Q3 2024 Canaan Inc Earnings Call
https://www.youtube.com.au
Unknown Executive, Nangeng Zhang
Unknown Executive, Nangeng Zhang
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to Cain and Ng'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.
Speaker Change: 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.
The End.
Thank you.
Speaker Change: Hello everyone and welcome to the earnings conference call. Joining us today are our Chairman and CEO, Mr. Nangeng Zhang and our CFO, Jin James Chen.
Speaker Change: Leo Wang, Vice President of Capital Markets and Corporate Development, and Shi Zheng, Senior Manager of IR, will also be available during the question and answer session.
Speaker Change: Our CEO will start the call by providing an overview of the company and performance highlights for the quarter.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: These statements include, but are not limited to, our outlook for the company and statements that estimate or project future operating results or the performance of the company.
Speaker Change: These statements speak only as of today, and the company assumes no obligation to revise any forward-looking statements.
Speaker Change: 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.
Speaker Change: 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 20-F for information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements.
Speaker Change: Thank you for watching. Please subscribe to my channel. Thank you for watching.
Speaker Change: 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.
Speaker Change: These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from, GAAP results.
Speaker Change: 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.
Speaker Change: With that, I will turn the call over to our Chairman and CFO, Mr. Nangeng Zhang. Please go ahead, sir.
Unknown Executive, Nangeng Zhang
Speaker Change: Hello everyone, this is Anzhi, 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.
Speaker Change: I believe everyone is thrilled with the Bitcoin price reaching new heights.
and I share in this assessment.
Q3 2024 marked our first complete quarter after the halving.
Speaker Change: 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.
Speaker Change: At the same time, the total network hash rate grew by more than 10%.
Speaker Change: This combination puts the hash price to historical lows, putting pressure on miners' profits.
Speaker Change: That's part of these headwinds. We executed our plans efficiently, paying careful attention to every detail.
Throughout Q3, we continued to back deliver our A14 products.
Speaker Change: We completed the transition to mass production of our A15 series.
Speaker Change: We expanded our global sales reach and we optimized our money operations.
Speaker Change: I am pleased to report that we have not only met our targets,
but slightly exceeded them, reaching 73.6 million U.S. dollars.
Speaker Change: in total revenue. Let me walk you through each area in detail.
Speaker Change: 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 the drive our business grows.
Speaker Change: This quarter, we began the initial small-scale delivery of our new A15 series ahead of schedule.
Speaker Change: through internal improvements and by working closely with our boundary partners through the DTCO process, we have made substantial improvements.
Speaker Change: to both performance and yield rate of the A15 series over recent months.
Speaker Change: Our top model in the A15 series, the A15 Pro, delivers 215 terahertz per second of computing power with power efficiency as low as 16.8 joules per terahertz.
Speaker Change: We are fully confident in our ability to scale up mass production for the A15 series.
We are
Speaker Change: Continuously improving and expanding our A15 product line while developing customized solutions for specific mining needs.
A recent example is our partnership with Clean Spa.
Speaker Change: where we will provide a 1666i emerging cooling miners that deliver 249 terahertz per unit at base clock speeds.
Speaker Change: These comprehensive mining solutions have proven their reliability and durability, performing steadily even in the extreme heat of the Middle East.
Speaker Change: For consumer products that target individual intercesses, we have combined household appliance concepts with decentralization principles.
Speaker Change: Following the success of our Nano3 product, we are developing more consumer-level products.
Speaker Change: This new offerings will make mining more accessible to the general public, helping us reach a broader customer base.
Speaker Change: The development of our A16 series is proceeding according to plan. As always, we will announce specific details only after completing full machine testing.
The H-15 series will use more advanced progress nodes.
Speaker Change: Through optimization and close collaboration with our foundry partners, we aim to achieve power efficiency in the 10-plus Joules per TeraHash range.
Speaker Change: For our air-cooled machines, we expect sufficient power to approach 300 terahertz per second.
In terms of mining machine cells, primarily...
driven by the continued mass delivery of our A14-series models.
We achieved a sales of 7.30 billion
Speaker Change: million terahash 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.
Speaker Change: Although impacted by Bitcoin price, with the average selling price of competing power for Q3 decreased slightly quarter over quarter.
Speaker Change: Our strong sales volume drove product revenue to 64.58 million U.S. dollars, the best record in the past two years.
[inaudible]
Speaker Change: Since its launch 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.
Speaker Change: These traditional models largely cleared out. Our inventory mix has further improved.
Speaker Change: Following the U.S. 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.
