Canaan Inc.

Q1 2022 Earnings Conference Call


spk07: Ladies and gentlemen, thank you for standing by, and welcome to Canon Inc.' 's first quarter 2020 Tour Earnings Conference call. At this time, all participants are in the listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Ms. C. John, Investor Relations Manager of the company. Please go ahead, Ms. Zhang.
spk05: Thank you, operator. Hello, everyone, and welcome to our earnings conference call. The company's financial and operating results were released by our newsletter services earlier today and are currently available online. Joining us today are our chairman and CEO, Mr. Nam Kung Chang, and our CFO, James Jin Chong. In addition, our Mr. Xiao Minglu, our SVP, Mr. Leo Wang, IR Senior Director, Mr. Clark Susie, IR Director, 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 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 assume 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 risk, uncertainties, and assumptions. Please refer to the press release and the risk factors and documents we filed with the SEC, including our most recent annual report on Form 20F, for information on risk, 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 measure results. You can find additional disclosure regarding these non-GAAP measures including reconciliation with comparable gap measures, gap 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. Nangong Zhang. Please go ahead, sir.
spk04: Hello, everyone. The first part is about the price. In the first quarter of 2022, the price of Bitcoin will continue to rise In March this year, many cities and regions in China have been affected by the COVID-19 pandemic. and the rise in epidemic prevention measures by local governments have all had a certain impact on our supply chain, production, and logistics. Despite this, our team has still achieved many things in the face of difficulties. The company's internationalization has continued to advance, and at the same time, it has deepened the relationship and service of customers, and has worked hard to maintain the stable operation of the supply chain, and continues to promote the development and operation of new products. This quarter, we have achieved a profit of 4.3 million yuan,
spk05: against the backdrop of the expected increase in U.S. interest rates. The first quarter of 2022 saw a continued trend for both lower and more volatile Bitcoin prices that began in late 2021. At the same time, in the context of an increase in the Bitcoin network's total computing power and relatively sharp energy price increases resulting from geopolitical conflict. ROI per terahash of computing power decreased to a certain extent. In addition, the resurgence of the COVID-19 pandemic in multiple cities across China, along with the implementation of corresponding pandemic prevention and escalating control measures, negatively impacted our supply chain, production, and logistics. Despite these challenges, our team achieved encouraging results on multiple fronts. We are resolutely committed to our globalization strategy, deepening customer relationships and services, maintaining a steady operation of our supply chain, and pushing forward our research and development work for new products. This quarter, we in total sold 4.3 million terahash per second in computing power. and achieved revenues of RMB 1.36 billion and a net income of RMB 442 million. 第二部分是关于科技销售。 本公司本季度的总营收是人民币13.6亿元, 主要来自交付的430万T的算力。 正如此前的公告, 公司的工厂和仓库所在的城市3月初发生通费进展,
spk04: The policy stipulates that all residents must leave their homes and stay at home. This has led to a complete suspension of logistics for three weeks. This has led to a complete suspension of logistics for three weeks. This has led to a complete suspension of logistics for three weeks. This has led to a complete suspension of logistics for three weeks. We continue to receive orders from the international market, especially from areas and markets that are rich in energy, such as Central Asia, North America and Australia. The demand is still strong. This quarter, we also received orders from Laowu for the first time. While introducing new customers, we continue to obtain a larger proportion of old customers. In order to better open up the market and serve our customers, the company established an overseas regional headquarters in Singapore. In recent years, we have just received approval and policy support from the EDP. For the company's international strategy, establishing a Singapore overseas headquarters is an important step. Our long-term goal is to become a global and multicultural organization. We have started hiring many local talents in Singapore to help us open up business in Singapore and Southeast Asia. With the construction of overseas sales services, we will be closer to customers. Our revenues of RMB 1.36 billion for the first quarter of 2022 were mainly driven by the 4.3 million terahash per second of computing power we delivered.
