Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.'s First Quarter of 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the managements’ prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded. The company's financial and operating results were released by the Newswire services earlier today and are currently available online. The company has also prepared a presentation for today's call. You may view the presentation and navigate through the slides on the webcast page for the first quarter 2024 earnings call on the company's IR website. Joining us today are Canaan Inc.'s Chairman and CEO, Mr. Nangeng Zhang, and CFO, Mr. Jin Cheng James. In addition, Mr. Leo Wang, Head of Capital Markets, 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 the call up 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 filed 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 their set forth into 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 disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP results in our earnings press release, which is posted on the company's website. And with that I'll turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead, sir.

Hello everyone, this is NG, CEO of Canaan. Thank you for joining our conference call. Our CFO James and I are at the company's headquarters in Singapore to share our quarter results with you. The first quarter of 2024 was the last quarter before Bitcoin's post-halving. During the Q4 of 2023 earnings call, I forecasted this to be a super wait-and-see period. Based on the past experience, in the last quarter before halving in Bitcoin system, miners typically wait for the halving to actually occur and the market dynamics become stable before adjusting their investments and mining rig purchasing plans. They also tried to maintain the stable operation of existing computing power to maximize the remaining value of their equipment. Therefore, transactions during this period are generally very flat. The only variable was a rapid fluctuation in Bitcoin price during this quarter, reaching a historical high of $33,000. We see this opportunity to make maximum efforts in sales activities, selling a total computing power of 3.4 million terahash per second and achieving a total revenue of $35 million, surpassing previous expectations. At the same time, anticipating a market recovery will continue to proactively prepare [US expects] (ph), including the mass production of new products and the R&D integration of next-generation products. Striving to improve mining operations and computing power deployment, we maintain the close cooperation with our foundry partners on the supply side, laying out capacity in advance for the bull market. Our efforts have yielded positive results. Now let me share with you one by one. In terms of research and development, we are delighted to announce that we officially launched our company's new generation of mining machines, the A15 series, as Bitcoin Asia 2024 in Hong Kong on May 9th. The A15 series adopts more than one designs…

Thank you, NG, and good day, everyone. This is James speaking at our Singapore headquarters. As NG started at the top of the call, this quarter was a super wait-and-see period that occurs every four years, as the last complete quarter before the halving event of this point. Despite the subdued market, we continue to execute our strategy. First, we were committed to wafer capacity investments and R&D activities of new generation machines. This allowed us to deliver A14 series since April, to upgrade our products, achieving breakthroughs in A15 series and to enrich our product portfolio with Avalon Nano 3 and integrated mining solutions. Secondly, we enhanced the flexible and multichannel sales strategy to enable us to accelerate destocking of existing products and accumulate contract sales orders for A14 series. Thirdly, we adhered to our own mining strategy, continued to expand the mining deployment and strive for operation excellence. Last but not least, we continued to manage cash in a prudent way and streamline our expenses to make sure strategical tickets be prioritized. Let's start the introduction from profit and loss. Q1 total revenue was $35 million, which beat our guidance by $2 million or 6%. Our revenue from machine sales was $23 million, and our mining revenue was $10 million. Regarding our machine sales, we delivered a total computing power sold of 3.4 million terahash per second, representing a year-over-year decrease of 20% and a quarter-over-quarter decrease of 38%. And the average selling price decreased from $8.2 per terahash per second in quarter for to $6.9 per terahash per second in quarter one, coupled with the multiple factors, including before halving the New Year and the Lunar New Year. The market demand in this quarter was quite weak, and we could only sell current inventory of older generation…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Kevin Dede from H.C. Wainwright. Please ask your question.

Hi James -- and NG and James, thank you very much for having me on the call. Can you hear me okay?

Yes, Kevin.

Great. Okay. So NG, right off the bat, I'm going to apologize because my first question is long and a little convoluted. But I think, you will understand where I'm going, and I know you gave me a great answer. So I'm wondering how these -- all these factors combined together, number one, we have the many Canaan new products coming to market. We have the A14, we have the A15 coming soon and the A16 in R&D. So I'm wondering how you balance product cycles against the fact that liquid cooled machines tend to last longer and semiconductor improvements are incrementally less from process geometry change to process geometry change.