Speaker Change: As of now, scheduled deliveries for 15 orders extended through February 2025.
Speaker Change: Our multidimensional cell system continues to drive global cells. In North America, we recently secured an order from the listed mining company, Clean Spark, for 3,800 A1566i emerging cooling miners.
with delivery planned for the fourth quarter.
Speaker Change: In early November, we also reached agreement with a long-standing public mining customer hire.
Speaker Change: with deliveries starting in the fourth quarter. Our previous order with Cypher for 6,600 units A15 is also being delivered on schedule.
Speaker Change: 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 Having
Speaker Change: We've seen growing customer demand in regions with energy advantages, such as Asia and Africa. Our computing power delivers to these regions increased by over 50% sequentially.
Speaker Change: This quarter, we delivered over 10,000 A14 miners to customers in the Middle East.
Our products have demonstrated expansional stability in high-temperature environments.
expanding our brand awareness and reputation in local markets.
Speaker Change: Additionally, by the end of the third quarter, our protocol mining heater, W903, had accommodated all the orders for 17,000 units.
is over 10,000 units shipped during the third quarter.
Speaker Change: Online sales have become the primary channel for Nano 3, reaching customers in 79 countries and regions with positive market responses.
Speaker Change: The strong sales of NanoStreet have broadened our product line, promoted our brand, and demonstrated our ability to meet diverse customer needs.
Speaker Change: Regarding our mining operations this quarter, we overcame challenges posed by stagnant Bitcoin price and rapidly increasing network hash rates.
Speaker Change: Our mining revenue reached 9 million U.S. dollars, remaining stable compared to the second quarter, and outperforming the industry average.
Speaker Change: Despite soft Bitcoin price in the third quarter, we managed to produce 147 Bitcoins.
5% increase quarter-over-quarter.
a remarkable performance in that shape.
Speaker Change: This goal has been driven by the expansion and optimization of our mining projects in Africa.
Speaker Change: along with variable conditions during the wet season. The wet season in Africa arrived later this year, concentrated after August, which efficiently
Speaker Change: boosted our mining output this quarter. That's why network hash price is in historic lows due to Bitcoin price fluctuations. Our mining operation still achieved a growth margin of 22% this quarter.
Unknown Speaker Yeah.
Speaker Change: North America, where the regulatory environment is relatively stable and energy resources are abundant.
We continued active negotiations with several mining partners this quarter.
making positive progress.
Speaker Change: Today we are pleased to announce a 30 MW joint mining project with Luna Square in Texas.
involving about 1.61 x hash per second of
Speaker Change: computing power. This deployment includes 3,480 A14 series and 5,664 A15 series units.
Speaker Change: expected to come online on Q1 of 2025. Our previous joint mining venture with Stronghold has been upgraded to 6,000 A14 series miners, totaling about 0.9 X ahead per second.
and is scheduled to come online by this year's end.
to better support our mining site and environment.
Are you Christmas in the last month?
Speaker Change: and South in North America, we have been actively securing funding.
is an existing investor.
Speaker Change: which launched their 15 million US dollar investment in September, supports our goal of reaching 10 exahed per second deployed computing power in North America by the first half of 2025.
Speaker Change: 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.
Speaker Change: This not only demonstrates the steady development of our mining operations, but also reflects our strong confidence in Bitcoin's long-term value.
Speaker Change: We believe our mining operations will contribute even more significantly to our company's market conditions improve and our strategic deployment advances.
Speaker Change: On the operational front, we maintain our focus on internal improvements while facing external challenges.
Speaker Change: 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.
Speaker Change: at levels similar to last quarter, excluding non-cash factors such as a fixed assets impairment due to the halving and Bitcoin price fluctuations.
as well as changes in the further value of...
Speaker Change: Our non-GAAP EBITDA loss was $36.80 million, narrowing 46% year-over-year. Our cash reserves reached $72 million at quarter end.
Speaker Change: This enhanced cash position enables 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.
The End
Speaker Change: Looking ahead to the fourth quarter, we are making steady progress in improving the yield rate and ramping up production
Speaker Change: Recently, we secured buff orders for the A15666 model with several major publicly listed mining companies.
Speaker Change: These deliveries begin this quarter and continue into at least the first quarter of next year.
Speaker Change: With Bitcoin price rising significantly, we have started to adjust our pricing for both spot and contract self-orders.
aligning these orders with market conditions.
Speaker Change: We are also increasing the proportion of advance payments for contract sales orders.
Speaker Change: This is the primary R&D work for A16 series. It's expected to conclude this quarter.
consumer-level product line.
