AGM Group Holdings Inc

NASDAQ:AGMH

Earnings Call Transcript 2021-Q4

[Operator]

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.

[Tracy Gao, Investor Relations Director]

Thank you, Operator. And hello, everyone. Welcome to AGM Group’s Fourth Quarter and the full year 2020 Earnings Conference Call. Joining us today, Mr. Wenjie Tang, AGM Group Co-CO, Mr. Chenjun Li, the company's Co-CO, 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 the 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 will come to 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 and other 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, and also, please note that unless otherwise stated, all figures mentioned during the conference call are in the U.S. dollars. With that, let me now turn the call over to our Co-CEO, Mr. Wenjie Tang. Go ahead, Mr. Tang.

[Wenjie Tang, Co-Chief Executive Officer]

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 produce blockchain-oriented [Indiscernible] chips and advanced crypto currency mining machine. We are happy with our progress in second half of 2021. From developing strategic plans, cultivating key customer relationships, establishing critical corporation partnerships, and to scaling up sales in the productions. We are very delighted to announce that 2021's four-year revenues were $36.71 million, all of which $31.37 million were from the fourth quarter. We achieved strong deliveries of crypto currency mining equipment, a demonstration of our solid execution capabilities in navigating worldwide logistics congestions, and 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 crypto currency mining machines, which are industry-leading technology and a superior performance revealing excellent feedback across a growing client base. As we continue to upscale our efforts to meet 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 a leading integrated technology company to emphasize on blockchain-oriented ASIC chip R&D, advanced crypto mining machine production, and FinTech software services.

For us, 2021 was just a 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 and lasting value for our shareholders. With that, I will turn the call over to our Chairman and Co-CEO, Mr. Chenjun Li, who will provide more details on our strategic initiatives.

[Chenjun Li, Chairman and Co-Chief Executive Officer]

Thanks 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 are likely to remain, the [Indiscernible] over near-term, the significant amount of [Indiscernible] in the financial sector has poured into this industry over recent years. And the increasingly institution of participation should [Indiscernible] sentiments, and to reduce the lines and the 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 crypto currency mining machines, which follows the vigorous demands.

The results are a testament into the term of our shift into designing ASIC chips and the manufacturing crypto currency mining equipment. The accumulated deliverers of mining machines to be 4,896 in 2021, representing computer power of 440,000 key [Indiscernible]. The solid performance was within our expectation as we have been enhancing supply chain capabilities and investing in advance products, as well as the meaningful worse, stretch to move to North America.

Next, please allow me to go deeper into this expect. In order to establish the best-interest technical know-how and a supply chain, we have fostered closer strategy partnership with the blockchain ecosystem. For instance, we are deepening the cooperation with strategic partner HighSharp electronic Technology company, which ensures successful deliveries by optimizing the integrity the raw materials purchase appreciate safe term, mining, equipment, production and assembly along with logistic and the transportation.

Such our relationship is extremely critical as global logistics and a supply disruption 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 a joint venture with HighSharp in the U.S. before setting up the JV, AGMH has effectively developed a global client base and met our respective preconditions of gaining $100 million U.S. mining equipment orders ahead of March 22, deadline. The remarkable progress has significantly magnified our position and the brand influence in the space.

With that, we will follow our plans for establishing the JV which will aim to fully integrate HighSharp periods 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 price as occurred in the fifth technical barriers in the R&D capabilities as well as supply chain or sourcing, which will be a significant step forward from the regional stressed partnership, and allow us to leapfrog our peers. Although specific terms and conditions are still in discussion, we expect 60% of the JV will be under the AGMH, and the 40% percent by HighSharp, with the potential for integration up for future consideration. Once the JV is in place, we will broaden production and the design capabilities to take more orders, which will be significantly new future boosting our competitive advantages.

In the coming quarters, we expect to upgrade our at advanced crypto currency mining equipment to raise its hash rate, as we believe hash power is the core element to driving the entire industry. The hash rate of our [Indiscernible] miner C16 is 113 P hashes per second among the highest in the industry. By leveraging the first-of-class technologies, we are very optimistic about the demands for upgraded products. Next, let me share some updates on our strategic move into the North America. We are in the planning stage of relocating our headquarters, research center, and the manufacturing facilities into North America.

We have identified several local manufacturers that are willing to cooperate with us, and have asked of them to [Indiscernible] of components so that we could evaluate the capability and the quality of the products. Meanwhile, we are also considering the possibility of building our own factory for which we will make a full evaluation process spanning from site selection, factory construction, production equipment purchase and local government policy and the environment protection requirements.

We are expecting to complete cost and the benefits of managed in Q2 2022, and to choose the best option that can get us closer to our customers on the crypto currency mining sites, which the most the reasonable labor and the production cost, while elevating plus several external impacts on business operation.

