Nano Labs Ltd (NA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Nano Labs' First Half of 2023 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, August 15, 2023. 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 that -- of all which are difficult to predict and may -- 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 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.

[Foreign Language]

[Interpreted] Thank you, operator, and everyone, for joining Nano Labs first half of 2023 earnings conference call today. On our call today, I will provide an overview of our recent developments and our strategic initiatives in the future.

[Foreign Language]

[Interpreted] The first 6 months of 2023 proved to be challenging, not just for us but for the entire cryptocurrency sector. We did see a dip in cryptocurrency values, and it had an effect on ourselves. But our priority remains unchanged: to deliver the high-quality products our customers expect from us. And in response to these market shifts, we took proactive measures. Our leadership has been traveling extensively, connecting firsthand with industry frontrunners and looking into meaningful global partnerships. We've honed in on several key regions: North America, Northern Europe, Middle East and Southeast Asia. And the good news is these efforts are paying off. We witnessed a commendable uptick in our overseas sales during this period. As we navigate the second half of the year, we will continue our drive to explore new markets and solidify our presence stronger than ever.

[Foreign Language]

[Interpreted] Moving on, I'd like to share some exciting updates about iPollo and the advancements related to iPollo's capability in the AI reasoning and the real-time rendering of the 3D metaverse. The power of iPollo's blockchain, combined with lightning fast data network between the nodes, is revolutionizing the GPU computing. Think of it as a massive unified pool that's tailormade for the GPU-heavy tasks. And speaking of capacity, we are ramping up, adding more iPollo computing nodes with configurations of [ 4-cards and 8-cards ]. We're also expanding support for model training for data sets below 10 bytes. And when it comes to AI graphics computing, or AIGC, iPollo stands out. We are enabling the inference of Stable Diffusion models. In simpler terms, it's an impressive tool that can take text and transfer it into visual patterns, which can be mined directly as NFTs. Also, in the digital human landscape, we are pushing boundaries. Imagine in generating 2.5D and 3D digital humans and even short videos all from a single photo. This has massive potential, especially for live streaming e-commerce. As we delve deeper into the AI space, we are developing a Web3 AI training platform, and this is our answer to the diverse need of the Web3 era. Plus with iPollo's capacity in a digital human face, we are unlocking new digital applications for various intellectual properties. And then when paired with 3D printing, it means these digital entities can be beautifully representative in our tangible world, truly bringing the metaverse to life for those passionate about cultural trends. And to wrap it up, we firmly believe that iPollo will be a landmark offering in our industry, setting new benchmarks and continuously elevating the Web3 experience.

[Foreign Language]

[Interpreted] Thank you for your unwavering support and trust in our 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.

[Foreign Language]

[Interpreted] Thank you, Mr. Kong Jianping. A very good morning to you all. I'm here to share a concise financial update for the first half of 2023 on behalf of our dedicated management team. The net revenue was CNY 52.3 million or USD 7.2 million for the first half of 2023 compared to CNY 380.1 million for the same period of 2022. The decrease in net revenue was primarily due to the decrease in sales volume of V and B series, plus a dip in service revenue for the first half of 2023. On a brighter note, our 3D products have begun to contribute to our revenue stream. The cost of revenue was CNY 115.2 million or USD 15.9 million for the first half of 2023 compared to CNY 203.8 million for the same period of 2022.

[Foreign Language]

[Interpreted] The total operating expenses were CNY 73.5 million or USD 10.2 million for the first half of 2023 compared to CNY 68.7 million in the same period of 2022. And selling and marketing expenses decreased by 6.5% to CNY 9.5 million or USD 1.3 million for the first half of 2023, down from CNY 10.2 million in the prior year. The decrease was primarily due to the decrease in advertising and marketing promotion expenses.

[Foreign Language]

[Interpreted] The general and administrative expenses increased by 83.8% to CNY 31 million or USD 4.3 million for the first half of 2023 from CNY 16.9 million for the same period of 2022. And the surge was primarily attributed to the increase in employee salary expenses, professional fees and rental fees due to the development and expansion of our business.