Speaker Change: With winter approaching in the northern hemisphere, we will soon unveil several new products that combine home heating with decentralized mining.
Speaker Change: These products are designed to provide both practical value and economic rewards to customers.
Speaker Change: 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,
Speaker Change: We maintain a consciously optimistic outlook for the first quarter of 2024.
Speaker Change: meeting U.S. dollars. This guideline is based on the company's current market and operational conditions and actual results may vary.
Speaker Change: With Bitcoin's fourth halving completed, the Federal Reserve's signaling rate-cutting cycle
Speaker Change: 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.
Speaker Change: In North America, increasingly capital-friendly communities are emerging, with small miners expanding their mining facilities and data centers.
These are all positive factors that we are observing.
Speaker Change: On the other hand, we believe the current food market is only beginning.
Speaker Change: This is a critical period before miners' profitability explosion and reversal of computing power supply-demand dynamics.
as this important market juncture.
Speaker Change: We are ready with our high performance A15 series products for mass delivery.
Speaker Change: Meanwhile, we continue to invest in new product development to meet the diverse needs of various miners and the
as Yilmaer
Speaker Change: customers, maintaining ongoing investment in product production capacity, and future enhance our delivery capabilities.
Speaker Change: We are fully advancing our sales and partnership strategies in key markets like North America, leveraging our compliance advantages as a U.S. listed company.
Speaker Change: actively embracing the market and participating in Bitcoin mining cooperation in various forms.
We are confident that together with our
Speaker Change: customers and partners, we can see the various market opportunities in the school market and achieve growth together.
Speaker Change: This concludes my prepared remarks. Thank you everyone. I will now turn the call over to our CFO James. Thank you.
Speaker Change: Thank you NG, and good day everyone. This is James, CFO of Canaan. I'm very glad to share our Q3 financial results with you together with our CEO.
Speaker Change: As NG stated at the top of the call, the third quarter of 2024 was a challenging quarter given that it was the industry's first complete quarter post halving.
Speaker Change: The average Bitcoin price declined by over 7% sequentially, but the total network hash rate grew by more than 10%. As a result, miners' margin was further squeezed.
Speaker Change: Facing this challenging quarter, we continued with the bulk delivery of A14 products.
Speaker Change: Further improved the performance of yield and energy efficiency of the A15 series.
Speaker Change: Completed the mass production introduction for the A15 series, strived to expand global sales and continuously optimized operations.
Speaker Change: Let me give a quick summary of our financial performance in Q3.
Speaker Change: First, with continuing large-scale deliveries of our A14 series, we achieved a total revenue of nearly $74 million, which fits our guidance of $73 million.
marking year-over-year growth of around 121 percent.
Speaker Change: This was the highest revenue that we generated in the past five quarters.
Speaker Change: Moreover, our penetration into the North American market enabled some important breakthroughs.
Speaker Change: By the date of this earnings call, we have secured some significant orders for A15 series from customers including listed mining companies in North America.
Speaker Change: such as Hype and CleanSpark. Together with Cypher and Stronghold, more and more listed companies are choosing our A15 series products for their mining operations.
Speaker Change: We mined 147 bitcoins and generated $9 million of mining revenue in this quarter, with an average revenue per bitcoin mined of over $61,000.
Speaker Change: Our self-mining hash rates reached around 4.6 exahash per second, which helped our owned bitcoin accumulate to a record high total of 1,212 bitcoins, a sequential increase of 98 bitcoins.
Speaker Change: We are committed to our plan of reaching 10 exahust capacity in North America in mid-2025.
and we have taken some significant steps towards this target.
Speaker Change: including our upcoming collaboration with Lunar Square, which added about 1.6 exahush in Texas, United States, and our collaboration with Stronghold, which added about 0.9 exahush in Pennsylvania, United States.
Speaker Change: Certainly, our inventory balance declined significantly this quarter and reached its lowest point in the past three years.
Speaker Change: As the percentage of inventory value from our older series sharply reduced,
Our inventory structure was further optimized.
Speaker Change: As of the end of Q3, the inventory value of the A13 series was lower than 20% of the total inventory value. At this point, we are prepared to meet more of our customer needs with newer models.
Speaker Change: Let's start to take a look at the profit and the loss.
Speaker Change: As I said, in Q3, our total revenue was around $74 million, revenue from machine sales was around $64 million.
Speaker Change: We delivered a total computing power sold of 7.3 million terahertz per second, representing a year-over-year increase of around 94%, and marking our highest sales volume in the past 11 quarters.
