, we still have a substantial number of outstanding orders, which will be reflected in future revenues as we deliver the machines. Along with the increased procurement costs of the equipment, the cost of revenues was $25.49 million in the fourth quarter, compared with $8,662 in the same period of 2020. Gross profit surged to $5.88 million from $4,933 in the prior year, driven by the substantial increase in revenue. Our gross margin was 18.8% in the fourth quarter, up 5.4 percentage points from the prior quarter. Total operating expenses were $0.82 million, more than triple the previous year. Specifically, selling, general, and administrative expenses quadrupled to about $0.82 million in the fourth quarter of 2021, mainly due to expenses related to increased business activities. Due to the increase in revenues, income from operations was $5.06 million in the fourth quarter compared with a loss from operations of $0.1 million in the same period of 2020. Net income was $3.84 million in the last three months compared to a net loss of $92,664 in the same period of 2020. Meanwhile, we closed a registered direct offering and concurrent private placement with certain investors, raising $20 million in gross proceeds in December. This will supplement our cash flow and liquidity to support our business development. As of December 31, 2021, and September 30, 2021, we had working capital of $24.48 million and $3.23 million, including cash and cash equivalents of $18.41 million and $1.4 million, respectively. Next, let me share some upcoming plans regarding our business. As 2022 evolves, we will streamline our management over procurement and deliveries for further growth. We aim to establish a joint venture with HighSharp, leveraging their R&D and supply chain strengths to support growth. Importantly, by drawing on our experience in the blockchain ecosystem and the company's additional financing, the management team is currently focused on exploring new areas where the company can expand. We believe these efforts can help us unlock new opportunities for driving the company's next phase of growth. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you, management. Your first question is from an unidentified analyst at an unidentified capital fund, please proceed.

The management team is currently focused on exploring new areas where the company can expand. We believe these efforts can help us unlock new opportunities for driving the company's next phase of growth. That concludes our prepared remarks. Let's now open the call for questions. Thank you, management. Your first question is from an unidentified analyst at an unidentified capital fund, please go ahead.

is currently focused on exploring new areas where the company can expand. We believe these efforts can help us unlock new opportunities for driving the company's next phase of growth. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead. Thank you, management. Your first question is from an unidentified analyst at an unidentified capital fund, please go ahead.

Let's now open the call for questions. Please go ahead.

Thank you, management. Your first question is from an unidentified analyst at an unidentified capital fund, please go ahead.

Thank you, management. Your first question is from an unidentified analyst at an unidentified capital fund, please go ahead.

We will not provide a direct translation of the questions and answers during this call. However, we will make the translation available online after the call, and it will be shared with participants to save time and ensure clarity. Operator, please proceed with the next question.

From management. Our next question is from an unidentified analyst at an unidentified securities firm. Please go ahead.

We will not provide a direct translation of the question and answer during the call, but a translation will be made available online after the transcript is published and shared with participants. This will streamline the process and save time. Operator, please open up for the next question.

We will not provide a direct translation of the question and answer during this call, but we will share the translation online afterwards, which will also be available to participants. This will streamline the process and save time. Operator, please open up for the next question.

The translation will be provided online after the call transcript and shared with participants, making it easier and more efficient. Please proceed with the next question.

The translation will be provided online after the call transcript and shared with participants, making it easier and more efficient. Operator, please open up for the next question. Our next question is from an unidentified analyst at an unidentified securities firm. Please go ahead.

Translation will be provided online and shared with the participants to make the process easier and more efficient. Operator, please proceed to the next question. Our next question is from an unidentified analyst at an unidentified securities firm. Please go ahead.

Your next question is from Karl Birkenfeld from American Trust Investment. Please go ahead.

Thank you very much. I have three questions. One is for United States investors. How does the China lockdown affect your business in 2022? What's your projection of revenue for 2022?

Thank you, Karl. This is Steven. I'll take your question. As the media has already widely reported, the lockdown situation in China, realistically, has made it difficult for us from a supply chain and manufacturing perspective to forecast what's going to happen next. In that environment, it is nearly impossible to plan on a going-forward basis. Having said that, because the COVID-19 situation has been ongoing for the past two to three years, we have already made sufficient contingency plans, including moving part of operations to the U.S. Potentially, as we mentioned in our prepared remarks, we are considering opening factories in the U.S. to alleviate this situation in the future. In terms of the short-term effects, unfortunately, we have to deal not only with the lockdown in specific cities but also with the supply chain being massively disrupted. These are entirely out of our control. For example, when we fulfill an order, our upstream suppliers are facing the same manufacturing, material sourcing, and logistics issues. In a nutshell, we cannot just control what happens within our operations; our upstream suppliers are facing challenges as well. In that context, we will do our best to diversify our solutions, including the aforementioned move to North America and seeking other solutions. Regarding your projection of revenue, it is nearly impossible to predict our performance for the entire year. However, on a quarter-to-quarter basis, we remain largely positive because we believe that we are transitioning well into the new business, as evidenced by the fourth quarter. Even though I can’t provide explicit guidance, we expect that as we move towards Q1 and Q2, we should be able to present a steadily improving and growing business to the market.

