Nano Labs Ltd Q4 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to Nano Labs' Second Half of Fiscal Year 2023 Earnings Conference Call. This conference is being recorded today, Monday, March 18, 2024. Joining us today from Nano Labs are the company's Chairman and Chief Executive Officer, Mr. Jianping Kong; and the company's Chief Financial Officer, Mr. Bing Chen. On our call today, Mr. Kong will give you an overview of the company's performance. Mr. Chen will share the details of the company's financial results. After that, we will conduct a question-and-answer session to take your questions. Before we continue, I would like to remind you that some information discussed on this call will contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the Securities and Exchange Commission. During today's call, Mr. Kong and Mr. Chen will deliver their remarks in Chinese, and the company's representative will provide a corresponding English translation. With that, I will now turn the call over to Mr. Kong, the company's Chairman and Chief Executive Officer. Mr. Kong, please go ahead.

Thank you, operator, and everyone for joining Nano Labs' Second Half of Fiscal Year 2023 Earnings Conference Call today. In the second half of 2023, our company benefited from supportive government policy and positive market trends. The Hong Kong government's strong support for the Web3.0 industry and the historic approval of the first Bitcoin spot ETF by the SEC in early 2024 have bolstered the industry, fueling optimism and propelling progress. Our management team is actively pursuing global market expansion opportunities. Through various market expansion initiatives, we aim to explore potential market opportunities to increase our market share. In terms of research and development, our Cuckoo series integrated products are currently undergoing intensive R&D efforts. Significant advancements were made in the latter half of 2023, and we anticipate launching enhanced versions of our products in 2024, expected to deliver substantially improved performance. Additionally, our company is concurrently upgrading our packaging technology and IPs to enhance chip production efficiency. We are also laying the groundwork for R&D in AI computing, ZK computing, and other chips to seize emerging market opportunities. Our metaverse business line, iPollo Metaverse, offers a photography studio service that includes 3D scanning and 3D printing services. This service has received high praise from athletes at the Asian Games and provided diverse digital application scenarios for various IPs. It assists in the digitalization of various types of IPs, helping them enter the metaverse. Furthermore, the photography studio service offers personalized customization services to users, allowing a wide range of enthusiasts to experience the joy of DIY in the metaverse. We believe that with favorable policies and support, combined with our continuous dedication and efforts, we will continue to progress and provide additional services for the development of the Web3.0 industry. Thank you for your continued support for the company. Next, I will turn the call over to our Chief Financial Officer, Mr. Chen, for a closer review of our financial results. Mr. Chen, please go ahead.

Thank you, Mr. Kong. Good morning, everyone. On behalf of the management team, I will provide a brief financial overview of the second half of fiscal year 2023. During this period, we are encouraged to see a gradual recovery in the market. Net revenue was RMB26.1 million or USD3.7 million for the second half of 2023, down from RMB603 million for the same period of 2022. This decline in net revenue was mainly due to a decrease in sales volume of the iPollo V1 Series and B1 Series. However, revenue from our new 3D printing products reached RMB787,000 for the second half of 2023, compared to none for the same period of 2022. Cost of revenues was RMB66.6 million or USD9.4 million for the second half of 2023, compared to RMB549.2 million for the same period of 2022. Operating expenses totaled RMB83.8 million or USD11.8 million for the second half of 2023, down from RMB140.7 million for the same period of 2022. Selling and marketing expenses decreased to RMB5.8 million or USD0.8 million for the second half of 2023, compared to RMB14.3 million for the same period of 2022, primarily due to reduced advertising fees and marketing promotion costs. General and administrative expenses dropped to RMB22.4 million or USD3.2 million for the second half of 2023, down from RMB36.3 million in the same period of 2022, mainly due to lower professional fees and reduced employee salary costs as the staff count decreased. Research and development expenses also fell to RMB55.6 million or USD7.9 million for the second half of 2023, down from RMB90.2 million for the same period of 2022, due to lower equipment costs, salary expenses, and share-based compensation. The company plans to continue significant investments in research and development to support future growth, product updates, and competitive advantage. Loss from operations was RMB124.4 million or USD17.6 million for the second half of 2023, compared to a loss of RMB86.9 million for the same period of 2022. Net loss stood at RMB120 million or USD16.9 million for the second half of 2023, compared with RMB80.3 million for the same period of 2022. Basic and diluted loss per share was RMB1.91 or USD0.27 for the second half of 2023, compared to RMB1.47 in the same period of 2022. As of December 21, 2023, we had cash and cash equivalents of RMB48.2 million or USD6.8 million, down from RMB87.8 million as of December 31, 2022. We remain committed to providing foundational services for the development of the Web3.0 industry. Moving forward, we will continue to engage in intensive R&D efforts to enhance our product offerings and overcome current challenges. We are optimistic about our ability to increase shareholder value and sustain business growth. Thank you for your support and trust. I would now like to turn the call over to the operator for the questions-and-answer session.