Speaker Change: The average selling price, or ASP, increased by 12% year-over-year from $7.9 per THPS to $8.8 per THPS.
Speaker Change: Driven by the increased computing power sold and ASP, revenue from machine sales increased by around 117% year over year.
Speaker Change: From the product side, our large-scale delivery of A14 series contributed nearly 80% of machine sales revenue. The A15 series started small batch delivery in the quarter.
Speaker Change: and we have secured some significant orders for this product line from key clients in North America such as Greenspark and Hyatt.
Speaker Change: From the sales side, our multidimensional global sales system made positive progress in several key regional markets during the quarter.
Speaker Change: In Q3, our customers from Middle East and North America contributed 39% and 16% of our machine sales revenue.
Speaker Change: Turning to the revenue from our Avalon Nano 3 Mining Heater.
Speaker Change: which diversified our product revenue stream. In Q3, we delivered over 10,000 nano 3 heaters and recognized around $1.4 million in revenue from these sales.
Speaker Change: The accumulated orders for 903 achieved nearly 17,000 units by the date of this earnings call, primarily from customers in North America and Europe.
Speaker Change: The decrease was driven by ongoing stock clearance in the quarter. These non-cash write-downs are made under U.S. GAAP rules impacting our gross profit, but there is no impact on our cash balance.
Speaker Change: Excluding the above write-down, we would have achieved a gross profit of $1.1 million for mining machine sales.
Speaker Change: The write downs are mainly from A13 series inventory value reduction according to the latest market price.
Speaker Change: Mining revenue was $9 million in Q3, as the year-over-year increase of 175%. We mined 147 bitcoins in the quarter, a year-over-year increase of 26%.
Speaker Change: This increase was primarily driven by the computing power installed for our mining business, which reached 4.6 exahash per second at the end of the quarter.
We also further expanded our mining business in Africa.
Speaker Change: where our installed hash rate reached 3.5 exahash per second at the end of Q3. Our average revenue per Bitcoin in Q3 was over $61,000.
Speaker Change: Which decreased by 7.5% primarily due to the decline in Bitcoin prices in Q3
Speaker Change: Gross profit margin for our mining business was 22. Please note here that mining profit or loss is defined as mining revenue's net of costs for energy and hosting, but without consideration of depreciation for the deployed machines.
Speaker Change: Now turning to the expenses, all operating expenses totaled $35 million, decreasing 19% year-over-year. Staff costs, including share-based compensation, decreased 17% year-over-year, mainly driven by organizational optimization performed in Q4 last year.
Speaker Change: We recorded $6 million in impairment of our A13 series machines deployed in our mining operations as a result of increased Bitcoin mining difficulty post halving.
Speaker Change: Excluding this impairment, our operating expenses were about $29 million, remaining steady during 2024.
Speaker Change: As mentioned in Quarter 1, we chose to early adopt the FASB new accounting rules on cryptocurrency assets since January 1, 2024.
Speaker Change: These new rules allow cryptocurrencies to be carried at their fair market value.
The price of Bitcoin increased to around $63.5K.
on September 30, 2024.
Speaker Change: versus around $62,000 on June 30, 2024, contributing to an aggregate gain on cryptocurrency assets of $2.5 million during the third quarter.
Speaker Change: Despite a challenging post-harvest hash price, our Q3 operating loss was around $57 million.
Speaker Change: Narrowing 50% year-over-year. An adjusted EBITDA loss narrowed by 50% year-over-year to $34 million.
Speaker Change: In Q3 2024, we issued the 3rd Trench of the Series A Preferred Shares Financing and recognized it as a convertible liability according to U.S. Department of Accounting rules.
Speaker Change: The financing included an excess of fair value over proceeds received and a fair value change. These non-cash accounting treatments hit our Q3 bottom line with a total of 27 million US dollars.
Speaker Change: In order to represent our performance more accurately and more comparably, we exclude the impact of the accounting treatment from our non-GAAP measures.
Speaker Change: Turning to our balance sheet and cash flow, in Q3 we received $50 million from our preferred shares financing and we paid $30 million to secure our wafer supply. During the quarter, the cash outflow of $69 million for production and operation was offset by a cash inflow of $42 million from sales.
Speaker Change: $7 million from export of VAT refunds and $5 million from secured loans
Speaker Change: Consequently, at the end of quarter three, we held a cash of $72 million on our balance sheet, an increase of approximately 8% compared to the end of quarter two.
Speaker Change: As of the end of Q3, our account receivable balance was $1M, a decrease of 83% compared to Dec. 31, 2023.