spk05: As mentioned in our earlier press release, The local government implemented a nearly three-week lockdown for all residents and businesses in the city where our mining machine factory and warehouses are located. We were therefore not able to deliver orders during this period, and this created a backlog running into the second quarter. Unexpected logistical disruptions resulted in revenue for the quarter underperforming our expectations. Nevertheless, we still made positive strides in sales of our mining machines. We also continued to win international orders, and demand from energy-abundant areas such as Central Asia, North America, and Australia remained solid. During the quarter of 2022, for the first quarter, we obtained customer orders from Laos. While we kept engaging new clients, we also achieved a large portion of orders from existing clients. To optimize our market exploration and better serve our customers, we have established an international headquarters in Singapore, which has recently earned recognition and support from the Singapore Economic Development Board. as a milestone for our globalization strategy as we evolve into an increasingly globalized and culturally diverse technology company over the long run. Furthermore, we are building a team of local talents to drive our business expansion in Singapore and Southeast Asia. As we gradually build up our after-sales service system overseas, we are getting closer to our customers and making headway into our globalization push. In addition, we recently broadened our sales channels by launching an online store for overseas retail customers, providing them convenient access to our products.
spk04: 下面介绍公司的预售算力情况。 由于叠加了一季度延迟发货的影响, 截至一季度末, 代交付的合同算力约为996万P, 预售款水平达到了人民币17.7亿元。 Due to delivery delays during the first quarter of 2022,
spk05: We have a total of 9.96 million terahash of computing power to be delivered and R&D 1.77 billion of advances from customers as of the first quarter's end. Our production and logistics have gradually resumed throughout the second quarter of 2022 to date. Following the local government adjustment and sidelines, for resumption of production. As of today, we have delivered most of the orders that were backlogged from the first quarter of this year.
spk04: We have already delivered HAPA 4.0 and completed the deployment of more than 2.4 million units. The part of the online mining activity is relatively large. Between 0 to 800,000 units, this quarter, a total of 113.94 Bitcoin was produced. By the end of the first quarter, the company holds 166.96 Bitcoin. We are closely monitoring local energy consumption, and actively consulting and evaluating other adjustment plans with our partners to achieve more efficient CMK.
spk05: During the first quarter of 2022, our overseas mining operations were impacted by the COVID-19 pandemic, logistics congestion, and inadequate power supplies. By the end of the first quarter, our deployed computing power in Kazakhstan exceeded 2.4 million terahash per second. But there was volatility in the number of active machines which resulted in mining capacity during the period varying between 0 and 0.8 million terahash per second. In the quarter, we mined a total of 113.94 bitcoins. By the end of the first quarter, we held a total of 166.96 bitcoins. In addition to closely monitoring the status of local energy supplies, We are also proactively liaising with our partners to evaluate alternatives in order to optimize resource allocation.
spk04: Despite the headlines mentioned above, Bitcoin mining is still a significant component of our business development strategy.
spk05: This business segment allows us to balance computing power allocation, engage more deeply in the three-point mining industry value chain, and helps us better understand customers' needs. Overall, we believe that the long-term development of our mining business will diversify our revenue sources and optimize our operations. Therefore, we will continue executing on our strategy and will be more prudent and agile in developing our mining business, while mitigating risk by deploying machines to multiple localities.
spk04: The fourth part is about R&D. In terms of R&D, you may have noticed that we have recently introduced the new model of R&D 1266. It is based on the existing system, and has been optimized by the public. It has achieved a higher computing performance, and has achieved 100T per second. In terms of research and development, as you may have noticed already,
spk05: We recently launched our new mining machine model, the Avalon 1266, with process optimization based on our existing fabrication node. This new model outperforms previous models and has a computing power of 100 terahash per second. Meanwhile, research and development for the next generation of Bitcoin mining machines is progressing smoothly. We have completed the design work for some of the programs, and we are in the critical stage of progressing towards mass production. Due to various uncertainties throughout the research and development and mass production progress, we will disclose the specific performance parameters of our new generation of mining machines and commons pre-sales only after we complete the full testing process for the machine.
spk04: In the AI chip business, we insist on the principle of supervision, and have recently opened up to public clients the software development tool package SDK and file security line for K510. We have also provided dozens of AI model tools that are difficult to choose from in the software development tool package warehouse. Developers can follow their own practical use scenarios and practices, and train and deploy on K510 to obtain different AI application experiences on K510.
