Canaan Inc.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc's third quarter 2022 earnings conference call. At this time, all participants are in 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, Mr. Clark Soucy, Investor Relations Director of the company. Please go ahead, Clark.

Thank you, Mel. 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. Nan-Gung Zhang, and our CFO, Mr. Jin-Chung James. In addition, Mr. Xiaoming Liu, our senior VP, Mr. Leo Wang, IR senior director, and Ms. Shi Zhang, IR manager, will also be available during the question and answer session. Mr. Chong will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Chong will then provide details on the company's operating 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 thereof, 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 20f 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'll discuss both gap financial measures and certain non-gap 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 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. With that, I will now turn the call over to our Chairman and CEO, Mr. Nangong Zhang. Please go ahead.

Hello, everyone. This is NG, CEO of the company. Our staff, James, and I are delighted to share our quarterly results directly in English from New York. Since the beginning of third quarter of this year, um the cryptocurrency and blockchain industry has been experiencing a great deal of turbulence especially during the past week there is a lot going on in the industry and now that we are together on this conference call we want to take this opportunity to speak openly with our investors and stakeholders Market conditions have become more severe since the beginning of the third quarter of 2022. The Bitcoin price continued to decrease, impacted by federal reverse interest rate increases and market expectations of further hikes. Meanwhile, Bitcoin's total network hash rate remained at a high level and miners' incomes decreased. We are fully aware of the great difficulties in the mining industry. The current situation resembles similar Bitcoin cycles we have previously navigated through. However, the situation is different today as we are facing more challenges, such as globally surging energy prices miners private risks and high financing costs caused by excessive leverage and high operating expenses for new miners these factors have led us to serious issues in miners operations furthermore what has been happening in the industry has industry participants' confidence. Turbulence in the industry is inevitable in the short term. On top of these headwinds, mining machine inventors in some regions remain, sorry, mining machine inventories in some regions remain high. all of these factors will negatively impact customer demand for and the pricing of our mining machines in the near term what i want to emphasize is that although currently participants in the industry are enduring a particularly difficult time we remain confident of navigating through the bitcoin cycle What we are going through now will turn into a valuable experience for us to develop our business as the industry enrolls. During these difficult times, we continue our investment in R&D to increase our product's half-rate and energy efficiency. In late October, we released two models of our new generation of mining machines. making a breakthrough in computing power and energy efficiency. Regardless of whether we are in a full or bare market environment, we will launch new products and develop our business steadily. This commitment demonstrates our confidence in the market's long-term prospects. Regarding the sale of money machines, in late October, Having received the full testing results, we immediately launched our new generation mining machines, Avalon-made A13 series. Specifically, two models are introduced, the A1346 and the A1366. Model A1346 features a hash rate of about 110 terabytes per second and the power efficiency of approximately 30 joules per terahatch. Model A1366 is equipped with a hash rate of about 130 terahatch per second and the power efficiency of approximately 25 joules per terahatch. Both models computing power and power efficiency demonstrate a significant improvement over the previous generation of mining machines. After our new products hit the market, we quickly corroded our supply chain to move forward on mass production. We expect to commence mass production and start shipments at the end of this year or early next year. Through prepayments, we have secure production capacity for the next year. This allows us to continuously provide high-performance products with reliable quality and superior services for our clients. As for our existing mining machine products, we deliver a total of 3.45 million terahash per second of computing power, generating revenues of RMB 140 million. Our global headquarters in Singapore continues to attract local tech talents to join us and further enhance its operations. The headquarters has already established R&D, operations, finance, supply chain, and other functions. Our Singapore-based chip design team has contributed significantly to the development of our new products, as well as the mass production process. The Southeast Asia supply chain headquartered in Singapore is performing well and has been stably fulfilling shipments since its entire operation during the previous quarter. It provides diversified parts of our production process and the logistics chain, and it demonstrates our commitment and ability to continue our internationalization Although the overall market is relatively sluggish this year, we have built a strong foundation of trust and cooperation with our industry-leading business partners. Meanwhile, we also insist on serving our small and mid-sized customers in a variety of flexible ways. Our online store for retail customers filter augmented ourselves this time to address demand from all types of customers since it's not in the second quarter it has