Good morning Kevin. For -- I think in the terms of our major product series, we are still in the cycle of iterating generations roughly every three quarters. This pattern also applies to our next-generation product. I think, this is beneficial for both customer choices and hash rate deployment planning, because you have a quite clear prediction of new product. And in terms of power efficiency, our mainstream products released last year have entered the range of 20 to 25 joules per hash. And with the products first half of this year are in the 15 to 20 joules per terahash range. And I believe the next target for the industry will be in the 10 to 15 joules per hash later this year or early next year. These R&D efforts are progressing systematically. Yes. So also, I want to mention, apart from the chief development, we are actually accelerating in the chip to machines to mass production stages. I have examples here, A15 batch – as an example, we went from receiving the chips to have a stable running machine in less than 72 hours. And within less than 10 days multiple, proto machines with excellent performance and stable operations will showcase in public events like exhibitions. And yes, for today, we are in the process of sending fresh proto machines to customers for testing. Yes, so we are continuing to improve our user experience. Yes. And yes, we have comprehensive solutions for -- from the machines to like ‎Avalon Box containers, even the consumer Avalon Nano 3 products. Yes, so I think this -- we will give you some guidance for the -- what will happen in the next like 18 months or two years.

Okay, thanks NG. You made it very clear -- both James and you made it very clear that you're holding over 1,000 bitcoin. And I'm wondering, I'm sure many people are wondering how you consider that? Are -- would you consider selling them at some point in order to raise capital in order to fund your business. I understand the $88 million deferred or wafer run. That's a lot of money. So I'm just kind of wondering how you're thinking about that.

I think for the Bitcoin we [indiscernible] holding, today, our company's policy is only use the bitcoin to pay the mining electricity bill. And all of other bitcoins we will hold. And also when we receive some bitcoins from our small sales, we will hold most of them. I mean we will close most of the profit from the sale. Yes, and we -- currently, we have no plans to sell the bitcoins. But I think we are considering to make the -- maybe do some like financing operations to let the bitcoins generate more bitcoins. I think maybe James can have some ideas on this.

Yes. Currently, we are starting on different approaches as using bitcoin as collateral and also can generate new financing interest either in bitcoins or in other cryptocurrencies like USDT. So we are talking to different vendors to see the possibility and the potential to generate more cash flows and the profit for our shareholders. I think we are still in the starting phase. And once we get some solutions, we will let our investors know that. Thank you Kevin.

Last question for me. Just curious about your perspective on the competitive environment. Obviously, Jihan Wu is back in the market a bit there. The Aerodyne machines are expected to come out this year. I appreciate your perspective on Canaan's revenue. You're obviously a pretty bright outlook. I'm just wondering how you see that competitive environment shaking up?

Thank you, Kevin. Yes, we have also noticed some new entries in the market recently. Some have announced that their designs are in the tape-out space, where others have shared results from like chip testing. However, I think the results expectation, we have not seen the [bug] (ph) machine deliveries in the open market yet. So once machines are actually delivered to the market, we will conduct thorough research. However, we cannot comment on products that have not been delivered. I think the entry of new players indicate that the bull market for mining machines is approaching. It's mainly seeing the industry prospects and choosing to invest and enter the market. At the same time, this phenomenal also suggests that the industry, including ourself, eventually have errors that not fully satisfy our market partners or our customers in terms of like products, pricing, customer service, customization and sales coverage. I think this led us to accelerate progress and improvement. The entry of these new players clearly brings more vitality to the industry. But of course, the barrier to enter the mining machine business is extremely high now, and developing and -- I think developing an excellent mining chip is already very challenging at this stage. However, this is like back -- just at the beginning of the journey of hardships towards growing into an excellent brand and road ahead is indeed a lot. It has been 11 years since ideally were the – world’s first AC bitcoin mining machines to customers. And although we have accumulated a lot of experience over time. My respect for this industry has only grown. So in preparation of this cycle, we have made a lot of preparations, including not only a road map for new products, but also production capacity deployment. I think additionally, as mining machine providers, we must continuously to serve our customers, especially during industry downturns which is not easy. I have endured several past cycles, only a few including us have persisted, and we are the only one among with others that is publicly listed-company. Sorry, for a little bit long. Thank you.

Thank you very much gentlemen. Appreciate you, taking the time to answer my questions. And thanks for having me the call.

Thank you Kevin.

Thank you.

Thank you Kevin. Our next question comes from the line of Shuang Sun from Guosheng Securities. Please ask your question Sun.

