Canaan Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Canaan, Inc.' 's second quarter 2024 earnings conference call. At this time, all participants are in a 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. Gwen Lauber, Investor Relations Director of the company. Please go ahead, Gwen.

Thank you, Operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are our Chairman and CEO, Mr. Nanjun Zhang, and our CFO, Mr. Jin Cheng, or James. In addition, Mr. Leo Wang, Head of Capital Markets, and Ms. Qi Zhang, IR Manager, will 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. Chang 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 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 regarding 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 will discuss 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 reconciliation with comparable GAAP results in our earnings release which is posted on the company's website. With that, I will now turn the call over to our chairman and CEO, Mr. Zhang. Please go ahead, sir.

Okay. Hello, everyone. This is NG, the CEO of Canon. Thank you for joining our conference call. Our CFO James and I are at the company's headquarters in Singapore to share our quarterly results with you. The major event in Q2 2024 was the fourth Bitcoin halving. The Bitcoin network ran smoothly without any issue during this halving. Aimed at intense marketing fluctuations, the Bitcoin price varied between about $71,000 at the beginning of the quarter and a low of $56,000, eventually closing at 61,000 US dollars by the end of the quarter. The total network cash rate remained relatively stable, with growth slowing but not declining significantly. As I mentioned during the last earnings call, the quarter before the halving tends to be quiet, but the market quickly recovers afterwards. Our operations continued steadily inventory reduction proceeded half-time, and the A14 series products began large-scale deliveries on schedule. Our new product, the A1566, was launched with outstanding performance, and our global sales network continued to expand. Our mining operations were optimized and adjusted. successfully weathering the challenges of the hobby. This quarter, our revenues saw significant sequential growth, exceeding our expectations. Let me now walk you through a few key areas. In R&D, we have continued to drive product innovation. The mass production wrap-up for our A14 series products has been successfully completed. Through close collaboration with our foundry partners, we have seen smooth improvements in the yield rates and production capacity for the A14 series. These improvements have enabled us to deliver more computing power than initially expected from the levers we had ordered. In May, at the Bitcoin Asia 2024 in Hong Kong, we launched our AirQuote A15 series miners, pushing energy efficiency to approximately 18 drops per terahash and around 200 terahash in single-unit computing power. Later, at the end of June, during the Mining Disrupt Conference in Miami, we introduced the LiquidQuote model of A1566i, which achieved a computing power of 249 Terahash per unit. The A15 series, which is on a different process node from A14, is currently undergoing a similar mass production run-up, yield improvement, and the capacity increase. Based on the current progress, the A15 series is advancing more smoothly than the A14 did at the same stage. We are confident to complete the above process within the next few weeks, propelling the A16s into mass production for large-scale delivery. In addition, we have been working closely with our customers to provide customized integrated mining solutions tailored to their specific needs. Starting this quarter, the Middle East has entered an extremely hot season. with temperatures reached around 50 degrees Celsius. The liquid-cooled and air-cooled system we deployed earlier have successfully withstood the harsh conditions. Regarding the next step after the ACP series, as per our EURO practice, we do not announce new products before obtaining actual test results from complete machines. What we can share at this stage is that the development of our A16 series is progressing smoothly. We are utilizing more advanced process nodes and through process advancements and close collaboration with our wafer fabrication partners, we aim to push the critical power efficiency matrix of the entire machine into the 10-plus-yard-per-terahatch range. When the milestone is achieved, the output machines will be poised to reach the 300-terahatch threshold in computing power for a single unit. Although someone says more slow is dead, In this industry, innovation is still far from reaching its limits. In terms of sales, we achieved a total computing power sales of 6.2 million terahash per second this quarter, making a significant 84% sequential growth. This was driven by the large-scale delivery of our A14 series, which has become our main product and led to a 33% sequential increase in the average selling price of our computing power. At the same time, we further cleared our inventory of our traditional models, primarily A16, leading to an optimized inventory mix by the end of Q2. Our one-stop mining solutions have gradually gained market traction, contributing $4.6 million in revenue. We also launched the profitable mining heater Avalon Nano 3 for individual instances. Since its launch in Q1, the product has seen strong demand, with over 11,000 units pre-ordered by the end of Q2. As of today, we have shipped over 10,000 units to 75 countries and regions worldwide, receiving highly positive market feedback. This quarter, we made big progress in several key regional markets in North America, we secured a large resale order of 6,600 units of our new A1566 model for Cypher, a listed mining company. Additionally, we successfully completed deliveries on previous orders from several other listed mining companies and continue to collaborate with more. This led to a tenfold sequential increase in recognized revenue from the region. Our products' performance, durability, and the professionalism of our delivery progress were highly recognized by our customers, establishing a strong reputation that will support further business expansion in North America. In the Middle East, our mining machines and one-stop mining solutions are gradually gaining traction. Our machines with superior heat resistance and comprehensive solutions that enable quick deployment have been very well received by customers, resulting in fivefold sequential increase in revenue from the region in Q2. In South Asia, our channel partners continue to contribute stable orders. Our traditional models known for their cost effectiveness and resistance to heat and humidity remain very popular in this region. Our online store cutting to individual customers overseas, so 314% quarter-over-quarter increase in registered users and an explosive increase in orders since the launch of AgroNano 3 on the platform in Q2. Demand has been especially strong in North America where nearly 50% of orders originated. Further boosting our brand recognition in the region Through our market-affected sales efforts and a more diverse product portfolio, customer advances increased significantly by 30% quarter-to-quarter to US$51 million by the end of Q2, laying a solid foundation for revenue growth in the second half of the year. This quarter, our mining operations performed steadily, successfully navigating the challenges brought by the Bitcoin Harvey, generating non-mini-US dollars in mining revenue. Despite the impact of the Harvey, the only represented an 11% decrease compared to the first quarter, we continued to optimize our mining project matrix Advancing hash rate deployment in new pilot projects while closing existing projects that were negatively impacted by policy changes. We are also near the completion of our exit from operations in Kazakhstan and Paraguay. As of August 10th, 2024, Our self-managed operational hash rate has reached 4.5x hash per second, exceeding our previous guidance of 4.3x hash per second mentioned in the last earnings call. Additionally, we successfully maintained an average electricity cost at a variable level of 4.2 cents per kilowatt hour. allowing our mining gross margin to remain steady at 33%, similar to the first quarter. In Q2, we mined 141 Bitcoins, bringing our total Bitcoin holdings, including pledged Bitcoins, to 1,114, an increase of 57 Bitcoins from the previous quarter. We will continue to strike a balance between policy's stability and energy cost advantages to strategically enhance our mining business. In our first quarter 2023 earnings call, we disclosed our plan to use more advanced mining machines models for our mining-based operations. We also mentioned that in addition to corporate mining models, we consider in fixed rate hosting and other approaches such as self-building or acquisitions to actively participate in mining operations and explore more collaborative opportunities. We would like to reaffirm these mining strategies. Additionally, when evaluating our mining operations and opportunities globally, we have concluded that North America holds strictly importance. This region offers strong legal protections, valuable infrastructure and power supply, and a rapid development. health Bitcoin mining ecosystem. According to our calculations, from the end of 2022 to the end of Q2 2024, the total hashrate growth of publicly listed mining companies in North America was 237%, outpacing the global network hashrate growth of 114%. Given that we view North America as a strategic opportunity, we are announcing our plan to focus on this region. We expect to increase our mining hash rate target in North America from current 0.65x hash per second to 10x hash per second by the first half of 2035. As a global provider of Bitcoin mining solutions, We are uniquely positioned to seize mining opportunities in North America. First, we have the flexibility to allocate mining machines inventory worldwide, maximizing investment returns and diversifying risk. Second, with comprehensive industry insights ranging from mining machine manufacturing supply chains to global mining markets we can more effectively evaluate investment opportunities and quickly match mining machines with optimal size for short-term gain and long-term success. Third, our standing and reputation in the industry further enhance our ability to establish strategic partnerships with the global mining community. Lastly, our advanced design capabilities allow us to customize mining solutions tailored to different environmental and economic conditions, whether in regions with extreme whether or in scenarios requiring flexible power load management and response strategies. At the same time, we hope these projects will serve as a showcase for potential customers around the world to learn about Canon. We are fully committed across multiple dimensions, including capital, construction, operations, and efficiency to make these projects outstanding. By accumulating valuable experience, we aim to better serve our clients. In Q2, we continue to improve our operations, significantly reducing total expense due to optimized G&A expenses, which have narrowed our operating loss by 61% year-over-year and 32% quarter-over-quarter. Although the decline in Bitcoin price at the end of Q2 led to an almost $10 million reduction in cross-currency fair value on the income statement, we still achieved a 62% year-over-year reduction in net loss. With revenue remaining stable, On the balance sheet, the successful bulk delivery of A14 products and strong cash inflows from sales contributed to a 22% quarter-to-quarter increase in our cash position, bringing it to $67 million by the end of Q2. While mainstreaming a safe cash level, we also made strategic moves to secure advanced process capacity in our supply chain through prepayments. As we enter the third quarter of 2024, our A14 series mining machines are being back delivered on schedule and contributing to our revenue. Following the launch of A15 series, expect to complete its mass production wrap-up within this quarter. The main R&D work for A16 series will also be completed by the end of this year. Beyond chip development, we are rapidly expanding our product line and solutions to meet the post-harving demand for equipment upgrades and mining site deployments from global miners. We believe the upcoming Bitcoin bull market will be driven by broader public adoption. In this regard, we are developing a consumer-focused products line to make mining a part of everyday life and bringing benefits to general public. At the same time, recognize that global political and economic instability is increasing, leading to more volatility in Bitcoin prices, which continues to present challenges for the industry. Based on the overall situation described above, we maintain a cautiously optimistic outlook for the third quarter of 2024. We anticipate revenue for the third quarter to be approximately $73 million. This forecast is based on the current market and operational conditions of the company and the actual results may vary. Bitcoin's fourth halving was now completed in Q2, but the global political and economic dynamics surrounding Bitcoin continue to unfold, bringing it to a wider audience. While the price of Bitcoin may experience significant fluctuations and centralization during the process, it also helps the public to better understand and accept Bitcoin. Our company navigated the halving quarter with a stable stance, continued to invest heavily in both product development and capacity expansion. We remain confident in the long-term prospects of Bitcoin and the wide set of this bull market. And we are already back on the path to growth. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.

