Canaan Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Canaan, Inc.' 's third quarter of 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, Ambassador Relations Director of the company. Please go ahead, Gwen.

Thank you. Hello, everyone, and welcome to the earnings conference call. Joining us today are our Chairman and CEO, Mr. Anjin Zhang, and our CFO, Jin James Chen. Leo Wang, Vice President of Capital Markets and Corporate Development, and Xi Zhang, Senior Manager of IR, will also be available during the question and answer session. Our CEO will start the call by providing an overview of the company and performance highlights for the quarter. Our CFO will then provide details on the company's operating and financial results for the period before we open up the call for questions. Before we begin, 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 operating results for the performance of the company. These statements speak only as of today, 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 risk 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 will discuss both GAAP financial measures and certain non-GAAP financial measures, which we believe are useful as supplemental measures of the company's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release. which is posted on the company's website. With that, I will turn the call over to our chairman and CFO, Mr. Nanjin Zhang. Please go ahead, sir.

Hello, everyone. This is Anjie, the CEO of Canon. Thank you for joining our conference call. Our CFO, James, and I are pleased to share with you our third quarter results and recent developments. I believe everyone is thrilled with the Bitcoin price reaching new heights, and I share in this excitement. Q3 2024 marked our first complete quarter after the halving. During this quarter, the global Bitcoin mining market faced another round of challenges from Bitcoin price volatility. We saw average Bitcoin price climb by over 7% compared to the last quarter. At the same time, the total network hash rate grew by more than 10%. This combination pushed the hash price to historical lows, putting pressure on miners' profits. Despite these headwinds, we executed our plans efficiently, paying careful attention to every detail, Throughout Q3, we continued bug delivers of our A14 products. We completed the transition to mass production of our A15 series. We expanded our global sales reach, and we optimized our mining operations. I'm pleased to report that we not only met our targets, but slightly exceeded them, reaching $73.6 million in total revenue. Let me walk you through each area in detail. Innovation remains the cornerstone of our business. Our ongoing R&D investments allow us to constantly deliver high-performance products that meet market demands and drive our business growth. This quarter, we began the initial small-scale delivery of our new A15 series ahead of schedule through internal deployments and by working closely with our Foundry partners through the DTCO process. we have made substantial improvements to both performance and yield rate of the A15 series over recent months. Our top model in the A15 series, the A15 Pro, delivers 215 terahash per second of computing power with power efficiency as low as 16.8 joules per terahash. We are fully confident in our ability to scale up mass production for the E15 series. We are continuously improving and expanding our E15 product line while developing customized solutions for specific mining needs. A recent example is our partnership with CleanSpark, where we will provide a 1666i emerging cooling miners that deliver 249 terahatch per unit at base clock speeds. These comprehensive mining solutions have proven their reliability and durability, performing steadily even in the extreme heat of the Middle East. For consumer products, that target individual instances, we have combined household appliance concepts with decentralization principles. Following the success of our Nano3 product, we are developing more consumer-level products. These new offerings will make mining more accessible to the general public, helping us reach a broader customer base. The development of our H16 series is proceeding according to plan. As always, we'll announce specific details only after completing full machine testing. The H16 series will use more advanced process nodes. Through optimization and close collaboration with our partners, we aim to achieve power efficiency in the 10 plus joules per terahatch range. For our air-cooled machines, we expect efficient power to approach 300 terahatch per second. In terms of mining machine sales, primarily driven by continued mass delivery of our A14 series miners, we achieved sales of 7.3 per second in computing power. This represents a year-over-year increase of 93.8% and a quarter-over-quarter increase of 16.4%, marking our highest sales volume in the past 11 quarters. Although impacted by Bitcoin price, with the average selling price of computing power for Q3 decreased slightly with our quarter. Our strong sales volume drove product revenue to 64.58 million US dollars, the best record in the past two years. Since this last year in May, our new A15 series has received significant attention and positive customer feedback. This quarter, we successfully initiated small-scale delivery of A15 series, delivering about 1,500 units. We've also begun stocking advanced models with traditional models largely cleared out. our inventory mix has further improved. Following the US election, Bitcoin price rose, driving increased demand for mining machines. The inventory for these new models has positioned us well to meet the expected surge in customer demand. As of now, scheduled deliveries for 15 orders extended through February 2025. Our multi-dimensional cell system continues to drive global cells. In North America, we recently secured an order from the listed mining company CleanSpark for 3,800 A1566i emerging cooling miners with delivery planned for the fourth quarter. In early November, we also reached agreement with a long-standing public mining customer high for a total of 11,500 units of A1566 miners with deliveries starting in the fourth quarter. Our previous order with cipher for 6,600 units A15 is also being delivered on schedule. These partnerships reflect the process of our ongoing product promotion and sales system development in North America, with more North American customers recognizing our product performance and delivery capabilities. Following the halving, we've seen growing customer demand in regions with energy advantages, such as Asia and Africa. Our computing power delivered to these regions increased by over 50% sequentially. This quarter, we delivered over 10,814 models to customers in the Middle East. Our products have demonstrated exceptional stability in high temperature environments, expanding our brand awareness and