[Foreign Language]

[Interpreted] Research and development expenses decreased by 21% to CNY 33 million or USD 4.6 million for the first half of 2023 from CNY 41.7 million for the same period of 2022. The decline is largely due to reduced design, service and material costs alongside with a decrease in share-based payout, offset by the increasing equipment rental fees. Please note that we are committed to our robust R&D investments to support our future development, product iteration and competitive strength.

[Foreign Language]

[Interpreted] Loss from operations were CNY 136.4 million or USD 18.9 million for the first half of 2023 compared with profit from operations of CNY 107.6 million for the same period of 2022. Net loss was CNY 134.3 million or USD 18.6 million for the first half of 2023 compared to a net income of CNY 111.4 million for the same period of 2022. Basic and diluted loss per share was CNY 1.20 or USD 0.17 for the first half of 2023 compared with CNY 1.07 for the same period of 2022. As of June 30, 2023, the company had cash and cash equivalents of CNY 16.8 million or USD 2.3 million compared with CNY 87.8 million as of December 31, 2022.

[Foreign Language]

[Interpreted] We remain confident in our ability to add value in the future development of our business. We will continue to leverage the strength of our technology to drive long-term growth and create additional value for our shareholders. Now I will turn the call over to the operator for a question-and-answer session.

[Operator Instructions] Our first question comes from [ Eva Ross ] with -- private investor.

I got 2 questions today. The first one is, the financial result decreased from December 2022 to June 2023. Could you please explain the main reason behind the drop in revenue?

[Foreign Language]

[Foreign Language]

[Interpreted] The main reasons were the issuance transition to the proof-of-stake, which is the POS in the latter half of the last year, also coupled with the continuous downturn of the cryptocurrency prices during the first half of this year. All of these factors significantly impacted our results.

And my next question will be, we've noticed the company is currently exploring various new developments, which seems to have less association with B and V series product. Could you explain the rationale behind procuring this development?

[Foreign Language]

[Foreign Language]

[Interpreted] So in a world of Web3, from the foundational infrastructure to the more higher-level applications, there are various main segments including but not limited to like the infrastructure, the human computer interaction, decentralization, et cetera. And you can see that our past computational devices were large powerhouses supporting the massive demand of those high-level Web3 applications. For example, you can see our earlier products, which is the iPollo elemental computing. The unit helps to unify the edge computing into a consolidated powerhouse, and with the infrastructure continues to evolve, we can see more and more opportunities to come. And that's why we've been launching products that cater to the multiple facets of the Web3 evolution.

Our next question comes from [ Irina Robano ], private investor.

So I have 2 questions. My first question is, what are the company's expectations for the market and the financial results in the second half of this year and next year?

[Foreign Language]

[Foreign Language]

[Interpreted] We anticipate that while we will maintain the sales of our existing V and B series products in the second half of this year, we will also start to see a contribution from our new product lineup. And looking ahead to the next year, we expect a noticeable uptick in sales from these new product offerings.

Okay. My next question here is, are there any new plans for the existing products or plans for the product iterations?

[Foreign Language]

[Foreign Language]

[Interpreted] Sure. Absolutely. So as hinted in our outlook, we've got a slew of Web3 products set to roll out in the coming months, such as the iPollo.ai. And our iPollo 3D printing for the metaverse also partnered up with major IPs and exhibition centers, so we are expecting some promising results this year. In addition, we are currently developing our Cuckoo 3 product, which we believe will offer a substantial performance boost over its predecessor.

[Operator Instructions] Our next question comes from [ Kathleen Smith ], private investor.

I have a question today. So the performance for the first half of this year was not impressive. So does the company's management team have any solutions to drive business development?

[Foreign Language]

[Foreign Language]

[Interpreted] Yes. So apart from sticking to our road map for upgrading our existing product line and waiting for the market recovery, we're also positioning ourselves to -- like across the entire value chain of the Web3 system. And this includes venture into higher-level applications like AIGC, VK computation, trending AR gadgets and peripherals for the 3D printing. We aim to diversify our products and cater to the demand anticipated in the Web3 landscape.

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

[Foreign Language]

[Interpreted] Thank you very much for joining this conference call. If you have any questions, please contact us through the e-mail at [email protected] or reach our IR council, 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. I look forward to speaking with you again next time.

Thank you again for attending Nano Labs' First Half of 2023 Earnings Conference Call. This concludes our call today, and we thank you all for listening in. Goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]