spk05: Turning to our AI chip business, we insist on open source philosophy and recently made our Kendrick K510 software development kit and the documentation publicly available on the internet. We carefully selected and provide thousands of AI model applications in the software development kit storage. Developers can add their own data and train on the K510 to acquire different user experiences based on real-world scenarios. 第五部分呢,关于回购ATM和退市风险。 在克服各种挑战,努力推进业务和开发新产品的同时呢, 公司也注意到近期国内疫情反复, 资本市场宏观因素对公司股价产生了后面影响。 基于公司强劲的基本面和现金水平,
spk04: We will continue to report on the progress of our long-term prospects for the company.
spk05: as we overcame challenges and endeavor to expand our business and propel our research and development in new products. We are also aware that uncertainties rising from reoccurrence of the COVID-19 pandemic and macro in the capital market have had an adverse impact on our stock price. Given our solid fundamentals and cash position, we recently announced another share repurchase program under which we may repurchase up to $100 million worth of outstanding ADS over the next 24 months. The share repurchase program will commence execution in the coming window period. As previously announced, we completed the share repurchase plan authorized in September of 2021 ahead of schedule. This new share repurchase program demonstrates our confidence in the company's long-term outlook. We will provide updates on the program in our future earnings release.
spk04: 公司一度结束的资金余额为人民币26.4亿元。 营运资金充足,根据我们的业务特点, 对着长期融资的可能性, 降低潜在运营风险。 我们与HCW签署了按市价发行协议。 该协议可以为我们提供一个按市价发行的融资项目。 At present, this project has not been implemented, only the design of financing tools has been carried out, in order to improve the future market situation and when the time comes, the company will be flexible in financing at lower cost in the public market. We will continue to record the implementation information of AGM in the report. The company will fully consider the rights of shareholders and the environment of the capital market, flexible in setting and adjusting various financing tools.
spk05: By the end of the first quarter, the company had cash and cash equivalents of RMB 2.64 billion, demonstrating sufficient cash liquidity for operation. Considering the inherent need for capital in our business operation, we have been exploring access to long-term financing to mitigate our potential operating risk. As such, we entered into an at-the-market offering agreement providing for an ATM equity offering program with HC Winwright. The program is yet to be executed, but we have set up the relevant financial instruments that extend us the flexibility to raise capital with relatively lower cost in the open market when market conditions improve in the future. We will provide updates on its use in our future earnings release. The company will also prioritize shareholder interest and the general market when considering the execution of financing facilities and will make proactive adjustments to accommodate market conditions.
spk04: We have noticed that due to the stock market problem that Chinese stock companies often face, STC has listed us in the tariff list according to the provisions of the S&P 5004. It is likely that we will be listed in the tariff list in the future. This incident caused investors to pay attention to WoS's risk of withdrawal. On May 5th, WoS made a positive response. We will continue to follow the requirements of the Sino-US Law Enforcement Department and the supervision department, and manage legally and legally. We noticed that the two governments of China and the United States are conducting a lot of negotiations on the issue of accounting protection disclosure. We actively hope that the two governments of China and the United States will reach an agreement on the issue as soon as possible. As a company that mainly receives business from overseas, Taking a wider view, we have been monitoring the challenges that Chinese ADR companies are facing under the Holding Foreign Companies Accountable Act.
spk05: On May 4th of this year, we were provisionally identified under the Holding Foreign Companies Accountable Act and are likely to be conclusively identified at some time in the future. This has raised some shareholder concerns over the possible delisting of our company. We have proactively responded to our inclusion on the SEC's list on the following date. and we will continue to comply with all relevant laws and regulations in both China and the United States. We have seen progress in discussion between the Chinese and U.S. governments, and we hope that the two parties can reach an agreement in the near future regarding inspections and investigations of auditors' work. As a company generating the majority of revenues overseas, we will maintain and improve our strong corporate governance and compliance with local laws and regulations. We will continue to communicate with the capital market and actively explore possible solutions to protect the interests of our shareholders.