Speaker Change: We will continuously evaluate market demand and adopt corresponding credit policies with caution.
Speaker Change: Now turning attention to our Bitcoin assets. Bitcoins held as our own holding asset kept growing in this quarter, reaching a record high of 1,212 Bitcoins as of September 30.
Speaker Change: This is 98 more than the 1,114 at the end of last quarter. On September 30, the fair market value of our owned bitcoins totaled around $77 million.
As of yesterday,
Speaker Change: At 92,000 Bitcoin price, the value of our own Bitcoin exceeded 110 million U.S. dollars, and our HODL gain was around 64 million dollars, higher than the original value of the Bitcoin that we gained from mining or other operations.
Speaker Change: This is an exciting reward for our long-term value creation and patience.
Speaker Change: In this quarter, we pledged 17 bitcoins for long-term secured loans with an aggregate carrying value of $2 million at what we believe is a reasonable interest level.
Speaker Change: The secured loans enable additional liquidity for production, expansion, and operation. We also transferred 100 bitcoins for a fixed-term product with a fixed annual return rate.
Speaker Change: In the future, under the premise of adhering to our HODL strategy, we will explore more ways to increase capital liquidity through our owned crypto assets.
Speaker Change: We expect our Q4 revenues to be $80 million, which is expected to be the best quarter of 2024.
With TV, a friendlier environment for cryptocurrencies is coming.
Speaker Change: The Bitcoin price has been rising rapidly since November and today's highest point exceeding $94,000, an increase of nearly 47% compared to price before the halving.
Speaker Change: However, the growth is still continuing to break historical highs. We believe that the rising price of Bitcoin will stimulate the profit of miners and the demand for mining machines will steadily increase.
Speaker Change: Mining machine products with high computing power, low power consumption, and stable performance will be chosen and trusted by customers, just like our A15 series.
Speaker Change: We are expecting deliveries of new machines to be allocated to both self-mining and sales-to-customers.
Speaker Change: We are always strongly committed to investing in new product research and development to meet the diverse needs of various customers, promoting sales and operation strategies in key markets, such as North America.
Speaker Change: and participating in Bitcoin mining collaboration in various forms as we work to achieve our extension goal of 10 exahash capacity in North America.
Speaker Change: We have strong confidence that we will work with our customers and partners to seize the huge market opportunities in the bull market.
Speaker Change: This concludes our prepared remarks. We are now open for questions.
Speaker Change: 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.
Speaker Change: If you have any follow-up questions after the Q&A session, the Investor Relations team will be available after the call.
Speaker Change: For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. To ask a question, please press star 1 1. If your question hasn't been answered and you wish to remove yourself from the queue, please press star 1 1 again.
Speaker Change: Our first question comes from Kevin Cassidy with Rosenblatt. Your line is open.
[inaudible]
Speaker Change: Yes, thanks for taking my question and congratulations on the good quarter.
Speaker Change: You know, you described a lot of demand picking up, and how would you compare this to, say, when the halving event in 2020, and then you had a very strong year in 2021?
Speaker Change: 2025 look like as far as visibility and, you know, the amount of demand you're seeing.
Thank you for your question.
Overall, I think the patterns are quite similar.
about six months before the harbinger.
Speaker Change: buyers will be motivated by lower equipment prices, tend to purchase large quantity of machines for a final
Unknown Executive, Nangeng Zhang
Speaker Change: However, demand usually drops significantly as the harvest approaches and immediately afterwards. Once the market slows down again and when the beet corn price recovers, demand typically will rebound.
Speaker Change: That said, there are some differences between the two events, the timing of having Bitcoin price trends, industry, even inventory levels.
and the overall scale of demand have all involved.
Speaker Change: Despite these differences, the key takeaway is that demand continues to grow. Market fluctuations have lessened.
Speaker Change: and customers have become more professional in their operations. I think for 2025,
maybe some
Speaker Change: I think the capacity and the geographic conflicts will influence the demand and different regions may have different demands.
in the in 2025. Thank you.
Speaker Change: Yeah, thank you for that answer. And, you know, just what systems do you have in place to, you know, make sure you're going to be able to meet the demand, you know, make sure there's no shortage of the ASICs or boundary space, and even just
the assembly of the mining rigs.
the Army.
Yeah, um...
Speaker Change: We will focus on developing new products, delivering models with approximately 17 drives per terahash power efficiency this year. And we also anticipated market trends early and secured our production capacity by placing an advance order.
Speaker Change: to the Foundries. Close collaboration with our partners and has further improved the yield rates and shortened production cycles.