Thank you, NG, and good day, everyone. This is James speaking at our Singapore headquarters. As NG started at the top of the call, quarter two of the year 2024 was a particular quarter when we experienced a Bitcoin halving event which takes place about every four years. Bitcoin price fluctuated from $71,000 to $56,000 and eventually landed at $61,000 in the quarter end. Total network hash rate performed considerable swings but continued growth trend. As we expected, customers were more active in Q2 to upgrade their mining machines compared to Q1, and we used A15, A14, and A13 series to satisfy a diverse demand from various customer groups. Let me give a quick summary of our financial performance in quarter two. First, with considerable upside demand and successful large-scale deliveries of our new A14 series, we achieved a total revenue of around $72 million, which beat our guidance by around $2 million, marking a sequential growth of around 105%. Secondly, A14 delivery enabled a higher average selling price, which contributed to a narrowed gross loss of around $19 million, indicating a sequential improvement of around 49%. Thirdly, cash balance increased to around $67 million by around 22% sequentially. As of August 10, 2024, our self-mining hash rate reached around 4.5 exahash per second, which helped our own Bitcoin accumulate to a total of 1,114 Bitcoins, which is a new high. Last but not least, with the A15 series announced, we collected orders and advanced payments from customers. The balance of customer advances increased to $51 million by 30% sequentially, indicating a solid second half year revenue foundation. Let's start to take a look at the profit and the loss. As said, in quarter two, our total revenue was around $72 million. Revenue from machine sales was around $57 million. We delivered a total computing power sold of 6.2 million terahash per second, representing a quarter-over-quarter increase of around 84%. The average selling price increased by around 33% from $6.9 per terahash per second in quarter one to $9.1 per terahash per second in quarter two. Driven by the increased computing power sold and average selling price, revenue from machine sales increased by around 146% quarter over quarter. From the product side, our large-scale delivery of A14 series contributed nearly 80% of machine sales revenue. From the sales side, our multi-dimensional global sales system made positive progress in several key regional markets during the quarter. In quarter two, our customers from North America and the Middle East contributed 52% and 17% of our machine sales revenue. Turning to the revenue of our integrated mining solutions and Avalon Nano 3 mining heater, which diversified our product revenue streams, in Q2, we recognized around $4.6 million revenue from the delivery of integrated mining solutions, primarily contributed by the customers in Middle East and South Africa. We also recognized around half a million dollars revenue from the delivery of Avalon Nano 3. The accumulated orders for Nano 3 achieved $1.3 million by the end of quarter two, primarily contributed by customers in North America and Europe. For our mining machine sales, We accrued $17.3 million for inventory write-down, prepayment write-down, and provision for inventory purchase commitments in the quarter, representing a quarter-over-quarter decrease of 64% and a year-over-year decrease of 62%. The decrease was driven by ongoing stock clearance in this quarter. Those non-cash write-downs and provisions are made under US GAAP rules, jeopardizing our gross profit but do not impact our cash status. If the above write-downs and provisions were excluded, we would have a gross profit of $0.7 million for mining machine sales. Mining revenue was $9 million in Q2, as a decrease 11% quarter over quarter. We mined 141 Bitcoins in this quarter, a decrease of 28% over the last quarter. This decrease was primarily driven by the Bitcoin halving event, which occurred in April and resulted in a significant increase in the Bitcoin mining difficulty. Our average revenue per Bitcoin in Q2 increased 23% over the last quarter, from almost $54,000 to almost $66,000. We also further expanded our mining business in Africa, where our installed hash rates reached 2.7 exahash per second at the end of quarter two. At the end of quarter two, we deployed a hash rate total over four exahashes, and as of August 10, 2024, our self-mining hash rates reached around 4.5 exahash per second, Quarter 2 mining profit was 38 bitcoins. Gross profit margin was 33%, remaining sequentially stable. Please note here that mining profit or loss is defined as mining revenues net of costs for energy and hosting, but without consideration of depreciation for the deployed machine. Looking forward, as a continuous strategical focus, we expect to further grow our North American mining hash rate target to 10 exahash per second by the first half of 2025. Now turning to the expenses. Our operating expenses totaled at $27 million, decreasing 44% year-over-year and 11% quarter-over-quarter, respectively. Staff costs, including share-based compensation, decreased 36% year-over-year and 11% quarter-over-quarter, mainly driven by organizational optimization performed in quarter four last year. As mentioned in Q1, we chose to early adopt the SASB new accounting rules on cryptocurrency assets since January 1, 2024, which allow cryptocurrencies to be carried at their fair market value. The price of Bitcoin decreased to around $62,000 on June 30 versus around $70,000 on March 31, resulting in a loss on crypto assets of $10 million during the second quarter. I want to point out that if we combine our $34 million gain on crypto assets fair value change in the first quarter with our $10 million loss in the second quarter, we are still at almost a $24 million gain year-to-date. Benefiting from the large-scale delivery of A14 series, the narrowed gross loss and the ongoing expense control, our Quarter 2 operating loss was $47 million, narrowing 61% year-over-year and 32% quarter-over-quarter. Despite a loss of $10 million on fair value of our critical assets, our Q2 net loss narrowed by 62% year-over-year to $42 million, and adjusted EBITDA loss narrowed by 61% year-over-year to $31 million. Turning to our balance sheet and the cash flow, in quarter two we generated $74 million of cash inflow from sales, received $19 million from secured loans, and $7 million from export VAT refunds. We paid $40 million to secure our wafer supply and $48 million for production and operation. which is aimed at enabling the concentrated delivery and spot sales of our products in the following quarters. Consequently, at the end of Q2, we held a cash of $67 million on our balance sheet, indicating a 22% increase compared to Q1 end. Now moving to our contract liabilities. Our A14 series has continued to be popular and we also reached some pre-sale orders for A15 series from listed mining companies. The balance of contract advances reached $51 million as of this quarter and increasing 30% from $39 million at the last quarter end. As of the end of quarter two, we recorded a count receivable of $8 million, which mainly consisted of the installments from North America public listed customers. We will continuously evaluate market demand and adopt corresponding credit policies with caution. Now turning our attention to our Bitcoin assets. The bitcoins we held as our own holding assets kept growing in this quarter and reached a record high of 1,114 bitcoins as of June 30, which is 57 more than 1,057 at the end of last quarter. On June 30, the fair market value of our own bitcoins totaled around $70 million. In this quarter, we pledged 530 Bitcoin for the long-term secured loans with an aggregate carrying value of $19 million at a reasonable interest level. The secured loans enable additional liquidity for our production, expansion, and operation. In the future, under the premise of adhering to HODL strategy, we will explore more ways to increase capital liquidity through our own crypto assets. We expect our Q3 revenues to be $73 million. We have successfully navigated the hubbing challenge and continued to enhance investments in both product development and supply capacity. We will continue to cater to the diverse needs of our customers with an even more comprehensive and efficient selection of products. This concludes our prepared remarks. We are now open for questions.

