Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.'s Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Mr. Clark Soucy, Investor Relations Director of the Company. Please go ahead, Clark.

Thank you. Hello, everyone, and welcome to our earnings conference call. The company's financial and operating results were released by our newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nangeng Zhang; and our CFO, Mr. Jin Cheng James. In addition, Mr. Edward Lu, our SVP; Mr. Leo Wang, IR Senior Director; and Ms. Xi Zhang, IR Manager, will also be available during the question-and-answer session. Mr. Zhang will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Cheng will then provide details on the company's operating and financial results for the period before we open up the call for your questions. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release. Today's call will include forward-looking statements. These statements include but are not limited to, our outlook for the company and statements that estimate, or project future results of operations, or the performance of the company. These statements speak only as of the date hereof and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call or webcast, except as required by law. These statements do not guarantee future performance and are subject to risks, uncertainties, and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 20-F for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call and webcast, we will discuss both GAAP financial measures and certain non-GAAP financial measures, which we believe are useful as supplemental measures of the company's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosure regarding these non-GAAP measures including reconciliations with comparable GAAP results in our earnings press release, which is posted on the company's website. With that, I will now turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead.

[Foreign Language] During the second quarter of 2022, under the combined influence of two rounds of interest hikes by the Federal Reserve, the bitcoin price continued its downward trajectory declining to about US$20,000 from US$45,000, a surge in energy prices caused by geopolitical conflicts further impacted both mining income and demand for mining machines. The situation thus led the bitcoin network's total computing power to decline slightly. At the same time, the cities where our main offices are located experienced a resurgence of the COVID-19 pandemic with accompanying large scale lockdowns and pandemic control measures. This combination of factors negatively impacted our operations during the quarter. Despite this unfavorable backdrop, our team successfully navigated through the difficulties posed by the challenging environment, as well as ensuring that our employees remained healthy and more supplied with daily necessities, we continue to fulfill our clients' orders achieving 5.5 million terahash per second in total computing power sold. Coupled with the contribution from our steadily developing mining business, we generated total revenues of RMB1.65 billion for the quarter, meeting our previous expectations. Notably, we achieved a net profit of RMB609 million in the second quarter. In regard to the sale of mining machines, we continued to work closely with our customers during the quarter. We delivered a total of 5.5 million terahash per second computing power generating revenues of RMB1.6 billion. Sales of mining machines continued to drive the growth of total revenues, which grew 48.6% year-over-year and up 21% quarter-over-quarter. We strove diligently to fill the demands of all of our customers. Following the launch of our online store for overseas retail customers in late May, we have received orders from all over the world. As our customer base shifts to overseas markets, we worked tirelessly to build and expand supporting systems.…

Thank you, Mr. Zhang, and good day, everyone. This is James. In the second quarter of 2022, we reported total revenues of RMB1,652.7 million, representing 21.9% quarter-over-quarter increase and a 52.8% a year-over-year growth, meeting our guidance range. During the quarter, the bitcoin price further sank to below US$20,000 from about US$45,000 in late March. Despite this soft market sentiment, we strive to achieve this top line performance primarily due to the delivery of 5.5 million terahash per second of computing power for our clients. The relatively high average selling price was secured with contract sales in previous quarters also contributed to the top line results. Our AI chip business recorded revenue of RMB1.6 million for the quarter due to softer demand from integrated product providers [indiscernible] customers. This is because the stock to app electronic product inventory that will embed our chipsets during the quarter when the pandemic related lockdowns negatively impacted their supply chains and the consumption of these retail electronic products. As the pandemic quarantine control measures gradually eased and the retail started to recover, we are having more progress in our AI chip sales in July and early August. Our mining business with an improved power supply generated 245.11 bitcoins in the second quarter, which contributed RMB52.1 million in revenue representing a sequential revenue increase of 60.9%. We had 346.84 bitcoins on hold as of the quarter's end compared with 166.96 bitcoins as of March 31, 2022. Due to the ongoing energy instability, a portion of our deployed mining machines have not been consistently online and we are facing increasing energy costs for our operations. Under the evolving marketing environment, we are prudently exploring other geographical regions with favorable mining conditions to diversify our operations. Above all, our gross profit for the quarter increased by 12%…

[Operator Instructions] Thank you. We will now take our first question. Please standby. First question is from the line of Jiaer Zhu from China Renaissance Securities. Please go ahead.