Speaker Change: These interactives require financial support. At the end of September, we completed $16 million financing to invest in self-mining and joint mining sites in the U.S.
Speaker Change: because we know the boomerang is coming, so as well as to help our supply chain to stop up for custom rounders.
Speaker Change: Recently, the Bitcoin price rising rapidly, the bull market is already there, so we
We secured another 30 million U.S. dollars in financing.
Speaker Change: This reflects our advantage of being a listed company, allowing us to deploy capital swiftly to expand our capacity.
Speaker Change: and meet growing market demand. I think the waivers we placed in September will start to deliver in the end of this year.
Speaker Change: But usually, you know, the production will use about close to five months. We are doing our everything we can to shorten the cycle time.
Speaker Change: The next year, performance of products we will deliver needs to improve further.
Speaker Change: I believe a range of 10 to 15 joules per terahash is achievable.
Speaker Change: This requires continued investment in ship development and I expect most of the design work of A-16 products to be completed this quarter.
have to refund the entire product ecosystem.
This includes machines of
Speaker Change: different power levels, whether targeting B2B or 2C customers, different cooling methods, system or the solution integration.
Speaker Change: as well as both software and hardware. Over the past few months, we have conducted extensive product development work, and this will continue in the coming months.
Yeah, thank you.
Yes, thank you.
Speaker Change: Thank you. Our next question comes from Nick Giles with B-Raleigh Securities. Your line is open.
Unknown Speaker.
Speaker Change: Hey good morning everyone. Congratulations on the recent deals with North American customers. I was wondering if you could
Speaker Change: expand on your growth efforts in this market. What targets do you have in the coming quarters either on an exahash sold basis, gross revenue, or percentage of total revenue? I'll start there. Thanks.
Unknown Executive, Nangeng Zhang
Unknown Executive, Nangeng Zhang
Unknown Executive, Nangeng Zhang
Thank you.
Speaker Change: I think the rising Bitcoin price has triggered a recovery in market demand.
and we anticipate even stronger demand next year.
Speaker Change: The third quarter we achieved 7.3 million terahash per second in computing power sold.
Marks 93.8% year-over-year increase and 16.4% screenshot growth.
Speaker Change: Taking a record high over the past eight and a quarter, recently we announced large-scale orders with North American publicly traded mining companies, that is rock and high, reflecting a notable recovery in demand.
As Bitcoin price surpassed 85k
Speaker Change: We began adjusting our sales prices in line with fair market value and increasing the upfront payment required for contracts and solvers.
Speaker Change: We believe Bitcoin bull market will still be in the early stages.
Speaker Change: Moving forward, we will flexibly adapt our pricing policies and sales strategies to align with growing market supply and demand dynamics. Thank you.
Thank you for that, Angie.
Speaker Change: How should we think about the split between an A16 series and other initiatives such as your Kendrite series? Thank you.
Unknown Executive, Nangeng Zhang
Our minor serious development.
Speaker Change: But for the AI side, I think I have something, I can say something about this.
Ok, The End!
yeah
Thank you.
Okay, I think for our company.
Speaker Change: In the past few years, I mean, I have closely monitored a lot of advancements in AI, and had discussions with industry leaders about the direction of this rapidly evolving field. In the last two years, I think Aledia and its ecosystem have emerged as clear winners.
Speaker Change: This is all about my personal opinion, so yeah, so capturing the, and I think they are capturing the majority of profits. This will remind me
of Bitcoin mining boom that began in 2011.
Speaker Change: So the question is, how can Canaan position itself to ride this wave of technological process, one that could define the next 10 or 20 years?
Speaker Change: Canada has a strong foundation in areas like the Edge AI product development.
Speaker Change: and the Kendra series you just mentioned. Active design and operational computing infrastructure. This gave us multiple avenues to participate.
Speaker Change: Making the right business decisions require foresight. So today, I think the demand for large-scale model training is already consolidating among a small number of major companies.
Speaker Change: In just two or three years, there might be fewer than 10 companies globally comparable that have abilities to train and foundation large models.
Speaker Change: That means the competition in large-model training hardware is essentially over.
and the winners are...
Speaker Change: already there. So, the next major opportunity will likely emerge with AI applications based on these models become mainstream, leading a sharp increase in demand of inference compute power that exceeds training requirements.
Speaker Change: However, the shift will take time. At this stage, it would be wise to invest heavily in designing and producing, especially for producing the chips and devices specifically for today's large models.
program between AI computing and the crypto.
currency mining both really relates computation to generate tokens, right?