In terms of our research and development of them, we began shifting our focus on North America as well, we will assess costs of hiring talents and the revenue policies in the region. Thanks to the talents at AGMH and dedicated support from our partners, we are able to accelerate the process of our business transformation. 2022 is the next chapter for our company. In the first two quarter, our first and foremost task remains on delivering mining machines. As we continue to acquire new customers and to receive new orders, we will actively saw us more sizable trends for our top-tier partners, who can pay for larger orders or have recurring demands. We will provide a degree of customization for their specific needs.

Looking ahead towards direct sales of 2022, we will also continue to do that supply chain capability while seeking new growth avenue in the crypto currency ecosystem with our in Denver's to expand the business and the swift response and adaption to new technologies. We are very positive over the emergence of more advanced products and more diversified offerings which we 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.

[Steven Sim, Chief Financial Officer]

Thank you, Chenjun, and thanks everyone for being on the call. Summarize some key financial results for the fourth quarter and full-year 2021. In my comments on the quarterly results, I'll referred 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 for the 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 turn to profitability deal with 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 the increase in sales of crypto currency mining machine and standardized computing equipment. Our total computing power delivered, total 440,000 terahash per second in the fourth quarter, compared to new in the same period of 2020. So far, we still have substantial number of orders outstanding, which will be reflected on future revenues as we deliver the machines. Along with the increase in procurement costs of the equipment, 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 due to 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 was $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 the expenses related to increased business activities. Due to the increase in revenues, income from operation was $5.06 million in the fourth quarter, compared with 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 31st, 2021, and September 30th, 2021, we have working capital of $24.48 million and $3.23 million, including cash and cash equivalents of $18.41 million and $1.4million 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 are aiming to deal a joint venture with HighSharp, where we will leverage HighSharp R&D and supply chain strengths to support its growth. Importantly, by leveraging of our experience in the blockchain ecosystem and the company's additional financing, the management team is currently actively focusing on exploring new areas in the space where the company can expand into. We believe these efforts can help us unleash new opportunities to drive the company's next phase of growth. That concludes our prepared remarks let's now open the call for questions. Operator, please go ahead.

[Operator]

Thank you, management. [Operator Instructions] [Foreign Language] [Operator Instructions] Your first question is from [Indiscernible] at [Indiscernible] Capital Fund, please go ahead.

[Unidentified Analyst]

[Foreign Language]

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Unidentified Analyst]

[Foreign Language]

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Unidentified Analyst]

[Foreign Language]

[Steven Sim, Chief Financial Officer]

[Foreign Language]. So to other participants, we will not do a direct translation of the question and answer, but after the call transcript, the translation will be provided online and will be provided to the participants as well. So it'll make it easier and smoother to save time. So operator, please open up for the next question.

[Operator]

From management. Our next question is from [Indiscernible] at [Indiscernible] Securities. Please go ahead.

[Unidentified Analyst]

[Foreign Language]

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Unidentified Analyst]

[Foreign Language]

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Unidentified Analyst]

[Foreign Language]

[Operator]

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

[Karl Birkenfeld]

Thank you very much. Three questions I have, one is for United States investors. How does the China lock down affect your business in 2022? What's your projection of revenue for 2022?

[Steven Sim, Chief Financial Officer]

Thank you, Karl. This is Steven. I'll take your question. As the media has already widely reported lockdown situation in China, and realistically is difficult for us from a supply chain and manufacturing perspective to really forecast what's going to happen next. And in that environment and context, it's nearly impossible to really 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 the operations to the U.S. And potentially, as we mentioned in our prepared remarks, opening factories in the U.S. to essentially alleviate this situation in the future.

In terms of the short-term effects, I think unfortunately, we just have to deal with not just the lockdown in specific cities, but also the supply chain being massively disrupted. And these are completely out of control. Take for example, when we fulfill a certain order, our upstream suppliers are facing the same issues in terms of manufacturing, gathering of raw material, having sufficient workers in the factories and resolving logistics issues. So in a nutshell, it's not just what we can or we cannot control, essentially, we also cannot control our upstream suppliers. In that context, we will do our best to diversify our solutions, including the above-mentioned moving into North America and we are also seeking other solutions.

The [Indiscernible] for the projection of revenue, I think in that backdrop, is almost impossible to project what we're going to do for the whole year. But on a quarter-to-quarter basis, we're still largely positive, because we believe that we are transitioning well into the new business, as evidenced by the fourth quarter. And even though I can't really provide any guidance, but we think that as we move towards Q1, Q2, we should more or less be able to come up with a steadily improving and growing business, presenting that to the market. Thank you.

[Karl Birkenfeld]

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?