We will now begin the question and answer session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to three questions at a time. If you have any follow-up questions after the Q&A session, the investor relations team will be available after the call. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Your first question today comes from the line of Kevin Dede with HC Wingwright. Please proceed.

Good morning, NG, and James, all afternoon over there. Thanks very much for having me on the call. I was wondering if you could give us your perspective on the – I know NG alluded to it a little bit, but just on the inventory situation throughout the industry. Sure.

Thank you, Kevin. Maybe I take this one. I think the inventory level in the quarter two actually compared to quarter one is a little bit eased because the customer demand after having actually boost out, a lot of customers try to upgrade their mining machines. So we faced to the first wave of the demand. That means that the existing customers, they would like to upgrade the machines. They placed orders, some for contract sales in last year, quarter four or quarter one. Some of them placed orders in quarter two directly for the current sales. So I think that the inventory situation changed to a little bit more optimistic situation. But still, our competitors are still holding a big amount of inventory. That's something we heard. But it's better than quarter one end. I think that's my answer.

Thank you, James.

I saw that your price per share has stepped up very nicely from the March quarter, which I would expect was because you were selling more A14 series. But I was just wondering if you could talk a little bit about the overall pricing trends and how you see that affecting demand.

Yeah, I think that's, you know, demand and supply is always the most critical factor in our industry to decide the market prices. I think currently even we had one wave of demand of upgrading machines. But still, the price is still in the bottom because no matter new products or older generation products, the selling price is still relatively low. I would expect if in the coming months, Bitcoin price has some rapid growth. If that's the case, then it will drive the demand goes up because there will be newcomers from energy industry to our industry to participate in the mining activity. If that's the case, the demand will be huge and it will be you know far beyond our supply capacity because we have to lock the wafer supply six months before shipment that means the supply side we are linear and limited by the demand side if the Bitcoin price quickly grow then we will see a big upside if that's the case the market price will come back in a significant way, just like what happened in year 2020. We still remember in that November and December 2020, in that particular year, the mining machine price jumped from a single digit to like a 20 something and a 30 in the end of the quarter four. I cannot say history will repeat absolutely the same way, but I do think if Bitcoin has the big potential to grow faster, in quarter four or in late quarter three, then we will see the demand coming back in a significant growing way. And at that time, our mining machine price will increase accordingly in also a significant way. So that's something we predict will naturally happen If not in this year, it will be in early next year. That's something we believe will happen. I just would like to share my two cents to you like this, Kevin. Thank you.