Thank you. My second question is, who are your peers in China and the U.S., and what is your technical advantage versus your key competitors?

As mentioned in the previous Q&A by our CEO, let me repeat that since his answer was in Chinese. Our peers are well-known names in the market, including Bitmain, which is a Dilo listed company in the U.S., and others. Having HighSharp as our JV partner and strategic partner is highly beneficial to us, given HighSharp's experience, capabilities, and R&D prowess over the years. On a going-forward basis, I believe we are one of the first to mass-produce our C16 machine, which at 113 terahash per second is one of the highest spec machines available. We feel that as we move forward, we will continue to improve the specs of this machine while also investing in the next generation of chips. When comparing ourselves to peers and evaluating our technical advantages, we believe we are agile and have key partnerships that allow us to remain on the cutting edge of the industry. In this uncertain environment, our nimble approach enables us to react swiftly to market changes.

Thank you. Now, my third question and final is, what's your view of other miners that utilize clean energy or produce energy-efficient chips? Any plans to produce energy-efficient chips yourselves?

Karl, let me pose this question to Mr. Li, and I will translate.

Thank you, Karl.

Our views on miners using clean energy are very positive and we fully support our mining customers in utilizing clean energy.

Our views on miners using clean energy are very positive and optimistic. We fully support our mining customers in utilizing clean energy.

In terms of producing energy-efficient chips, this is a common goal shared by us and our peers. Currently, we are actively investing and seeking ways to develop energy-efficient chips.

Thank you, Karl. Our views on miners using clean energy are very positive and optimistic. We fully support our mining customers in utilizing clean energy. In terms of producing energy-efficient chips, this is a common goal shared by ourselves and our peers. Currently, we are actively investing and seeking ways to develop energy-efficient chips.

At the same time, our C16 miner, operating at 130 terahash per second with 30J per terahash, is among the most energy-efficient machines on the market today. We believe this will continue to improve in the future.

In terms of producing energy-efficient chips, this is a common goal shared by ourselves and our peers. Currently, we are actively investing and seeking ways to develop energy-efficient chips. At the same time, our C16 miner, operating at 130 terahash per second with 30J per terahash, is among the most energy-efficient machines on the market today. We believe this will continue to improve in the future.

In the mining industry, using clean and efficient energy should be a shared objective that we and our peers aim for, and it is a goal we are committed to achieving. Thank you.

Thank you for answering my questions. It seems like you have a great company here, and you guys are on top of the chain. Thank you very much.

Thank you, Karl.

Thank you. Our next question is from Cam Sugrue at HC Wainwright. Please go ahead.

Good morning, everyone. I wanted to ask, how do you think the shift to North America is going to affect current supply chain concerns and order fulfillment?

Cam, do you mind repeating the question? The shift to North America?

Sure. How do you think that the shift in operations to North America is going to affect the supply chain?

Right. Okay, sorry for the confusion. The shift is essentially to bring us closer to our key customers. From a strategic level, we evaluate different options available worldwide for mining companies. Consistently, when we engage with customers, North America comes up as the top destination due to the availability of efficient and clean energy, as well as a stable political and regulatory environment. Additionally, it allows closer proximity to the capital markets for mining companies based in the U.S. From this perspective, our shift to the U.S. being closer to our customers is a no-brainer. It will address a lot of logistical issues, although it does introduce complexities concerning shifting raw materials there for assembly of semi-assembled machines. Various options are currently being considered. Relative to these considerations, there may be a slight increase in costs, which we think can be offset by looking at the potential benefits. In the long run, this appears to be the right direction for us.

Excellent. Thank you. Do you expect a similar amount of R&D costs in 2022, or do you expect that number to increase over time?

From AGM Company level, the actual R&D cost is not reflected at the AGM company level due to our strategic partnership with HighSharp. This is a great question. Our partnership with HighSharp allows us to license their technology. However, as we integrate ourselves with HighSharp going forward, this will enable us to tap into their historical expertise. Consequently, this means that future development and R&D will increase in tandem with this integration. Thus, while our R&D activity in the short term may not be comparable to previous levels, we view this positively in light of optimizing the value chain through the joint venture. We intend to invest profits back into R&D for further iterations of our products.

Great. Thank you for answering my questions this morning. We're very excited about the growth of the company.

Thank you, Cam.

Thank you. Seeing no more questions in the queue, let me turn the call back to Mr. Chenjun Li for the closing remarks. Please go ahead.

Thank you, Operator. And thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.

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