[Foreign Language] We see a significant decline in the - we comprised during the first quarter of this year. And I want to know, are there any large customers build cap orders? And what is the impact on the outlook of the demand - the gross profit margin and ASP for the second half of this year? And how do we react to this down cycle and further expand our oversea market? Thank you

[Foreign Language] Our future contract sales require our clients to prepay at least 50% of the total payment to secure mining machines. By the end of the second quarter, our customer advances reached RMB1.017 billion. So far, we have seen very limited cases of payment defaults. Future contract sales have always been a part of our business model. We negotiate contract sales with clients to lock in prices for orders to be delivered in the future. The business model has been acknowledged by both our clients and us. Even when the Bitcoin price sores, we will still deliver mining machines at predetermined prices. Our current prepaid orders on hand set a considerable foundation for our third quarter revenue. However, we have noticed a significant decrease in demand from miners' deployment of computing power due to factors such as the declining Bitcoin price and surge in energy prices. We have adjusted our prices in response. As you may have seen on our online shop, the average selling price for retail has been adjusted down to US$30 per terahash. Therefore, we expect a downward trend in sales and price of computing power in the second half of this year. As disclosed in the earnings release, we estimate the third quarter's revenues to be between RMB900 million and RMB1.1 billion. So meanwhile, we've observed that for some of our experienced clients, their businesses haven't been particularly impacted in terms of operations and cash. They have the intention to deploy more computing power at the low point of the bitcoin and mining machine prices. We are currently in active communication with these clients. We'll also continue to closely monitor market conditions and prudently explore opportunities for mining collaborations at the appropriate time. We will also flexibly adjust our operations in response to bitcoin price and market changes. Computing power will be dynamically adjusted in its allocation to spot sales, future contract sales and our mining business. During the past few years, we've experienced multiple dramatic fluctuations of bitcoin price as well as bear market cycles. Although the market's not in an ideal condition right now, we are faced in our long-term growth.

No, if we have - still further plan to expand our oversea markets on the self-mining business?

[Foreign Language] So to answer your question, we continue to closely communicate and collaborate with overseas clients. As energy prices soar globally, we have seen stronger demand in places where energy resources are abundant and have price advantages. Our team, are also actively participating in bitcoin and mining industry conferences held in North America and other regions to enhance communications and product promotions with business partners and clients in the industry. So during the quarter, our overseas headquarters in Singapore has already established R&D, finance and other operational teams and launched a supply chain system that encompasses assembly, warehousing, logistics. It is expected to provide more support and convenience for the development of our business overseas. Our online store that targets overseas retail markets has already received many orders and prepayments from North America, Europe, Australia, Southeast Asia and other regions since its launch more than a month ago. Even though total sales volume is still very small, we've seen interest in Bitcoin mining from clients globally. The online store also opens up a channel for us to extend our reach to customers and expand our brand promotion.

Thank you. That's very clear.

Thank you. We'll now take our next question. Please standby. It is from the line of Michael Legg from The Benchmark Company. Please go ahead.

Thanks and congratulations on weathering this tough environment. Can you talk a little bit about your build out in the U. S. and how that's going, please?

[Foreign Language] Thank you for your question. So we highly value the North American market and notice the increasing demand for investing in and building mining farms by bitcoin miners in North America. This is due to the wide acceptance of cryptocurrency and the abundant energy resources there, especially the rapid development of clean energy. So this year, we actively participated in many bitcoin industry conferences in United States. We had valuable dialogues and built connections with mining companies and business partners in North America. We now have colleagues based in North America towards expand our business, including sales and exploring mining business opportunities. We are also building local warehousing and logistics there to support our business development. We also set up repair centers and provided continuous and improved - our local and after sales services for clients. So currently in North America, we're in dialogue with multiple mining farm partners, maintaining a prudent strategy. We have initially booked mining site resources that can host 5,000 units of mining machines through typical deposit prepayment to explore mining operations in this new region in the future. The mining business serving as the critical supplement for our mining machine sales enables us to dynamically allocate our mining machine inventories among sales and mining operations, so as to maximize our returns through our agile operations.

Great, thank you very much. I appreciate it.

Thank you. We'll now take our next question. Please standby. It is from the line of Kevin Dede from H.C. Wainwright. Please go ahead.

I would - I understand a strong interest in continuing to develop new machines and new technology would be continued spending on R&D. What I would like to understand is how you see semiconductor development and machine technology improving such that efficiency improves and your opinion on the inclusion of immersion capability? Thank you.

[Foreign Language] So for us in the mining machine business and important task in the future is to integrate products and solutions vertically, penetrating the whole product system from chip to site and mining computing power throughout the industry value chain. Currently in this process, the product front only includes mining machine hardware. There is limited penetration into providing solutions for mining site deployment, operations and maintenance of mining machines. Based on our recent observations, the entire industry still lacks standardized products, simplified deployment for improved operations and lower costs and better use of waste and clean energy. For us, products and services will continue to be integrated and developed vertically. So semiconductor technology is at the crossroads of transitioning from FinFET to GAA or nanosheet types of 4D technology. This application for mining machines is still the vanguard of helping stabilize advanced fabrication technology. Actually, our industry is currently doing this. Thank you.

Thank you very much.

Thank you. That's all the time we have for questions. I will now turn the call back over to management for closing remarks.

So thank you everyone very much for attending our earnings conference call today. Please feel free to reach out to our IR team. Thank you.

Thank you. That concludes the call today. Thank you, everyone, for attending. You may now disconnect.