So, Airbus with different algorithms.
Speaker Change: The issue of fragmented software will disappear, I think. So making ASIC-based solutions for AI will be more feasible.
Speaker Change: So our best preparation right now is already underway, accelerating infrastructure deployment.
Speaker Change: particularly in regions like North America. By the middle of next year, we aim to deploy 200 megawatts.
Speaker Change: in the first phase and continue to expand in power resources afterward.
Speaker Change: The current Bitcoin four-year cycle has just begun, and I believe this is the last window for us to lay a solid foundation.
Speaker Change: So looking ahead, one of our goals in four years is to provide computer services.
Speaker Change: at the lowest possible CAPEX and OPEX not only for Bitcoin mining but also for other applications using ASIC optimized hardware tailored to new markets.
Speaker Change: This is my long-term vision, so our immediate focus over the next one or two years.
Speaker Change: is very straightforward on deploying more infrastructure to build a strong foundation for the future.
Sorry for the long answer. Thank you.
For more information, visit www.FEMA.gov
NG: NG, I really appreciate all the color and commend you on the foresight in the segments so continued best of luck
Unknown Executive, Nangeng Zhang
Thank you. Our next question comes from Kevin Deedee.
with H.C. Wainwright. Your line is open.
Unknown Speaker 0
Speaker Change: Hi NG, Hi James, thanks for having me on the call.
NG: NG, I was hoping you could look a little bit at the A14 versus A15 series and the demand you're seeing. Obviously with the increase in compute density, heat becomes a greater issue and I'm wondering what you're seeing
on the demand side.
Unknown Executive, Nangeng Zhang
Okay.
and the other two of us are the same.
Speaker Change: Firstly, hello. I think the A14 series is very close to the EOI phase, because the A15 has much more advantages. The power efficiency is, the A14 is about 22 to 23 watts per terahash, and the A15 is now today is lower than 17.
Speaker Change: So there's, I think it's more than 20% improvements. So we are switching all of our capacity to from A14 to A15, yeah. So, and for demand side,
I think the 15th is March.
Speaker Change: The demand is much bigger, yeah, because the performance is comparable to our competitors.
Speaker Change: and the machine is super stable. We tested under over 50 degrees Celsius by our air cooling system.
Speaker Change: The water-cooled liquid cooling system is running close to 400 terahash today.
So everything is, A15 is much better.
Speaker Change: For the machine's cooling method, I think that the liquid cooling model is
It's increasing.
Speaker Change: I think the reason is some of our customers is trying to use the machines to generate heat.
Speaker Change: especially in the winter. So our we have multiple customers is working with us.
Speaker Change: using our liquid cooling models to generate hot water and the temperature is from 55 degrees Celsius to over 70 degrees Celsius.
So it's a very valuable equipment in many different regions.
And also,
I think after that
Speaker Change: Because the data center for Bitcoin mining, sometimes it's very noisy.
Speaker Change: So, to operate with lower noise, it's also a very important requirement for our customers.
Speaker Change: So this also led them to switch to the liquid cooling. Yeah, I think the water cooling model is very important. So at the end of this year, we will, I think we have plans to announce.
Speaker Change: the liquid or the water cooled system to the public, maybe in the next month or January 2025. Thank you.
Speaker Change: and MG thank you for all the color on on AI development
Speaker Change: I appreciate your perspective immensely as you know. I'm curious though, do you think you're going to hold back to further development until you see
Speaker Change: a path to develop an ASIC to address that market? I just want to make sure I understood your comments correctly. Thank you very much.
Speaker Change: By my personal reviews, I think today the model trainees are using the NVIDIA A100, H100 or some more advanced models. But most of the inference customers are using the A6000 and 1490s.
Speaker Change: So this reminds me that, you know, in the very early stage of Bitcoin mining, people use CPU to mine bitcoins.
Speaker Change: The AI players is using GPUs to mine or you can say it to generate tokens
Speaker Change: so we are currently at this stage. Yes, personally I have plans to do something on how to generate AI tokens.
by using the ASIC technology, yes.
Speaker Change: But I think the what is the disadvantage is, today, the inference demand is not come over the training demand. This is what I'm seeing today. So
Speaker Change: As I just mentioned, to invest a lot of cash in the next one or two quarters to this kind of AI ethics is a wise movement.
Speaker Change: So, I will continue to look closely to this industry. Thank you.
Speaker Change: James, one quick question for you. I understand that the Bitcoin loans you've made still have 1200 plus Bitcoin.
James: How do you see using that Bitcoin? Do you think you might offer more loans and and how are you evaluating your counterparty risk?