Thank you very much, James. I really appreciate the optimism. Congratulations, NG and James, for a very nice quarter and the strong improvement and all the hard work.

Thank you, Kevin.

Thank you. Our next question is from the line of Shuang Sun with Guosheng Securities. Please go ahead.

Okay.

Is the company considering shifting the power used for self-mining to provide electricity for AI service providers?

Hello, this is MG. I think at present we have no plans to shift the electricity used in our mining operations to AI service providers. I think now the primary focus remains on optimizing our mining business. Our mining farm is still relatively small and the returns from Bitcoin mining are more predictable and manageable for us, so making it a worthwhile investment. However, I think we will continue to evaluate all potential opportunities and strategies. Always try our best to the company. Thank you.

Thank you. The second question is, on August 8th, NASDAQ revised this rule. If the price is lower than $1, On August 8, the Nasdaq Stock Exchange released a statement on its official website showing that it is proposing to modify its rules regarding penny stocks to establish faster and stricter delisting procedures for companies with stocks priced below one dollar per share. Does the company believe that this potential policy change has any impact on the company?

Thank you. I think we saw the proposed regulation and I think it relates to a lot of discussion and a kind of lengthy process from proposal to final approvals. We will continue to closely monitor the dynamics of this kind of proposals. I think even the proposal is eventually passed We believe it has little impact on our company because the proposed amendments include, I think, two key points. The first is if the company's stock price remains below $1 for 360 consecutive trading days, the stock will be suspended from trading on NASDAQ and moved to OTC market. Even the company is still in the process of appealing to a hearing panel. I think that's the first one. The second one is if a company raises its stock price through a reverse stock split, but the price falls below $1 within a year, NASDAQ will immediately issue a delisting notice, although the company can still appeal and continue trading for 180 days. I think even if these amendments are approved, at least the company's stock can still stay below $1 for up to 360 trading days, or fall below $1 after a reverse split Before facing delisting, I think it's quite a long time. I think two weeks ago, our stock price was above $1. So from a company's perspective, I think the recent stock price is mainly impacted by the overall decline in the US capital market in early August. I think it is mainly due to the chain reaction caused by certain lower than expected economic indicators. Also, I think Japan's interest rate hike also caused certain leverages broken. From our perspective, I think We will focus on our operation and try to make our financials better and better. I think in quarter two, I think the trend of operation is returning to growth. The revenue is doubling the quarter one, and I think the operating loss is narrowed down significantly. So I believe the current stock price is in the range of undervaluation, and I feel confident our stock price will be repaired with, you know, our continuous stable increasing performance. I think that's my answer, Sean. Thank you.

Thank you.

Thank you. Our next question comes from the line of Bill Pappanastasio with Stifel. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions and congrats on the sequential growth this quarter. For my first question, I was just hoping you could provide an overview of the manufacturing landscape today, where market share currently sits, and just a quick overview of how Tainon looks to gain market share in the near to medium term relative to some of your peers?

Thank you.

Okay. Yeah, I think for the key to increase the market share remains our products. So we continue to invest in R&D to deliver better products. I think you can see compared to a year ago, our product portfolio is now more diverse. Our A14 series are in the progress of stock delivery during the second and third quarters of this year. In May, we launched the new A1666 mining machine. an average computing power of over 185 THz per second with the power efficiency of 18.5 GHz per THz. Its performance is on par with competing products on the market. In June, we introduced the liquid code model, the A156060i, and achieved computing power of 249 draws per terahash. And also, I just mentioned we have constantly shared our R&D roadmap transparently with our customers and partners. Our 10 plus draws per terahash level products are on track, and we expected to complete the design of the tape house by the end of this year. and you know then it's the mass production preparations and maybe we will complete it in the first half of next year. So we also meet our customers' needs for one-stop customized mining solutions through comprehensive product offerings. and also we launched AgroNano3. We entered the consumer market. I think the second important factor is building a comprehensive sales system to reach and cover various types of customers through a multi-channel approach while placing greater emphasis on the marketing and the promotion. For large clients, we have already partnered with several North American listed mining companies and are in discussion with more. And for the retail market, the computing power demand is high, but the customers are more scattered. We have seen good results by combining our own e-commerce platform with clients to reach these customers. Additionally, we have established mining demonstration projects in regions like the hot Middle East, serving as showcase to attract potential local customers who can see our machines' performance and operations in real-world conditions. However, I think we already recognize that our coverage of mid-sized customer groups is still lacking. So this represents one of our key growth areas moving forward. Finally, we adhere to our core value of integrity, believe strongly in the power of reputation. We are committed to do the right thing even when it's difficult. We believe that as long as we continue to offer value propositions to the market and our customers, we will ultimately receive the market's recognition and the rewards. Thank you.

Thank you. I appreciate the clarity and overview with the question there. For my second and last question, We're just hoping to get some insight into the recent announcement by the Russian government to legalize cryptocurrency mining in the country. Could we expect to see a similar move by China? And what are your generic thoughts on this move by the government in Russia, just given your experience of mining in the region? Just curious to hear your thoughts on the news. Thank you.

Yeah, I think as a U.S. listed company, we do not conduct business in Russia and have no plans to do so. So this is in the consideration of compliance and reputation. In our money operations, we... employed a diversified deployment strategy continuously to access the economic returns of RIS mining collaborations and adjusting the project layouts accordingly. So we deployed in the regions with energy advantages, and when selecting project opportunities, today we also place a greater emphasis on the legal framework and the policy stability of the region to ensuring the robust risk management to protect our company's assets. Thank you.

Okay, I appreciate the color and look forward to another quarter of strong growth in Q3. Thank you.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchtone telephone.

Thank you.

As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks. I'm sorry, it looks like we do have a question from Kevin Didi with HC Wainwright. Please go ahead.

Thank you. Hi, James. Hi, Angie. Since we had a couple more minutes, maybe you could talk a little bit more about your plan to expand to 10x2Hash in the U.S. Is that site acquisition or partnership? How do you plan on building that?

I think we have some on-negotiation corporate partners in the US and a few of them. I think we will announce the details when we sign the contract.

Yeah, it's too early to discuss about the details, Kevin.

Understood. Thank you, gentlemen. I just thought I'd throw that out there because it seems like an impressive goal. So, again, thank you very much, and congratulations on the results.

