Canaan Inc (CAN) 2023 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc.'s Second Quarter 2023 Earnings Conference Call. At this

time, all participants are in listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded.

Now I'd like to hand the conference over to your speaker host today, Mr. Clark Soucy, Investor Relations Director of the company. Please go ahead, Clark.

Thank you. Hello, everyone, and welcome to our earnings conference call. The company's financial and operating results for the second quarter were released by our newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nangeng Zhang; and our CFO, Mr. James Jin Cheng.

In addition, Mr. Leo Wang, IR Senior Director; and Ms. Xi Zhang, IR Manager, will also be available during the question-and-answer session.

Mr. Zhang will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Cheng will then provide details on the company's operating and financial results for the period before we open up the call for your questions.

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release. Today's call will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations or the performance of the company. These statements speak only as of the date 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 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.

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 website.

With that, I will now turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead.

Hello, everyone. This is NG, the CEO of Canaan. Thank you for joining our conference call. James and I are at company's headquarters in Singapore to share our quarterly results with you.

During the second quarter of 2023, the price of Bitcoin remained at around USD 28,000 to USD 30,000 at both the beginning and end of the quarter. However, for most of the quarter, it experienced a downward trend, while the overall network hash rate continued to steadily increase by about 15%. The rise in mining difficulty coupled with the sluggish Bitcoin price did have certain adverse impact on both overall miner profitability and their willingness to make purchases. With the industry's inventory level remaining relatively high, the halving approaching, and the pressure for product updates, all mining machine providers are eager to clear their inventory. As a result, the competition in the mining machine market has intensified, and the price of computing power continues to be under pressure. In summary, the mining machine market remains in a bear market.

Given this situation, our efforts are twofold. On the one hand, we are dedicated to upholding our financial resilience and ensuring stable operations. On the other hand, we are also actively allocating resources towards future growth opportunities. I'd like to take this opportunity to discuss several strategic points that we are focusing on.

First, we are committed to long-term investment in R&D and production capacity to continuously upgrade and iterate our products. As we mentioned earlier, our A13 series products achieved stable supply and gained customer recognition for their performance, leading to a rapid increase in shipment volume in the first quarter of this year. During the second quarter, computing power sales of the A13 series significantly surpassed that of the A12 series. We are constantly investing in R&D to enhance product computing power, increase power efficiency, and reduce costs. In the first half of this year, our products reached a power efficiency of 25 to 30 Joules per terahash. In the second half of the year, we will further optimize the power efficiency range of new products to 20 to 25 Joules per terahash, fulfilling our previous commitments. Currently, these iterative products are in the machine debugging and small-scale trial production stages, and we have started to take customer pre-orders. Even in the current challenging market environment, continuous investment in R&D and supply chain is crucial for our long-term development. Furthermore, in alignment with our planned strategy, we are diversifying our product portfolio beyond mining machines. Following extensive periods of R&D and testing, we are about to launch our proprietary integrated air-cooled and liquid-cooled site solutions. These solutions will effectively assist miners in rapid deployment and adapt to mining operations in various harsh natural conditions. Our integrated 40-foot and 20-foot air-cooled mining container products and the 40-foot liquid-cooled Avalon Box mining container product have completed product development and prototype testing. They have already received orders and are expected to be delivered to customers in the second half of the year.

Second, we continue to develop and refine our sales system to connect and support customers worldwide. Last quarter, we highlighted our work on building, developing, and optimizing our comprehensive international sales system. We engaged with large clients, channels, and retail customers to enhance our global reach and more effectively convert customers. This quarter, despite the market still being in a bearish phase, our overall sales significantly improved on a quarterly basis. Our total computing power sales reached 6.1 million terahash per second, up 45% sequentially, contributing to product sales revenue of about of USD 57.9 million. With the brief surge in Bitcoin transaction fees in early May, there was a small upturn in the demand for computing power. Seizing this opportunity, we responded decisively by rapidly expanding into the North American market, engaging key clients such as Cipher and Stronghold. Specifically, we received a significant order from Cipher Mining, resulting in 1.21 million terahash per second of computing power sales. In July, we also secured a 220,000 terahash per second sales order from Stronghold Digital Mining. This marks a significant milestone in our entry into the U.S. market. Meanwhile, in Southeast Asia, our distribution channels are steadily expanding. In the second quarter, USD 3.9 million of revenue was contributed by distributor sales. This figure further grew in the third quarter. Our online retail store catering to overseas customers continued to expand its global customer base in the second quarter, reaching customers from Brazil, the UAE, Hungary, Cyprus, and Latvia for the first time. It's worth noting that the world is vast and establishing a global sales system takes time. We are working diligently and will share with you further positive updates.

