Earnings Call Transcript - NA Q2 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Nano Labs First Half of 2024 Earnings Conference Call. This conference is being recorded today, Wednesday, September 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 known or 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 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.

Jianping Kong, CEO

Thank you, operator, and everyone for joining Nano Labs' First Half of 2024 Earnings Conference Call today. On our call, I will provide an overview of our recent developments and our strategic initiatives for the future. The first half of 2024 has clearly witnessed a recovery in the industry and the continuous emergence of new market opportunities. Amid this existing bull market environment, our company has been making substantial investments in the research and development of our upgraded Cuckoo Series products. In May 2024, we successfully commenced the mass production of the Cuckoo 3.0 chip, which features significantly enhanced performance compared to the Cuckoo 2.0 chip, setting a new global benchmark. This key development positions us to capitalize on new market opportunities progressively. Moreover, our company plans to launch a range of models equipped with the Cuckoo 3.0 chip for various application scenarios in the remainder of this year and the first half of next year, which is expected to drive significant growth in our sales. Furthermore, we are continuously innovating in packaging technology and IP to improve the efficiency of chip production. The development of promising AI computing, ZK computing, and other chips is also underway. Concurrently, our iPollo Metaverse's photography studio service, a component of our Metaverse business suite, is making consistent progress. We have established profound collaborations with various institutions and organizations, which lays the groundwork for substantial growth potential in the future. We anticipate that through the combined persistence and efforts of the industry and ourselves, we will overcome existing challenges and unlock new heights of success in the future. Thank you for your support and trust. 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.

Bing Chen, CFO

Thank you, Mr. Kong. Good morning, everyone. On behalf of the management team, I will provide a brief financial overview of the first half of 2024. In the first half of 2024, our net revenue was RMB24.74 million, or USD3.47 million, compared to RMB52.37 million in the same period last year. This decline was primarily due to reduced sales of the iPollo V1 Series product. However, revenue from our 3D-printing products saw significant growth, increasing to RMB459,200 from RMB22,000. The cost of revenues for the first half of fiscal year 2024 was RMB24.71 million, or USD3.47 million, down from RMB115.2 million in the same period of 2023. This change was mainly due to the decrease in sales volume and a smaller inventory write-down. Total operating expenses for the first half of fiscal year 2024 decreased by 20.1% to RMB58.72 million, or USD8.24 million, from RMB73.50 million in the same period of 2023. Selling and marketing expenses dropped by 54.4% to RMB4.33 million, or USD0.61 million, compared to RMB9.50 million in the same period of 2023. This decrease was mainly due to reduced sales commissions and product shipping expenses. General and administrative expenses fell by 18% to RMB25.45 million, or USD3.57 million for the first half of 2024 from RMB31.04 million for the same period of 2023. The reduction was primarily due to lower office lease expenses, largely from the relocation of our head office and a decrease in salaries for general and administrative staff. Research and development expenses decreased by 12.2% to RMB28.93 million, or USD4.06 million for the first half of 2024, compared to RMB32.95 million for the same period of 2023, mainly due to lower salary expenses. Loss from operations was RMB58.69 million, or USD8.24 million for the first half of 2024, compared to a loss of RMB136.4 million for the same period of 2023. The net loss was RMB59.50 million, or USD8.30 million for the first half of 2024, compared to a net loss of RMB134.3 million in the same period of 2023. Basic and diluted loss per share was RMB0.85, or USD0.12 for the first half of 2024, compared to a loss per share of RMB2.41 in the same period of 2023. As of June 30, 2024, the company had cash and cash equivalents of RMB23.51 million, or USD3.3 million, compared with RMB48.15 million as of December 31, 2023. We remain confident in our business strategy and our ability to execute it. We will continue to leverage the strength of our technology to capture development opportunities, drive long-term growth, and create additional value for our shareholders. Now I would like to turn the call over to the operator for a question-and-answer session.

Operator, Operator

Your first question comes from Oscar Tracey, Private Investor. Please go ahead.

Unidentified Analyst, Analyst

So, I'm just wondering, could you provide some more details about your new 3D products? Thank you.

Jianping Kong, CEO

Our company's newly launched Cuckoo 3.0 Chip is an upgraded version of the original Cuckoo 2. We have made significant performance improvements. The Cuckoo 3 has achieved a leading global position. Machines equipped with a large number of these chips can be utilized not only in data centers but also independently in homes or consumer set-top boxes, providing flexibility for various user scenarios.

Operator, Operator

Your next question comes from Arana Rabner, a private investor. Please go ahead.

Unidentified Analyst, Analyst

Thank you. What are the company's expectations for the market and financial figures in the second half of this year?

Bing Chen, CFO

Our company plans to launch our complete machines equipped with the Cuckoo 3 chip in the second half of the year, which is expected to drive an increase in sales of our products. Additionally, we are gradually introducing new product lines to the market, and we anticipate the sales volume to grow over time.

Operator, Operator

Your next question comes from Clara Walton, Private Investor. Please go ahead.

Unidentified Analyst, Analyst

I have a question. What sort of competitive advantage does the Cuckoo 3.0 provide in relation to recent AI trends? Thank you.

Jianping Kong, CEO

The Cuckoo 3.0 Chip offers the highest computing power and the lowest power consumption among our current products. Our company has developed multiple models to cater to different application scenarios regarding AI. The Cuckoo 3 features high-bandwidth multicore 3D DRAM with a dedicated distributed on-chip network to enable efficient data exchange between computing and storage units, which is a key technology in AI chips. Additionally, the specialized low-voltage circuit designed to reduce power consumption aligns with the corresponding timing signs of processes, providing a comparative advantage for AI chip design.

Operator, Operator

The next question comes from Armstrong Wu, Private Investor. Please go ahead.

Unidentified Analyst, Analyst

Thank you. My question is, will the company introduce any new product lines that could support its business revenue in the future? Thank you.

Bing Chen, CFO

As mentioned before, our company plans to launch complete machines equipped with Cuckoo 3 chips in the second half of this year and the first half of next year, which is expected to significantly boost sales. Additionally, our photo studio services will contribute to the company's overall revenue. We are also exploring new opportunities in fields such as AI computing to drive our future revenue growth.

Operator, Operator

And that concludes the question-and-answer session. Let me turn the call over to Mr. Chen for closing remarks.

Bing Chen, CFO

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.

Operator, Operator

Thank you again for attending Nano Lab's First Half of 2024 Earnings Conference Call. This concludes our call today, and we thank you all for listening in. Goodbye.