Your first question comes from Oscar Tracey, a private investor.

Could you explain the reason behind your underperformed trade value and also your stock price? Thank you.

The primary reason is that our main focus right now is on developing our core value and enhancing our products. Additionally, while the market is improving, the lag in our stock price and secondary market doesn’t reflect our performance. We believe that as long as we stay committed to product quality, we will experience significant growth in the future with the ongoing development of Web3.0. Thank you.

Your next question comes from Eva Karan, private investor.

Could you please explain the reasons behind the decline of the company's performance in the second half of 2023 compared with the same period of 2022? Thank you.

It takes time for market dynamics to translate into actual customer demand. Therefore, the positive market trend wasn't clearly reflected in our sales during the second half of the year. Although our new product has demonstrated strong performance, it did not significantly impact the second half results since it was launched in the fourth quarter. We are confident it will be a key driver of growth. Additionally, many of our new products are still in the pipeline and have not yet contributed to our revenue in the second half of 2023.

Your next question comes from Kathleen Smith, private investor.

What are the company's expectations for the market and also the financial performance in 2024? Thank you.

As the overall package is improving, we anticipate an increase in sales for both V Series and B Series products in 2024 compared to 2023. The new product lines such as 3D printing are performing well currently. Therefore, we expect an increase in sales in the market as well. Thank you.

Your next question comes from Helena Melvin, private investor.

My question is, does the company have any initiatives to promote brand globally?

Our management team has visited various countries and engaged in meaningful discussions with local industry experts and potential partners, creating excellent opportunities for expanding our global market presence. Additionally, we consistently participate in exhibitions and events worldwide to promote our products and services. That's all, thank you.

Your next question comes from Rebecca Aliston, a private investor. Our management team has visited other countries and regions and engaged in valuable discussions with local industry experts and potential partners, which serves as great opportunities for expanding our global market presence. Meanwhile, we continuously participate in exhibitions and events worldwide to promote our products and services. That's all, thank you.

Can you hear me?

Yes.

Yes. Sorry, may I know what are the considerations behind the company's agreement with shareholders to convert loans into ordinary shares, which I believe was signed in September last year?

Our major shareholders both have confidence in the future of Nano Labs and the entire industry. Therefore, we are willing to lend to the company and convert it into equity at market price. I believe this decision sends a strong message of confidence and assurance, which will support the company's further development in 2024 and beyond. Thank you.

Thank you. That concludes the question-and-answer session. Let me turn the call over to Mr. Chen for closing remarks.

Thank you very much for joining this conference call. If you have any questions, please contact us through email at [email protected] or reach our IR counsel, Ascent Investor Relations, at [email protected]. Management will respond to your questions as soon as possible. We appreciate your interest and support in Nano Labs and look forward to speaking with you again next time.

Thank you again for attending Nano Labs' Second Half of 2023 Earnings Conference Call. This concludes our call for today, and we thank you for listening. Goodbye.