spk04: The sixth part is to look forward. In this quarter, we have overcome a few sudden challenges. Although the performance has been affected by some delays, we have still achieved a stable performance. We have made new long-term decisions in our business, and continued to expand our market and strengthen our cooperation with other countries. All of this has led to positive progress. In the face of challenges that can and cannot be foreseen in the future, we will continue to stick to a flexible and realistic way of operation, work hard to stabilize supply and supply, and actively respond to the changes in the industry market and price fluctuations, maintain operating funds, and stay healthy and stable. To conclude, we overcame many unexpected challenges and volatility during the first quarter of 2022. Despite our top-line results being negatively impacted
spk05: due to pandemic-related delivery delays, our business performed steadily and achieved promising results. These were achieved as we implemented initiatives to support our business' long-term development and continued to expand our market and strengthen collaboration with our customers. Facing foreseeable headwinds or unexpected challenges in the future, We will continue to execute on our agile and flexible operating strategy and endeavor to maintain sustainable supply to respond to market fluctuations and Bitcoin volatility. We will aim to maximize shareholder returns by maintaining healthy operational cash flows, prudently allocating our mining machines between sales and our mining business, and actively promoting the development of our AI-shaped business. Meanwhile, we will continue to advance our business globalization while better serving our customers by fostering a more client-centric after-sales service system.
spk04: In the second quarter of this year, the market environment is uncertain and still larger. Based on the judgment of the company management team, we predict that the total revenue of the company in 2022 will be 16 to 18 billion yuan, Looking forward to the second quarter of 2022, we see that significant uncertainties in the market environment still remain. Based on our current view, we expect our total net revenue in the second quarter of 2022
spk05: will be in the range of RMB 1.6 billion to RMB 1.8 billion, representing an increase of 48% to 67% compared to the second quarter of 2021. Please note that this forecast reflects our current and preliminary view on the market and operational conditions, which are subject to change. This concludes my prepared remarks. I will now turn the call over to our CFO, James.
spk01: Thank you, Mr. Zhang, and good day, everyone. This is James. As Ms. Zhang mentioned, the first quarter of 2022 was a challenging one for our company, and facing various unexpected obstacles, we still managed to deliver solid results for our investors. In the first quarter of 2022, we recorded 4.3 million terahashes in total computing power sold, representing a year-over-year increase of 119%. Our revenues for RMB 1,356 million increased by 237% compared with the same period of last year. As we expected, our top-line results were not able to meet the previous guidance we projected in our fourth quarter financial report due to the postponement of all the deliveries from our warehouses. This is because of the unfortunate resurgence of COVID-19 pandemic since mid-March and the subsequent overall lockdown measures in the city where our mining machine factory and warehouses are located. Since the end of March, although we see swiftly prepared to resume production and delivery under the guidelines of the local government. Our delivery schedule for the first quarter has been materially delayed due to the nearly three weeks of halted operations. Amongst the backdrop of these difficulties, we maintained our international business development and a dynamic pricing strategy. Therefore, we continued to engage new and existing clients and managed to sustain a relatively high average selling price in the first quarter of 2022. With our relentless efforts to resume normal operations as of today, we have delivered most of the delayed machine orders from the first quarter. Our mining business is gradually ramping up, but still facing headwinds from the power supply shortage This resulted in a considerable portion of our deployed mining machines not being online in the first quarter of 2022. During the quarter, our mining computing power online varied in a rough range from 0 to 0.8 million terahashes. During the first quarter of 2022, we generated 113.94 bitcoins and held 166.96 bitcoins as of the quarter's end. As winter has ended, the power shortage situation is improving. Since the second quarter of this year, more and more machines are gradually coming online. Our gross profit for the quarter grew 327% year over year to RMB $830 million. As mentioned in previous quarters, Due to the continued wafer shortage across the semiconductor industry, the inevitable increase in wafer price further weighed on our profit margin, which narrowed to 61% in the first quarter of 2022. Still higher than the average level of 57% in the full year 2021, but declining from 68% in the fourth quarter of 2021. To further strengthen our supply chain, We have made prepayments to our foundry partners to secure their production capacity throughout the year 2022. We are also grateful for all of our foundry testing and packaging partners' great efforts as they strive to continue the supply for us despite the serious resurgence of COVID-19 in their cities during the first quarter of 2022. In the face of challenging supply environment and the recent Bitcoin price downward fluctuations, we expect our growth margin may further come under pressure in the coming quarter. We reported a net income of RMB $442 million in the first quarter of 2022, a healthy bottom line result considering the impacted top line performance and increased production costs. Please also note that as we