[Steven Sim, Chief Financial Officer]

It has been mentioned from the previous Q and A by our CEO. And let me repeat that because his answer was in Chinese. So our peers are specifically well-known in the market. [Indiscernible] which is a Dilo listed company in the US. And also [Indiscernible]. And then having our -- having HighSharp as our JV partner and strategic partner. And HighSharp having been in the industry at the same time as our key peers in the same industry is highly beneficial to us because of the HighSharp's experience and ability and R&D capability throughout the years. On a going-forward basis, I think Mr. Li has also mentioned that we are one of the first to mass produce our C16 machine, which at 113 terahash per second is one of the machinery, the highest spec. And we feel that as we go forward, we are continuing to improve the specs of this machine, as well as investing in the next generation of chips.

Now, in terms of comparing with our peers and what's our technical advantage, I feel that we each have our own and key customers, and also we feel that we are able to come up with continuously improving products on the cutting edge of this industry. Because I think being in such uncertain environment, we are a very nimble team. We do not have, for example, a huge cost on manufacturing base. We rely a lot on our partners to fuel the manufacturing and holding onto the key value proposition of the supply chain -- of the value chain, we believe we can be nimble and act accordingly to the changes in the market.

[Karl Birkenfeld]

Thank you. Now, my third question and final, what's your view of the other miners that use clean energy or produce energy efficient chips? Any plan of producing energy efficient chips yourselves?

[Steven Sim, Chief Financial Officer]

Karl, let me pose this question to Mr. Li and then the -- I will do a translation.

[Chenjun Li, Chairman and Co-Chief Executive Officer]

Thank you, Karl. [Foreign Language]

[Steven Sim, Chief Financial Officer]

[Interpreted] Our views on miners using clean energy is very positive and optimistic. We fully support our mining customers to use clean energy.

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Steven Sim, Chief Financial Officer]

[Interpreted] In terms of producing energy efficientship, this is a common goal that is shaped by ourselves and our peers. At the moment, we are actively investing and finding ways to come up with the energy, the best optimized energy efficientship.

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Steven Sim, Chief Financial Officer]

[Interpreted] At the same time, our KOI Miner C16 130 terahash per second, with 30J per terahash is one of the most energy-efficient machines out there that we're using the market right now. And we believe that in the future, it will -- this will be continuously improved.

[Chenjun Li, Chairman and Co-Chief Executive Officer]

[Foreign Language]

[Steven Sim, Chief Financial Officer]

[Interpreted] In the mining industry in terms of using clean and efficient energy should be a common goal and should be something that should be pursued by ourselves and our peers, and it's a goal we strive to achieve. Thank you.

[Karl Birkenfeld]

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.

[Steven Sim, Chief Financial Officer]

Thank you, Karl.

[Operator]

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

[Cam Sugrue, HC Wainwright]

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?

[Steven Sim, Chief Financial Officer]

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

[Cam Sugrue, HC Wainwright]

Sure. How do you think the shift in North America is going to affect current supply chain concerns and order fulfillment?

[Steven Sim, Chief Financial Officer]

The current shipment to North America affecting our delivery, is that the question?

[Cam Sugrue, HC Wainwright]

You guys announced a shift of operations to North America. So how you think that's going to affect the supply chain?

[Steven Sim, Chief Financial Officer]

Right. Okay. Sorry, apologies. So the shift essentially is to bring ourselves closer to our key customers. And I think from a strategic level, we view the different options on a worldwide basis for mining companies. And consistently, when we speak to our customers, North America comes up tops in terms of the best destination for mining companies. One of the many reason is the relatively efficient and clean energy available. And obviously, a very stable political and regulatory environment. And it's closer obviously to also the capital markets, there we shall allow the mining companies in the U.S. So from that perspective, shifting to the U.S., being closer to the customers is a no - brainer. It will resolve a lot of logistics issue. And then, you obviously bring the complexity to the upstream in terms of having to shift raw materials there to be assembled of pre -semi assembled machines to be finished in the factories. And those various options are being considered at the moment. The relative consideration is that there might be a somewhat increase in costs, which we think, looking at other potential benefits, can be largely offset. And I think that in the long run has to be the right reason for us.

[Cam Sugrue, HC Wainwright]

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

[Steven Sim, Chief Financial Officer]

So from AGM Company level, the actual R&D cost is not reflected at the AGM company level because our strategic partnership with -- this is a great question by the way. Our strategic partnership with HighSharp is such that we license their technology. But in the long run, as we mentioned, the idea is to integrate ourselves with HighSharp and such integration will allow us to tap into their historical expertise, which also means that future development and R&D will then increase in tandem with such an action. Meaning we'll say R&D activity will take place in future and maybe it's not comparable to previous levels but we feel that this is positive in light of how the value chain is further optimized by the JV. We will then -- we invest this increase in profit margin into RMB to further invest into future iterations of our products.

[Cam Sugrue, HC Wainwright]

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

[Steven Sim, Chief Financial Officer]

Thank you, Cam.

[Operator]

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.

[Chenjun Li, Chairman and Co-Chief Executive Officer]

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

[Operator]

Thank you. Again. And this concludes the call. You may now disconnect.