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

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

Thank you. That does conclude today's call. Thank you everyone for attending. You may now disconnect. you Thank you. Thank you. music music Ladies and gentlemen, thank you for standing by, and welcome to Canaan, Inc.' 's second quarter 2024 earnings conference call. At this time, all participants are in a 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. Gwen Lauber, investor relations director of the company. Please go ahead, Gwen.

Thank you, operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are our Chairman and CEO, Mr. Nanjin Zhang, and our CFO, Mr. Jin Cheng, or James. In addition, Mr. Leo Wang, Head of Capital Markets, and Ms. Qi Zhang, IR Manager, will 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. Chang 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 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 regarding 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 will discuss 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 reconciliation with comparable GAAP results in our earnings release which is posted on the company's website. With that, I will now turn the call over to our chairman and CEO, Mr. Zhang. Please go ahead, sir.

Okay. Hello, everyone. This is NG, the CEO of Canon. Thank you for joining our conference call. Our CFO James and I are at the company's headquarters in Singapore to share our quarterly results with you. The major event in Q2 2024 was the fourth Bitcoin halving. The Bitcoin network ran smoothly without any issue during this halving. Aimed at intense marketing fluctuations, the Bitcoin price varied between about $71,000 at the beginning of the quarter and a low of $56,000, eventually closing at 61,000 USD by the end of the quarter. The total network cash rate remains relatively stable, with growth slowing but not declining significantly. As I mentioned during the last earnings call, the quarter before the halving tends to be quiet, but the market quickly recovers afterwards. Our operations continue steadily inventory reduction proceeded half-time, and the A14 series products began large-scale deliveries on schedule. Our new product, the A1566, was launched with outstanding performance, and our global sales network continued to expand. Our mining operations were optimized and adjusted. successfully weathering the challenges of the hobby. This quarter, our revenues saw significant sequential growth, exceeding our expectations. Let me now walk you through a few key areas. In R&D, we have continued to drive product innovation. The mass production wrap-up for our A14 series products has been successfully completed. Through close collaboration with our foundry partners, we have seen smooth improvements in the yield rates and production capacity for the A14 series. These improvements have enabled us to deliver more computing power than initially expected from the reference we had ordered. In May, as the Bitcoin Asia 2024 in Hong Kong we launched our air-cooled A15 series miners, pushing energy efficiency to approximately 18 GHz and around 200 THz in single-unit computing power. Later, at the end of June, during the Mining Disrupt Conference in Miami, we introduced the liquid-cooled model of A1566i, which achieved a computing power of 249 terahash per unit. The A15 series, which is on a different process node from A14, is currently undergoing a similar mass production ramp-up, yield improvement, and the capacity increase. Based on the current progress, the A15 series is advancing more smoothly than the A14, still at the same stage. We are confident to complete the above process within the next few weeks, propelling the A15 series into mass production for large-scale delivery. In addition, we have been working closely with our customers to provide customized integrated mining solutions tailored to their specific needs. Starting this quarter, the Middle East has entered an extremely hot season. with temperatures reached around 50 degrees Celsius. The liquid-cooled and air-cooled system we deployed earlier have successfully withstood the harsh conditions. Regarding the next step after the ACP series, as per our EURO practice, we do not announce new products before obtaining actual test results from complete machines. What we can share at this stage is that the development of our A16 series is progressing smoothly. We are utilizing more advanced process nodes and through process advancements and close collaboration with our wafer fabrication partners, we aim to push the critical power efficiency matrix of the entire machine into the 10-plus-yard per terahatch range. When the milestone is achieved, the output machines will be poised to reach the 300 terahatch threshold in computing power for a single unit. Although some would say more slow is dead, In this industry, innovation is still far from reaching its limits. In terms of sales, we achieved a total computing power sales of 6.2 million terahash per second this quarter, making a significant 84% sequential growth. This was driven by the large-scale delivery of our A14 series, which has become our main product and led to a 33% sequential increase in the average selling price of our computing power. At the same time, we further cleared our inventory of our traditional models, primarily A16, leading to an optimized inventory mix by the end of Q2. Our one-stop mining solutions have gradually gained market traction, contributing $4.6 million in revenue. We also launched the profitable mining heater Avalon Nano 3 for individual instances. Since its launch in Q1, the product has seen strong demand, with over 11,000 units pre-ordered by the end of Q2. As of today, we have shipped over 10,000 units to 75 countries and regions worldwide, receiving highly positive market feedback. This quarter, we made big progress in several key regional markets in North America, we secured a large pre-sale order of 6,600 units of our new A1566 model for Cypher, a listed mining company. Additionally, we successfully completed deliveries on previous orders from several other listed mining companies and continue to collaborate with more This led to a tenfold sequential increase in recognized revenue from the region. Our products' performance, durability, and the professionalism of our delivery progress were highly recognized by our customers, establishing a strong reputation that will support further business expansion in North America. In the Middle East, our mining machines and one-stop mining solutions are gradually gaining traction. Our machines with superior heat resistance and comprehensive solutions that enable quick deployment have been very well received by customers, resulting in fivefold sequential increase in revenue from the region in Q2. In South Asia, our channel partners continue to contribute stable orders. Our traditional models known for their cost effectiveness and resistance to heat and humidity remain very popular in this region. Our online store cutting to individual customers overseas, so 314% quarter-over-quarter increase in registered users and an explosive increase in orders since the launch of AgroNano 3 on the platform in Q2. Demand has been especially strong in North America where nearly 50% of orders originated. Further boosting our brand recognition in the region Through our market-affected sales efforts and a more diverse product portfolio, customer advances increased significantly by 30% quarter-to-quarter to US$51 million by the end of Q2, laying a solid foundation for revenue growth in the second half of the year. This quarter, our mining operations performed steadily, successfully navigating the challenges brought by the Bitcoin Harvey, generating non-mini US dollars in mining revenue. Despite the impact of the Harvey, the only represented an 11% decrease compared to the first quarter. We continued to optimize our mining project matrix Advancing hash rate deployment in new pilot projects while closing existing projects that were negatively impacted by policy changes. We are also near the completion of our exit from operations in Kazakhstan and Paraguay. As of August 10th, 2024, Our self-managed operational hash rate has reached 4.5x hash per second, exceeding our previous guidance of 4.3x hash per second mentioned in the last earnings score. Additionally, we successfully maintained an average electricity cost at a variable level of 4.2 cents per kilowatt hour. allowing our mining gross margin to remain steady at 33%, similar to the first quarter. In Q2, we mined 141 Bitcoins, bringing our total Bitcoin holdings, including pledged Bitcoins, to 1,114, an increase of 57 Bitcoins from the previous quarter. We will continue to strike a balance between policy's stability and energy cost advantages to strategically enhance our mining business. In our first quarter 2023 earnings call, we disclosed our plan to use more advanced mining machines models for our mining-based operations. We also mentioned that in addition to corporate mining models, we consider in fixed rate hosting and other approaches such as self-building or acquisitions to actively participate in mining operations and explore more collaborative opportunities. We would like to reaffirm these mining strategies. Additionally, when evaluating our mining operations and opportunities globally, we have concluded that North America holds strictly importance. This region offers strong legal protections, valuable infrastructure and power supply, and a rapid development. health Bitcoin mining ecosystem. According to our calculations, from the end of 2022 to the end of Q2 2024, the total hashrate growth of publicly listed mining companies in North America was 237%, outpacing the global network hashrate growth of 114%. Given that we view North America as a strategic opportunity, we are announcing our plan to focus on this region. We expect to increase our mining hash rate target in North America from current 0.65 XH per second to 10 XH per second by the first half of 2025. As a global provider of Bitcoin mining solutions, We are uniquely positioned to seize mining opportunities in North America. First, we have the flexibility to allocate mining machines inventory worldwide, maximizing investment returns and diversifying risk. Second, with comprehensive industry insights ranging from mining machine manufacturing supply chains to global mining markets we can more effectively evaluate investment opportunities and quickly match mining machines with optimal size for short-term gain and long-term success. Third, our standing and reputation in the industry further enhance our ability to establish strategic partnerships with the global mining community. Lastly, our advanced design capabilities allow us to customize mining solutions tailored to different environmental and economic conditions. Weather in regions with extreme weather or in scenarios requiring flexible power load management and response strategies. At the same time, we hope these projects will serve as a showcase for potential customers around the world to learn about Canon. We are fully committed across multiple dimensions including capital, construction, operations and efficiency to make these projects outstanding. By accumulating valuable experience, we aim to better serve our clients. In Q2, we continue to improve our operations, significantly reducing total expense due to optimized G&A expenses, which have narrowed our operating loss by 61% year-over-year and 32% quarter-over-quarter. Although the decline in Bitcoin price at the end of Q2 led to an almost $10 million reduction in cryptocurrency fair value on the income statement, we still achieved a 62% year-over-year reduction in net loss. With revenue remaining stable, On the balance sheet, the successful bulk delivery of A14 products and the strong cash inflows from sales contributed to a 22% quarter-to-quarter increase in our cash position, bringing it to $67 million by the end of Q2. While mainstreaming a safe cash level, we also made strategic moves to secure advanced process capacity in our supply chain through prepayments. As we enter the third quarter of 2024, our A14 series mining machines are being back delivered on schedule and contributing to our revenue. Following the launch of A15 series, expect to complete its mass production wrap-up within this quarter. The main R&D work for A16 series will also be completed by the end of this year. Beyond chip development, we are rapidly expanding our product line and solutions to meet the post-harving demand for equipment upgrades and mining site deployments from global miners. We believe the upcoming Bitcoin bull market will be driven by broader public adoption. In this regard, we are developing a consumer-focused products line to make mining a part of everyday life and bringing benefits to general public. At the same time, recognize that global political and economic instability is increasing, leading to more volatility in Bitcoin prices, which continues to present challenges for the industry. Based on the overall situation described above, we maintain a cautiously optimistic outlook for the third quarter of 2024 we anticipate revenue for the third quarter to be approximately 73 million us dollars this forecast is based on the current market and the operational conditions for the company of the company and the actual results may vary bitcoin force having was now completed in q2 but the global political and economic dynamics surrounding Bitcoin continue to unfold, bringing it to a wider audience. While the price of Bitcoin may experience significant fluctuations and centralization during the process, it also helps the public to better understand and accept Bitcoin. Our company navigated the halving quarter with a stable stance, continued to invest heavily in both product development and capacity expansion. We remain confident in the long-term prospects of Bitcoin and the website of this bull market. And we are already back on the path to growth. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.