[Foreign Language] Please share more color on A1566 product.

You mean the performance or --.

Yes.

Yes. For -- yes, I think we have already demonstrated our A15 series. The model is A1566 in the Hong Kong event. And with an average computing power of 185 terahash per second and power efficiency of better than 18.5 joules per hash. I think this performance is on par with competing products currently on the market. Yes. And -- so I think at this stage, we are preparing the [proco] (ph) machines to our customers to demonstrate the machines on the field. So everything is going very smooth. We hope we can push it to mass production as soon as possible. Yes, but there is really a long production period due to the cutting-edge technology. So it's still some months away.

[Foreign Language] Please share your review of the continuity of the company's operations.

Thank you, Sun. I will take this question. I think first of all, we should take a look at our balance sheet in the end of March 31, we have $55 million cash on hand and also we have another 1,057 bitcoin as of today, it equals like $65 million. Putting this together, we have the liquidity -- total liquidity like $120 million together. And in quarter one, our expense together is about $31 million, which including like one-third of the expense is non-cash expense. So actually the cash expense for routine business is like $20 million per quarter. So $120 million compared to the $20 million spending. So that means another six quarters to go if we don't do anything. But of course, we are doing preparations for bull market. We have to be very careful about the cash management. I think currently, we have already seeing a lot of improvements from cash inflows as the A14 series has already been delivered on schedule, and we have already collected cash gradually from our customers. Step by step, we will collect more cash in quarter two and quarter three, as we predicted the revenue will be higher. And also, most of the credit customers has already completed the payments for their orders, and our account receivables have decreased sequentially. The sales cash inflows I think has already been shown in the customer advances, doubled the previous customer advances. So I think from the inflows, a lot of good news. On the other hand we have to control the capacity of pace and unlocking proportion of cash in two month production that's something we have to do. That's why in quarter one, our cash payment to lock the wafer is about $88 million. So it's a lot. So putting this together, while we maintain our sales level of cash reserves, while we have the more than 1,000 coins, we have a substantial potential liquidity safeguard on hand. Looking to me, it is quite safe. Overall speaking, the company is able to maintain continuous operations with overall risks being relatively controllable. But of course, we have to work very carefully in a prudent way to manage the cash. Thank you for the question, Shuang.

[Foreign Language] Please share your view on the timing of return profitability this year.

Yes. I think profitability is always the question from investors. People would like to see the bear market end and to see our profit coming back as the bull market. I think the most interesting thing in our industry is the average selling price. I think that we can see our past three years average selling price could be below $7 per terahash or above $70 per terahash. So I think the main factor driving profitability is still the increase in computing power prices. I think this fundamental reason behind the rise in computing power prices is still the shift in supply and demand dynamics. As the price of bitcoin increases, attracting more miners into the market, there could be a surge in demand for computing power. With this kind of condition, under such cases given the limited supply capacity of the advanced process using in our mining machines. I think that the price of computing power could potentially rapidly increase. So therefore it is anticipated that after halving as our bitcoin price is still fluctuating. But after it is stabilized and rise, the total network computing power decreases the expanded profitability of mining could potentially attract a large number of new miners coming in. So as miners begin to purchase computing power, sales volume will initially react. And as the supply-demand relationship changes, computing power prices will quickly recover. So currently, computing power prices have already been recovering from the market low. Our current assessment is that losses -- loss could continue through the first two or three quarters of 2024. But there is a big potential opportunity for gross margin to turn positive or even significantly improve in the third and fourth quarter, especially the fourth quarter. So for the full year, we will try our best to see if there is any possibility to get breakeven. But it looks to me, the trajectory will be from the loss to earnings in the coming one year time. Step by step, we will be there. Thank you, Shuang.

[Foreign Language] You still have financing plan going forward.

I think after A14 series shipment, we have already seen more active purchasing inquiries and a stronger sales cash inflows after halving and after our A14 series shipment. So it looks like cash flow operations and the balance sheet are also improving. So I think as just mentioned, we have already did the financing in quarter four and quarter one of 2024, with the total cash like $136 million. We do not have any urgent equity financing plans in the near-term. So I think that's a clear answer. We do not have urgent equity financing plans in the near-term. Thank you Shuang.

[Foreign Language]

As there are no further questions now, I'd like to turn the call back to the company for any closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to reach us through the contact information provided on our website.

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