fulfilled the customers orders from 21 countries and regions worldwide by the end of the third quarter having shipped out prepared others our total computing power to be delivered had decreased to 1.01 million terahash per second under current market conditions the industry is facing stronger headwinds and more uncertainty most customers are taking a weight and the approach just demand of money machines has dropped to a low point coupled with current market challenges our business is likely to face higher pressures over the next two quarters at this point facing a severe winter in the industry profitability is no longer our first priority we will get through this difficult time and prepare for the future by shifting our focus to the stability of cash flows reducing unnecessary expenses and continue to invest in the research and development of new products. During the current downturn, we are strengthening the operations of our mining business for long term. With our operational flexibility, we are propelling forward our mining business in overseas markets. Mining frauds mutual support and maximize between our mining machine cells and our mining business. Notably, our mining collaborations of the United States brought 260,000 terahatch per second of computing power online during this quarter. At the same time, the electricity from supply for our mining operations in Central Asia has further improved. enabling more stable operations for our deployed mining machines. Consequently, our mining business total online computing power is approximately 3.2 exahash per second, generating mining revenue of RMB 62 million in the third quarter, up 19% quarter over quarter. After using a proportion of our bitcoins to cover mining costs we had 535.5 bitcoins in the total at the end of this quarter the balance demonstrates an increase of 188.7 bitcoins from the end of the last quarter we are also actively exploring the geographical diversification of our mining business to mitigate concentration risk while steadily expanding our global layout at the scale of our mining business under a bearish market. Let's now turn to our AI chip business. During the third quarter, sales of our AI chips improved compared to the previous quarter, as downstream manufacturers resumed building up their inventories. As a result, our AI chip business sales grow by 52 percent quarter-over-quarter. However, weak end-user demand for the consumer goods remained a headwind to our AI chip sales performance. On the other hand, we have achieved good progress in terms of processing the developed ecosystem. For example, our proprietary AI development board has been used for learning and practice development by college students from over a hundred universities across China. At the same time, we have joined many informational development platforms, actively participating in constructing the RISC-V ecosystem. We will continue to closely collaborate with our downstream and the technology partners in the industry. uphold our open source philosophy and prepare for exportational growth in the demand of AI building. During this quarter, we continue to make good progress on our current share repurchase program approved in March, under which we may repurchase up to 100 million US dollars worth of our outstanding ADS or Class A ordinary shares over 24 months. We have repurchased 3.4 million ADS for a total of 11.2 million US dollars from August 12th to November 4th this year. As of November 4th, 2022, we have repurchased over 6.2 million ADS for a total of 21.5 million U.S. dollars with an average price of $3.46 over for ADS. Our ongoing execution of this buyback program delivers increased value to our shareholders and shows our confidence uh in the company's current and the long-term prospects overall during the third quarter we are with this a difficult environment under this micro macro economic and the industry headwinds many miners encountered operating difficulties leading to the declining demand of money machines lower money machine prices and more To overcome these challenges, we worked diligently to deliver products and further connect to the market, achieving our primary staff guidance. In addition, we successfully completed the chip-in progress for the new generation of computing-powered chips and launched our new series of mining machines. Looking ahead, we see that rising interest rates and other macroeconomic dynamics continue to exert downward pressure on Bitcoin prices and erode industry confidence. There is also the possibility of further energy price increases during the coming winter. Considering these combined headwinds, weaker demand in the mining industry is expected. As a result, we expect our performance to come under further pressure at least during the next two quarters. Based on our current projections, we expect our total revenues of the fourth quarter of 2022 to be approximately RMB 310 million. Please note that this forecast reflects our current and preliminary views on the market and the operational conditions, which are subject to change. It has been almost 10 years since Canaan's inception, and we are navigating through multiple Bitcoin cycles, regardless of macro environment. we remain firmly committed to always doing our ultimate most to develop new products and pursue a superior computing power and power efficiency we have continued to push forward on our internationalization adhering to our flexible and prudent operating strategy we endeavor to enhance synergies between our machine cells and mining business at the same time we will keep a conservative approach to our capital management and streamline our and streamline our cash outflows while continuing our investment in r d and the resistance operations It's paramount for us to sustain operations across the bull and the bear market cycles, upholding our responsibility and the commitment to our shareholders. This concludes my prepared remarks. I will now turn the call over to our CFO, James.