Thank you, NG, and good day, everyone. This is James speaking at our Singapore headquarters. As NG started at the top of the call, quarter two of the year 2024 was a particular quarter when we experienced a Bitcoin halving event which takes place about every four years. Bitcoin price fluctuated from $71,000 to $56,000 and eventually landed at $61,000 in the quarter end. Total network hash rate performed considerable swings but continued growth trend. As we expected, customers were more active in Q2 to upgrade their mining machines compared to Q1, and we used A15, A14, and A13 series to satisfy a diverse demand from various customer groups. Let me give a quick summary of our financial performance in quarter two. First, with considerable upside demand and successful large-scale deliveries of our new A14 series, we achieved a total revenue of around $72 million, which beat our guidance by around $2 million, marking a sequential growth of around 105%. Secondly, A14 delivery enabled a higher average selling price, which contributed to a narrowed gross loss of around $19 million, indicating a sequential improvement of around 49%. Thirdly, cash balance increased to around $67 million by around 22% sequentially. As of August 10, 2024, our self-mining hash rate reached around 4.5x hash per second, which helped our own Bitcoin accumulate to a total of 1,114 Bitcoins, which is a new high. Last but not least, with the A15 series announced, we collected orders and advanced payments from customers. The balance of customer advances increased to $51 million by 30% sequentially, indicating a solid second half year revenue foundation. Let's start to take a look at the profit and the loss. As said, in quarter two, our total revenue was around $72 million. Revenue from machine sales was around $57 million. we delivered a total computing power sold of 6.2 million terahash per second representing a quarter over quarter increase of around 84%. The average selling price increased by around 33% from $6.9 per terahash per second in quarter one to $9.1 per terahash per second in quarter two. Driven by the increased computing power sold and average selling price, revenue from machine sales increased by around 146% quarter over quarter. From the product side, our large-scale delivery of A14 series contributed nearly 80% of machine sales revenue. From the sales side, our multi-dimensional global sales system made positive progress in several key regional markets during the quarter. In quarter two, our customers from North America and the Middle East contributed 52% and 17% of our machine sales revenue. Turning to the revenue of our integrated mining solutions and Avalon Nano 3 mining heater, which diversified our product revenue streams, in Q2, we recognized around $4.6 million revenue from the delivery of integrated mining solutions, primarily contributed by the customers in Middle East and South Africa. We also recognized around half a million dollars revenue from the delivery of Avalon Nano 3. The accumulated orders for Nano 3 achieved $1.3 million by the end of quarter two, primarily contributed by customers in North America and Europe. For our mining machine cells, We accrued $17.3 million for inventory write-down, prepayment write-down, and provision for inventory purchase commitments in the quarter, representing a quarter-over-quarter decrease of 64% and a year-over-year decrease of 62%. The decrease was driven by ongoing stock clearance in this quarter. Those non-cash write-downs and provisions are made under US GAAP rules jeopardizing our gross profit but do not impact our cash status. If the above write-downs and provisions were excluded, we would have a gross profit of US$0.7 million for mining machine sales. Mining revenue was $9 million in Q2, as a decrease 11% quarter over quarter. We mined 141 Bitcoins in this quarter, a decrease of 28% over the last quarter. This decrease was primarily driven by the Bitcoin halving event, which occurred in April and resulted in a significant increase in the Bitcoin mining difficulty. Our average revenue per Bitcoin in Q2 increased 23% over the last quarter, from almost $54,000 to almost $66,000. We also further expanded our mining business in Africa, where our installed hash rate reached 2.7 exahash per second at the end of Q2, At the end of Q2, we deployed hash rate total over 4 exaHash rates. And as of August 10, 2024, our self-mining hash rates reached around 4.5 exaHash per second. Q2 mining profit was 38 Bitcoin. Gross profit margin was 33%, remaining sequentially stable. Please note here that mining profit or loss is defined as mining revenues net of costs for energy and hosting, but without consideration of depreciation for the deployed machine. Looking forward, as a continuous strategical focus, we expect to further grow our North American mining hash rate target to 10 exahash per second by the first half of 2025. Now turning to the expenses. Our operating expenses totaled at $27 million, decreasing 44% year-over-year and 11% quarter-over-quarter, respectively. Staff costs, including share-based compensation, decreased 36% year-over-year and 11% quarter-over-quarter, mainly driven by organizational optimization performed in quarter four last year. As mentioned in Q1, we chose to early adopt the SASB new accounting rules on cryptocurrency assets since January 1, 2024, which allow cryptocurrencies to be carried at their fair market value. The price of Bitcoin decreased to around $62,000 on June 30 versus around $70,000 on March 31, resulting in a loss on crypto assets of $10 million during the second quarter. I want to point out that if we combine our $34 million gain on crypto assets fair value change in the first quarter with our $10 million loss in the second quarter, we are still up almost $24 million gain year-to-date. Benefiting from the large scale delivery of A14 series, the narrowed gross loss and the ongoing expense control, our quarter two operating loss was $47 million, narrowing 61% year over year and 32% quarter over quarter. Despite a loss of $10 million on fair value of our critical assets, our Q2 net loss narrowed by 62% year-over-year to $42 million, and adjusted EBITDA loss narrowed by 61% year-over-year to $31 million. Turning to our balance sheet and the cash flow, in quarter two we generated $74 million of cash inflow from sales, received $19 million from secured loans, and $7 million from export VAT refunds. We paid $40 million to secure our wafer supply and $48 million for production and operation. which is aimed at enabling the concentrated delivery and spot sales of our products in the following quarters. Consequently, at the end of Q2, we held a cash of $67 million on our balance sheet, indicating a 22% increase compared to Q1 end. Now moving to our contract liabilities. Our A14 series has continued to be popular and we also reached some pre-sale orders for A15 series from listed mining companies. The balance of contract advances reached $51 million as of this quarter and increasing 30% from $39 million at the last quarter end. As of the end of Q2, we recorded a count receivable of $8 million, which mainly consisted of installments from North America public listed customers. We will continuously evaluate market demand and adopt corresponding credit policies with caution. Now turning our attention to our Bitcoin assets. The bitcoins we held as our own holding assets kept growing in this quarter and reached a record high of 1,114 bitcoins as of June 13, which is 57 more than 1,057 at the end of last quarter. On June 30, the fair market value of our owned bitcoins totaled around $70 million. In this quarter, we pledged 530 Bitcoin for the long-term secured loans with an aggregate carrying value of $19 million at a reasonable interest level. The secured loans enable additional liquidity for our production, expansion, and operation. In the future, under the premise of adhering to HODL strategy, we will explore more ways to increase capital liquidity through our own crypto assets. We expect our Q3 revenues to be $73 million. We have successfully navigated the hubbing challenge and continued to enhance investment in both product development and supply capacity. We will continue to cater to the diverse needs of our customers with an even more comprehensive and efficient selection of products. This concludes our prepared remarks. We are now open for questions.