have utilized the part of deferred tax assets as of the first quarter of 2022, we incurred higher income tax expenses. We also expect an increasing tax burden for our profitable quarters going forward. I would now like to comment briefly on our share repurchase program. During the first quarter of 2022, we repurchased a total of 2.1 million ADSs with an aggregate value of US$10.3 million, representing an average repurchase price of US$4.81 per ADS. Earlier on March 16, we announced an up to US$100 million share repurchase program effective over the next 24 months This new program follows on the heels of our recently completed US$20 million buyback that we authorized in September of 2021 and completed ahead of schedule. Recently in the capital market, we have been under pressure from both crypto currency price fluctuations and a delisting suspicion. We consider it's good timing to focus on repurchasing shares which helps to protect value for our shareholders. We are committed to delivering value to our investors, and this enhanced buyback program indicates the confidence that both the management team and the board of directors have in the company over the long run. Last month, we also entered into an extra market offering agreement providing for an at-the-market equity offering program to access to capital in the public market with HD1 rights. Please note that as of now, we do not currently expect to sell any ADS under the ATM program at this point in time. In light of the recent industry fluctuations and negative market sentiment, we are focused on executing our aforementioned buyback program to drive value for our shareholders. As of the end of the first quarter, we had cash and cash equivalents for RMB $2,643 million, demonstrating a solid cash position that enables us to sustain our operations and business resilience. We will be cautious and prudent with any use of the ATM facilities. Any share sales executed by the ATM facility will be disclosed in future quarterly earnings reports regularly. While Mr. Zhang has already discussed the potential delisting issue, we sincerely hope a detent will be reached on the audit matter by the respective regulatory authorities. Please be assured that we are carefully monitoring the situation and exploring potential practical measures to protect the interests of our investors. Now, I would like to briefly walk you through our financial results for the quarter. Revenues for RMB $1,356.1 million equals to US dollar $213.9 million, representing an increase of 236.7% from RMB $402.8 million in the same period of 2021. Gross profit was RMB $829.8 million, which equals to $130.9 million representing an increase of 327.2% from RMB $194.2 million in the same period of 2021. Total operating expenses in the first quarter of 2022 were RMB 251.5 million, which equals to 39.7 million US dollars, representing an increase of 21.0% from RMB 207.9 million in the same period of 2021. Income from operations in the first quarter of 2022 was RMB 578.3 million, which equals to 91.2 million US dollars, compared to a loss from operation of RMB 13.7 million in the same period of 2021. Net income attributable to ordinary shareholders in the first quarter of 2022 was RMB 441.6 million, which equals to 69.7 million US dollars, compared to a net income of RMB 1.2 million in the same period of 2021. Non-GAAP adjusted net income in the first quarter of 2022 was RMB 543.4 million, which equals to 85.7 million US dollars, representing an increase of 279.5% from RMB 143.2 million in the same period of 2021. Basic and diluted net earnings per ABS for the quarter, or RMB, 2.57, which equals to 41 cents in U.S. dollars. Country liabilities as of March 31, 2022, or RMB, 1,769.9 million, which equals to 279.2 million U.S. dollars. increasing from RMB $1,340.7 million as of December 31, 2021. This concludes our prepared remarks. We are now open for questions.
spk07: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and white for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Once again, it's star one for questions. Our first question comes from Hans Jung from BA Davidson. Please ask your question.
spk02: Hi. Thank you for taking my question. So I've asked several questions, and I'll ask in English first, and then I'll translate to Mandarin by myself. So first, what would the revenue have been if there were no impact from the COVID-19 control measure for the March quarter? And have the production or delivery fully recovered at this moment? And going forward, given China's zero policy on COVID, does the company have any plans backup plan to mitigate the related risk from a similar lockdown or supply disruption. 管理層好,謝謝你提問。 我第一個問題是就是說3月中旬這個公司的業務受到疫情管控影響, 那如果沒有這個影響的話,那應該Q1的營收會是怎麼樣? Thank you.
spk04: Since the beginning of March this year, there have been many new cases of COVID-19 in China. The local governments have taken appropriate measures to prevent the spread of the virus. On March 14th this year, the company received a notice from the local government of the factory that required all residents and businesses in the area to take a total of five days of extra quarantine measures. The company expected to have an impact on the performance. On March 16th, a report was issued After that, this home quarantine policy continued until the end of March. During the home quarantine, all the local logistics were stopped, leading to the company's supply shortage. Therefore, the company's revenue confirmation in the first quarter of 2002 was confirmed due to the delay in the supply of supplies. From the end of March, the local government began to adopt a way of upgrading and controlling, and gradually encouraged enterprises to go back to work. During this period, the company continued to maintain a positive relationship with the local government. Since the beginning of March this year, the pandemic has resurged in multiple cities across China. In response, local governments have taken pandemic prevention and control measures.