reputation in local markets. Additionally, by the end of the third quarter, our protocol mining heater, Avro Nano 3, had accumulated orders for 17,000 units. It's over 10,000 units shipped during the third quarter. Online sales have become the primary channel for Nano 3, reaching customers in 79 countries and regions. these positive market responses. The strong sales of NanoSuite have broadened our product line, promoted our brand, and demonstrated our ability to meet diverse customer needs. Regarding our money operations this quarter, we overcame challenges posed by stagnant Bitcoin price and rapidly increasing network hash rate. Our mining revenue reached $9 million, remaining stable compared to the second quarter and also performing the industry average. Despite soft Bitcoin price in the third quarter, we managed to produce 147 Bitcoin, a 5% increase quarter-to-quarter, a remarkable performance in the industry. This growth has driven by the expansion and optimization of our mining projects in Africa, along with variable conditions during the wet season. The wet season in Africa arrived later this year, concentrated after August, which efficiently boosted our mining output this quarter. That's why network hash price hitting historical lows due to Bitcoin price fluctuations. Our mining operations still achieved a gross margin of 22% this quarter. In North America, where the regulatory environment is relatively stable and energy resources abundant, We continued active negotiations with several mining partners this quarter, making positive progress. Today, we are pleased to announce a 30 megawatt joint mining project with Luna Square in Texas, involving about 1.61 X hash per second of computing power. This deployment includes 3,480 A14 series and 5,664 A15 series units expected to come online in Q1 of 2025. Our previous joint mining venture, Stronghold, has been upgraded to 6,000 A14 series miners, totaling about 0.9 X head per second, and is scheduled to come online by this year's end. To better support our mining site and equipment in investments and sales in North America, we have been actively securing funding. Today, we announced a new US$30 million pre-folder stock financing agreement with an existing investor, which lacked their US$15 million investment in September. supports our goal of reaching 10 exahead per second deployed computing power in North America by the first half of 2025. Achieving this goal will significantly enhance our influence in North American mining community. By the quarter end, our Bitcoin holdings on the balance sheet increased to 1,231 Bitcoins. taking another record high. This not only demonstrates the steady development of our mining operations, but also reflects our strong confidence in Bitcoin's long-term value. We believe our mining operations will contribute even more significantly to our company as market conditions improve and our strategic deployment advances. On the operational front, we maintain our focus on internal improvements while facing external challenges, working to optimize management and increase operational efficiency. This quarter, we are maintaining our R&D investments. We continued prudent control over marketing and management expenses, keeping overall operating expenses streamlined at levels similar to last quarter, excluding non-cash factors such as fixed assets impairment due to the halving and Bitcoin price fluctuations, as well as changes in the fair value of financing investments. Our non-GAAP EBITDA loss has upwards 36.80 billion US dollars, narrowing 46% year-over-year. Our cash reserves reached $72 million at quarter end. This enhanced cash position enabled us to accelerate investment in A15 mass production and better support our sales, expansion, and mining projects in North America, laying a solid foundation for the company's next development phase. Looking ahead to the fourth quarter, we are making steady progress in improving the yield rate and ramping up production capacity for A15 series, which will enter large-scale delivery as planned. Recently, we secured buff orders for the A15666 model with several major publicly listed mining companies. These deliveries began this quarter and are continuing into at least the first quarter of next year. With Bitcoin price rising significantly, we have started to adjust our pricing for both spot and contract sell orders, aligning these orders with market conditions. We are also increasing the proportion of advance payments for contract sales orders. The primary R&D work for A16 series is expected to conclude this quarter. Additionally, as mentioned last quarter, we are developing a consumer-level product line With winter approaching in the northern hemisphere, we will soon unveil several new products that combine home heating with decentralized mining. These products are designed to provide both practical value and economic rewards to customers. Meanwhile, our mining business particularly in North America, continues to make progress with deployment plans underway. Through these efforts, we aim to strengthen our performance, making 2024 an increasingly successful year. Based on these comprehensive factors, we maintain a consciously optimistic outlook for the first quarter of 2024. We expect revenue for the fourth quarter to be approximately $80 million. This guideline is based on the company's current market and operational conditions, and actual results may vary. With Bitcoin's fourth halving completed, the Federal Reserve signaling rate cutting cycle, and the recent conclusion of U.S. elections, numerous market variables are becoming clear. We have seen Bitcoin price beginning to stabilize and rise recently. In North America, increasingly crypto-friendly communities are emerging. with more miners expanding their mining facilities and data centers. These are all positive factors that we observe. On the other hand, we believe the current bull market is only beginning. This is a critical period before miners' profitability explosion and reversal of computing power supply-demand dynamics. As this important market juncture, we are ready with our high-performance A15 series products for mass delivery. Meanwhile, we continue to invest in new product development to meet the diverse needs of various miners and consumer customers, maintaining ongoing investment in production capacity and future enhance our delivery capabilities. We are fully advancing our sales and partnership strategies within key markets like North America, leveraging our compliance advantages as a US listed company, actively embracing the market and participating in Bitcoin mining cooperation various faults. We are confident that together with our customers and partners, we can seize the numerous market opportunities in this full market and achieve growth together. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO James. Thank you.