We will now begin the question and answer session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to three questions at a time. If you have any follow-up questions after the Q&A session, the investor relations team will be available after the call. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Your first question today comes from the line of Kevin Deedy with HC Wingwright. Please proceed.

Good morning, Angie and James, all this afternoon over there. Thanks very much for having me on the call. I was wondering if you could give us your perspective on the, I know NG alluded to it a little bit, but just on the inventory situation throughout the industry.

Thank you, Kevin. Maybe I take this one. I think the human trade level in the quarter two actually compared to quarter one is a little bit eased because the customer demand after having actually boost out, a lot of customers try to upgrade their mining machines. So we faced to the first wave of the demand. That means that the existing customers, they would like to upgrade the machines. They placed orders, some for contract sales in last year, quarter four or quarter one. Some of them placed orders in quarter two directly for the current sales. So I think that the inventory situation changed to a little bit more optimistic situation. But still, our competitors are still holding a big amount of inventory. That's something we heard. But it's better than quarter one end. I think that's my answer.

Thank you, James.

I saw that your price per share has stepped up very nicely from the March quarter, which I would expect was because you were selling more A14 series. But I was just wondering if you could talk a little bit about the overall pricing trends and how you see that affecting demand.

Yeah, I think that's, you know, demand and supply is always the most critical factor in our industry to decide the market prices. I think currently even we had one wave of demand of upgrading machines. But still, the price is still in the bottom because no matter new products or older generation products, the selling price is still relatively low. I would expect if in the coming months, Bitcoin price has some rapid growth. If that's the case, then it will drive the demand goes up because there will be newcomers from energy industry to our industry to participate in the mining activity. If that's the case, the demand will be And it will be far beyond our supply capacity because we have to lock the waiver supply six months before shipment. That means the supply side, we are linear and limited. But the demand side, if the Bitcoin price quickly grow, then we will see a big upside. If that's the case, the market price will come back in a significant way. Just like what happened in year 2020, we still remember in that November and December 2020, in that particular year, the mining machine price jumped from a single digit to like a 20 something and a 30 in the end of the quarter four. I cannot say history will repeat absolutely the same way, but I do think if Bitcoin has big potential to grow faster in quarter four or in late quarter three, then we will see the demand coming back in a significant growing way. And at that time, our mining machine price will increase accordingly in also a significant way. So that's something we predict will naturally happen If not in this year, it will be early next year. That's something we believe will happen. I just would like to share my two cents to you like this, Kevin. Thank you.