spk05: On March 14th of this year, we received notice from the local government of the area where our factory is located that it will take implementing a five-day quarantine lockdown for all residents and businesses in the city. We fully expect that our business performance will be affected. Later, the quarantine policy was extended until the end of March. During the quarantine period, local logistics and our deliveries were suspended These delays to inventory delivery negatively impacted our revenue recognition in the first quarter of 2022. Since the end of March, the local government has switched to deferring level of control measures based on the severity of the COVID-19 outbreak, while encouraging businesses to return to normal operations. During this period, we have been closely communicating with the local government and have tried our best to resume normal production and inventory delivery. So far, we have basically completed the deliveries that have been delayed from the first quarter of 2022.
spk04: This is very helpful for the company's stable supply chain. What is particularly pointed out is that in order to respond to the epidemic, this is also an important step in the internationalization strategy of the company. I just asked, if the epidemic affects the exchange rate, it should still have a few billion impact, a few billion impact on RMB. It should reach our guidance. Yes, basically it can meet the guidance.
spk05: Okay, let me first translate. We are also making new efforts on many operational fronts, such as warehouse logistics and supply chain. For example, we have established an international headquarters as well as warehouses in Singapore to handle parts of our global businesses, which is also beneficial for the stability of our supply chain. This not only acts as a countermeasure to the uncertainty brought by the COVID-19 pandemic, but is also an important step forward in our globalization strategy. As we also mentioned, I think excluding the impact of the COVID-19 control measures, I think we can meet our guidance previously we project in our first quarter.
spk02: Thank you. Okay, thank you so much. It's helpful. And my second question, can you provide color on the mix and pricing trend of the spot achievements versus the future contracts? And I think, I guess it seems like we may have higher mix on the spot treatment given the cost margin is, I think, better than expected. And how that, and going forward in second quarter, how that trend involving, especially we are in a bearish environment of the Bitcoin market. And what will be the trend for longer term in terms of the mix? So I want to ask about the price of the product and the ratio of the pre-sale to the pre-sale. And what is the price? Because the price of the pre-sale looks better than I thought. Is it because the pre-sale sells more? Or is it because the overall price has an uptrend? Well, Thank you. The company actually takes a dynamic and flexible way of operation.
spk04: In fact, there is a big difference between the supply and the demand. Because of the energy supply tension in the winter of the northern hemisphere and the curfew, the first quarter is also the traditional curfew. In addition to the recent market fluctuations, we expect that the supply and demand ratio of the second quarter of this year will be relatively small. In the case of the continued pressure on the currency price, we may be able to allocate more computing power to dig mines. Due to our dynamic and flexible operating models, the proportion of sales and future contract sales
spk05: vary from quarter to quarter. Because of the tight energy supply in the northern hemisphere in winter and the number of holidays, the first quarter is typically traditionally low season. In addition, considering the recent market volatility, we expect a smaller proportion of spot sales in the second quarter of 2022. If the Bitcoin price continues to be under pressure, we may allocate more of our computing power to our own mining business. As we have said in previous quarters, we are not trying to fix the proportion of spot sales and future contract sales. Instead, we will maximize shareholder return by dynamically adjusting the proportion of mining machines allocated to spot sales, future contract sales, and our mining business. based on the Bitcoin price and market volatility. Thank you. Thank you.
spk02: Okay. Okay. Thank you. Next question. Can you talk about the company overseas, especially in North America? We currently have about... So can you share with us your overseas market development, particularly the business in North America? What have you been done? Have you achieved? and what challenges have you seen so far, and when will you expect the meaningful ramp-up in the market? Thank you.
spk04: Thank you. As we mentioned before, we set up an overseas headquarters in Singapore to carry out research, development, and supply chain related business. And we have already received the approval and support from the Singapore Chamber of Commerce.