Speaker Change: Thank you, Kevin. I think that's a wonderful, wonderful question. I think as a listed company, we are very proud to be listed in NASDAQ. So we do have the access
Speaker Change: to the capital market. So for the company, usually we have different methods of doing fundraising, just like.
Speaker Change: What we have demonstrated in the past, we can do preferred shares, we also can do at-the-market offering, and also, you know, we can use our bitcoins to generate liquidity.
Speaker Change: So if asking me this question, to be very honest, we just, you know, usually balance between all those, you know, possible methods.
Usually we would like to take
Speaker Change: prefer the shares because it's easy and it's quite transparent. And then sometimes if the market demand is strong, ATM would maybe more suitable.
Speaker Change: But of course, we have to consider, you know, to utilize this Bitcoin for other methods of generating cash flow, for example, doing some financing to generate interest.
Speaker Change: is also something we are testing. So I think currently we are still, you know, learning in this all kinds of methods.
Speaker Change: We haven't yet fixed in whatever terms how we do this fundraising. Of course, we can, you know, try all the methods and then our shareholders can provide more suggestions to us to fully...
Speaker Change: You know consider what's the best for our shareholders. I think that's the purpose of doing all this fundraising
Thank you, Kevin.
Thank you, James. Appreciate it. Congratulations on the quarter.
Thank you.
Speaker Change: Thank you. Our next question comes from Mike Grondel with Northland. Your line is open.
Hey, thanks guys. For 3Q product revenue, or the ASICs,
Speaker Change: Can you break that down between the A-14 and the A-15? And then roughly your 80 million guidance for the December quarter, could you break that down roughly between the A-14 and the A-15?
Unknown Executive, Nangeng Zhang
Speaker Change: For this question, I will take this question, Mike. I think that the major delivery of quarter three is from A14 series.
Speaker Change: NG has mentioned that we only delivered like 1,500 pieces of A15 series.
So the major deliveries from A14 series
Speaker Change: and also we did a lot of stock clearance for A13 series.
also occupies a good
Unknown Executive, Nangeng Zhang
Does that answer your question, Mike?
Speaker Change: Yeah, that was the 39% to the Middle East and 16, I think, to North America.
Speaker Change: And then roughly in 4Q, you know, you're forecasting $80 million of revenue.
What's the split between A14 and A15 going to be?
Speaker Change: Yeah, I think currently the A14 series is still doing ongoing delivery. I think it's still...
Unknown Executive, Nangeng Zhang Unknown Executive, Nangeng Zhang
Unknown Executive, Nangeng Zhang
Speaker Change: Got it. And just to follow up to that, roughly how much...
of A13 Inventory is sitting on the balance sheet.
Speaker Change: If you calculate the inventory, you can consider 20% of the inventory value is now A13 series.
20%. Okay. And then just lastly, yeah.
Do you have a rough pro forma cash balance?
Unknown Executive, Nangeng Zhang
Unknown Executive, Nangeng Zhang
Unknown Executive, Nangeng Zhang
Speaker Change: You said the cash bail was... I don't know if I answered this question.
Yeah.
What other questions?
https://www.youtube.com
Michael, are you asking for the cash balance?
Michael: Yeah, I was just after the recent financing that you guys talked about, I think it was the preferred. If you just have a pro forma cash balance.
you know, after that financing.
Speaker Change: Yeah, I think the 30 million is just happening today. We haven't yet received all the cash. Hopefully in the end of this week or next week, we can receive that 30 million cash. But the previous 50 million in the last trench or previous preferred shares have already been, you know, received in the end of September. So it's counted to the 72 million cash balance in the end of September.
Does that answer your question, William?
Speaker Change: Yeah, we would take that $72 million plus $30 million for this new financing minus anything for operations and whatnot.
Speaker Change: I'm just trying to run that forward a little bit. Yeah.
Speaker Change: Yeah, you can calculate based on that. But of course, in this quarter, we will invest more in operation, not only about the wafer supply, but also we are going to invest together with Lunar Square in West Texas to do the mining sites build up.
Got it. That's helpful. Hey, thank you.
Thank you, Mike.
Thank you.
Speaker Change: That's all the time we have for questions. I'd like to turn the call back over to the company for any closing remarks.
Speaker Change: Thanks again for joining us today. If you have further questions, please feel free to reach out to us directly or through the contact information that we have on our website. Thanks, Operator.
Speaker Change: You're welcome. Thank you. That concludes the call today. Thank you everyone for attending. You may now disconnect.