Thank you very much, James. I really appreciate the optimism. Congratulations, NG and James, for a very nice quarter and the strong improvement and all the hard work.

Thank you, Kevin.

Thank you. Our next question is from the line of Shuang Sun with Guosheng Securities. Please go ahead.

Okay. Yes, please.

Is the company considering shifting the power used for self-mining to provide electricity for AI service providers?

Hello, this is MG. I think at present we have no plans to shift the electricity used in our mining operations to AI service providers. I think now the primary focus remains on optimizing our mining business. Our mining farm is still relatively small and the returns from Bitcoin mining are more predictable and manageable for us, so making it a worthwhile investment. However, I think we will continue to evaluate all potential opportunities and strategies. Always try our best to the company. Thank you.

Thank you. The second question is, on August 8th, NASDAQ revised this rule. If the price is lower than $1, On August 8th, the Nasdaq Stock Exchange released a statement on its official website showing that it is proposing to modify its rules regarding penny stocks to establish faster and stricter delisting procedures for companies with stock price below one dollar per share. Does the company believe that this potential policy change has any impact on the company?

Thank you. I think we saw the proposed regulation and I think it relates to a lot of discussion and a kind of lengthy process from proposal to final approvals. We will continue to closely monitor the dynamics of this kind of proposals. I think even the proposal is eventually passed. We believe it has little impact on our company because the proposed amendments include, I think, two key points. The first is if the company's stock price remains below $1 for 360 consecutive trading days, the stock will be suspended from trading on NASDAQ and moved to OTC market. Even the company is still in the process of appealing to a hearing panel. I think that's the first one. The second one is if a company raises its stock price through a reverse stock split, but the price falls below $1 within a year, Nasdaq will immediately issue a delisting notice, although the company can still appeal and continue trading for 180 days. I think even if these amendments are approved, at least the company stock can still stay below $1 for up to 360 trading days, or fall below $1 after a reverse split Before facing delisting, I think it's quite a long time. I think two weeks ago, our stock price was above $1. So from a company's perspective, I think the recent stock price is mainly impacted by the overall decline in the US capital market in early August. I think it is mainly due to the chain reaction caused by certain lower than expected economic indicators. Also, I think Japan's interest rate hike also caused certain leverages broken. From our perspective, I think We will focus on our operation and try to make our financials better and better. I think in quarter two, I think the trend of operation is returning to growth. The revenue is doubling the quarter one, and I think the operating loss is narrowed down significantly. So I believe the current stock price is in the range of undervaluation, and I feel confident our stock price will be repaired with, you know, our continuous stable increasing performance. I think that's my answer, Sean. Thank you.

Thank you. Thank you. Our next question comes from the line of Bill Papanastasio with Stifel. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions, and congrats on the sequential growth this quarter. For my first question, I was just hoping you could provide an overview of the manufacturing landscape today, where market share currently sits, and just a quick overview of how K-N-O-N looks to gain market share in the near to medium term relative to some of your peers?

Thank you.

Okay. Yeah, I think for the key to increase the market share remains our products. So we continue to invest in R&D to deliver better products. I think you can see compared to a year ago, our product portfolio is now more diverse. Our A14 series are in the progress of spot delivery during the second and third quarters of this year, and in May, we launched the new A1566 mining machine. an average computing power of over 185 THz per second with the power efficiency of 18.5 GHz per THz. Its performance is on par with competing products on the market. In June, we introduced the liquid code model, the A156060i, and achieved computing power of 249 draws per terahash. And also, I just mentioned we have constantly shared our R&D roadmap transparently with our customers and partners. Our 10 plus draws per terahash level products are on track and we expect it to complete the design of the tape house by the end of this year. And you know then it's the mass production preparations and maybe we will complete it in the first half of next year. So we also meet our customers' needs for one-stop customized mining solutions through comprehensive product offerings. and also we launched AgroNano3. We entered the consumer market. I think the second important factor is building a comprehensive sales system to reach and cover various types of customers through a multi-channel approach while placing greater emphasis on the marketing and the promotion. For large clients, we have already parted with several North American listed mining companies and are in discussion with more. For the retail market, the computing power demand is high, but the customers are more scattered. We have seen good results by combining our own e-commerce platform with clients to reach these customers. Additionally, we have established mining demonstration projects in regions like the hot Middle East, serving as showcase to attract potential local customers who can see our machines' performance and operations in real-world conditions. However, I think we already recognize that our coverage of mid-sized customer groups is still lacking. So this represents one of our key growth areas moving forward. Finally, we adhere to our core value of integrity, believe strongly in the power of reputation. We are committed to do the right thing even when it's difficult. We believe that as long as we continue to offer value propositions to the market and our customers, we will ultimately receive the market's recognition and the rewards. Thank you.

Thank you. I appreciate the clarity and overview with the question there. For my second and last question, I was just hoping to get some insight into the recent announcement by the Russian government to legalize cryptocurrency mining in the country. Could we expect to see a similar move by China? And what are your generic thoughts on this move by the government of Russia, just given your experience of mining in the region? Just curious to hear your thoughts on the news. Thank you.

Yeah, I think as a U.S.-based company, we do not conduct business in Russia and have no plans to do so. So this is in the consideration of compliance and reputation. In our mining operations, we... employed a diversified deployment strategy continuously to access the economic returns of RIS mining collaborations and adjusting the project layouts accordingly. So we deployed in the regions with energy advantages and when selecting project opportunities, today we also place a greater emphasis on the legal framework and the policy stability of the region to ensuring the robust risk management to protect our company's assets. Thank you.

I appreciate the color and look forward to another quarter of strong growth in Q3. Thank you.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchtone telephone.

Thank you.

As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks. I'm sorry, it looks like we do have a question from Kevin Didi with HC Wainwright. Please go ahead.

Thank you. Hi, James. Hi, Angie. Since we had a couple more minutes, maybe you could talk a little bit more about your plan to expand to 10x2Hash in the U.S. Is that site acquisition or partnership? How do you plan on building that?

I think we have some on-negotiation corporate partners in the US and a few of them. I think we will announce the details when we sign the contract.

Yeah, it's too early to discuss about the details, Kevin.

For sure, we already have some progress, yes.

Understood. Thank you, gentlemen. I just thought I'd throw that out there because it seems like an impressive goal. So, again, thank you very much, and congratulations on the results.

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

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

Thank you. That does conclude today's call. Thank you everyone for attending. You may now disconnect.