spk05: As we have mentioned before, we set up an international headquarters in Singapore to handle operations such as research and development, warehousing and supply chain. This has been approved by the Singapore Economic Development Board, which has supported us with referral policies. 同时在海外的业务中,我非常看重公司在北美的发展。
spk04: We have noticed that due to the rapid development of rich energy, especially youth energy, and a wider acceptance of home currency, the North American region is attracting more and more Bitcoin miners to invest in construction and mining. In April of this year, we attended the 2022 Bitcoin Summit held in Miami, and established a link with many miners in the industry and cooperation partners for practical communication. We have already arranged some colleagues to start business in the United States and America, including sales and mining.
spk05: Meanwhile, of our overseas businesses, we pay especially high attention to our development in North America. We have seen that abundant energy supply, especially the rapid development of clean energy and the wide acceptance of cryptocurrencies in the region, attracting more and more miners to invest in and develop mines. In early April this year, we participated in Bitcoin 2022, a conference held in Miami, and held in-depth dialogues and established connections with many mining companies and industry partners. We are building our local teams in North America as well, and already have some team members on board. They are helping to expand our business in a number of ways. For example, in the field of sales and developing partnerships for mining business. More importantly, we are improving our after-sales services to provide continuous services closer to our customers.
spk04: To sum up, North America is a very important market. Overall, we attach great importance to the North American market and are proactively expanding our businesses
spk05: Yet, we expect to encounter many different kinds of challenges during the second startup. Hopefully, our continuous efforts will deliver solid results. We will disclose more details about our progress to our shareholders when appropriate. Thank you.
spk02: Okay. Thank you. I'll pause here and jump back to you.
spk07: Thank you. Thank you. Our next question comes from Mike Lake from the Benchmark Company. Please ask your question.
spk03: Thank you. With Bitcoin being weak here in the second quarter, could you talk about how that impacts your mining machine sales and the average selling price?
spk05: Okay, thank you. Let me translate for Mr. Chang. We see that the price of the second quarter is not very good. What impact does this situation have on the sales and value of the company's mining machines? What is the overall situation like?
spk04: The company has issued a guidance. We expect the second quarter of 2022 to be in the range of RMB 16 to 18 billion. This forecast is based on the current market and financial situation of the company. Considering the uncertainty of the market environment, it is still relatively large.
spk05: As we have mentioned earlier, we expect our total net revenues for the second quarter of 2022 to be between RMB 1.6 billion to RMB 1.8 billion. This forecast reflects our current and preliminary view on the market and operational conditions, considering that there are still significant uncertainties in the market environment. This forecast is subject to change.
spk04: uh uh to provide customers with good service, continue to consolidate the relationship with existing customers, and give up sales business. We also work hard to attract new customers to sign the order. Until the end of the first quarter, our customer receipt reached RMB 17.7 billion. Removing part of the order due to the delay in the first quarter due to the epidemic, our receipt is also in a relatively high water level. Therefore, the second quarter of this year, we have received a lot of requests.
spk05: we have noticed that the Bitcoin price has continued to fluctuate and fall from its previous highs. In particular, since we entered May, the Bitcoin price has been further affected by macroeconomic factors such as the Fed increasing rates. We have dynamically adjusted our mining machine pricing to share the pressure created by downward Bitcoin prices with our customers. By expanding our businesses in the global market and providing better after-sales services, we continue to strengthen our current customer relationships, fortify our mining machine sales business, and attract new customers' orders. As of the end of the first quarter of 2022, our advances from customers had reached RMB $1.77 billion, Even excluding the orders that are delayed due to the effects of the COVID-19 pandemic, advances from customers are still at a relatively high level, setting a solid foundation for our second quarter revenue this year.
spk04: From previous experience, the demand for miner's income and miner's machine will be influenced by the price of the miner's machine. The price of the miner's machine will also be affected Based on past experience, mining revenues, demand for mining machines, and mining machine price are all affected by Bitcoin price volatility.
spk05: which has always been a challenge we have faced within this industry. With over nine years of operations and management, we have accumulated good experience to deal with this challenge. We will continue to react to market volatility and unexpected situations through our agile and prudent operations and our stable supplies.
spk04: We expect that in the trend of Bitcoin price volatility will continue within this bad interest rate hike cycle for U.S. dollars. We remain optimistic on the long-term prospects for Bitcoin and its
spk05: associated supercomputing technology. Hope I answered your question. Thank you.
spk03: Yes, that's great. Thank you. And then just one follow-up. You mentioned the supply chain was impacted in multiple Chinese cities. Can you talk, I know you also set up some warehouses and stuff for logistics. Can you talk about your expectations for future supplies?
spk05: Okay, thank you. Let me translate. He wants to ask whether our supply chain has been affected by the epidemic closure. Yes, it is like this.
spk04: We are located in Changsangjiao, Zhusangjiao, Jingyuan factory, Fengzhuang, Fengte factory. These cooperation partners have made full preparations and plans for the COVID-19 epidemic. There has been no shutdown or shutdown. They have been contributing to us. We are also very grateful to these cooperation partners.
spk05: Our partners, including foundry testing and packaging partners located in the Greater Yangtze River and Pearl River Delta, were fully prepared and had backup plans for the resurgence of the COVID-19 pandemic. They did not suspend their business operations and continue to supply for us. I would like to express our gratitude for the great support from our partners.
spk04: The company has also locked up this year's production through the payment method. As the financial report announced, by the end of this year's quarter, our payment level has reached RMB18.9 billion, which is a historic high. In the case of a severe COVID-19 epidemic, we will be more close to the supply chain to support each other and to announce the situation. Our connection with the supply chain is stable and solid. We are now holding a cautious and optimistic attitude towards continuing to supply.
spk05: On the other hand, we have secured production capacity this year through upfront prepayment to our foundry partners. As announced in the earnings press release, our prepayments were on the $1.89 billion as of the end of the first quarter this year. are reaching a new historical high. In the severe market environment brought by the COVID-19 pandemic, we and our supply chain partners are supporting each other to navigate through the tough times. We have a stable and solid relationship with our suppliers, and we remain cautiously optimistic for maintaining a stable supply. We are also in progress towards exploring and acquiring the technology and production capacity for more advanced nodes. Hope I answered your question. Thank you.
spk03: Yes, thank you very much.
spk07: Thank you. Our next question comes from from Gorshin Securities. Please ask your question. Can you hear me?
spk05: Yes.
spk06: Okay. So my question is, most of your customers are institutional barriers. So why have you built up your online store targeting retail customers?
spk04: Customers can buy their products at a normal price. The concept of customer low is to try to reduce the transaction cost of various types of customers. It is a very important issue for our entire sales system. For small and medium-sized customers and customers who hope to sell samples first, they can now directly buy their products at the online shopping mall. In the area of legal snow, it is even possible to directly use the speed currency. It is very convenient and fast. As a matter of fact, customers can always buy mining machines from us, regardless of the quantity, even just one machine.
spk05: Putting customers as our priority and reducing friction in the transaction process and related costs is a very important aspect of our sales system. Now, small and micro-scale customers and those who would like to purchase a sample machine can make a purchase in our online store. They can even settle with Bitcoin in the region where such settlement is legally permitted, enjoying a quick and very convenient experience. In addition, our online store is important for raising the transparency of machine models and prices for our customers. Going forward, we will further develop our sales channels and gradually improve after-sales services in the global market. Whether customers are small or micro scale or mid and large scale, they can all enjoy an upgrade to every aspect of our service. I hope I answered your question. Thank you.
spk06: You launched a new generation of mining machines, the Avalon 1266, at the beginning of April. So where will you assess its mass production and sales? Thank you.
spk04: We showed our new miner machine 1266 at the Miami Expo. 1266 is our new miner machine 1266 is our new miner machine 1266 is our new miner machine 1266 is our new miner machine 1266 is our new miner machine 1266 We presented a new mining machine model, the Avalon 1266, to miners during the Bitcoin 2022 Miami Conference. Our model 1266 is an upgrade on the current design and fabrication nodes.
spk05: with about 10% improvement in the power efficiency and performance. As a result, this new mining machine produces overall computing power of 100 terahash per second. Additionally, we will keep preparing for the upgrade in our processing and design, and expect the progress of introducing more advanced nodes that bring more competitive products to the market. Hope I answered your question. Thank you. Operator, I think we can conclude the call. Thank you.
spk07: Right. Thank you very much. So that is all the time we have for questions. I will now turn the call back to the management for closing remarks.
spk05: Thank you once again for joining us today. If you have further questions, please feel free to reach us through the contact information provided on our website.
spk07: Thank you. This concludes the call today. Thank you everyone for attending. You may now disconnect.

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