Third, we remain committed to our mining strategy, and will continuously explore mining projects. During the second quarter, our mining business successfully initiated several new projects. Through our partnership with the publicly listed company, Stronghold, we have installed the initial batch of 0.4 exahash per second of computing power. Recently, we have reached an agreement with Stronghold to further expand our partnership adding 0.2 exahash per second of computing power, which is expected to be deployed and operational during the third quarter. Since the second quarter, we have also installed small-scale computing power for testing in Ethiopia and Paraguay, marking the first expansion of our mining business into these regions. Although total network computing power continued to rise in the second quarter, our mining operations achieved remarkable results. This was thanks to our increased uptime and industry events such as BRC-20, which boosted Bitcoin rewards for mining activities. During the quarter, we produced 569 Bitcoins, contributing a mining revenue of USD 15.9 million, a sequential growth of 43.3%.

As previously announced, our mining business has been affected by recent policy changes in Kazakhstan, leading to the temporary shutdown of approximately 2.0 exahash per second of installed mining power since early July. Furthermore, due to a default by a partner in a U.S. project, 13 mining machines -- 13,000 mining machines that were already installed, along with the remaining computing power to be installed, will be affected. These two incidents are expected to impact the operation of close to 3.0 exahash per second installed computing power starting in the third quarter. At present, we are actively working with local partners in Kazakhstan to apply for the relevant licenses and adjusting our collaborative approach to resume regular operations at the mining site. At the same time, we are working diligently to address the default issue with the partner in the U.S. project through legal means, safeguarding the rights and interests of the company and our investors.

It's important to note that we believe active global business expansion inevitably comes with various difficulties and challenges, and setbacks are a normal part of this journey. The key point is that our fundamental direction remains unchanged. We continue to leverage our advantage in computing power supply, resolutely upholding mining as a key development strategy. At present, we are taking proactive steps to minimize losses while also ensuring that the lessons learned are not in vain. We are absorbing experiences and proceeding cautiously, expanding and exploring new mining project opportunities, and accumulating high-quality Bitcoin assets.

Finally, we will persevere through challenges, strive to maintain cash flows, and ensure sustained operations. At the same time, we will accumulate assets with robust growth potential while strategically allocating resources to be fully prepared for the upcoming bull market following the next Bitcoin halving. These remain as our unwavering strategies. Overall, the market environment was weak in the second quarter, yet our operational performance remained positive. However, the continued selling price decline has created a series of material non-cash accruals or provisions, resulting in substantial losses on our financial statement for this quarter. In this challenging market environment, our focus on cash preservation has intensified. During the quarter, we didn't utilize our ATM facility or conduct financing activities. Our cash flow level experienced only a slight sequential decline and was prudently managed overall.

As we move further into the second half of 2023, U.S. interest rate hikes have not come to a complete stop, and the global economic outlook remains increasingly uncertain. Amidst this uncertainty, unforeseen events still have the potential to cause significant fluctuations in the Bitcoin price. We believe that the broader market lacks sufficient upward momentum. In addition, large-scale miners' financing capabilities remain constrained. The recent hash rate growth curve also indicates a notable decline in the overall industry's incremental hash rate investment and deployment during the first three quarters of this year. This trend aligns with our market assessment. Furthermore, policy changes concerning cryptocurrencies and mining in various countries introduce further uncertainty to both the industry and our operations. In some cases, these changes could present unforeseen challenges to our actual operations.

Given all of the factors I have just outlined, we have a highly cautious outlook for the third quarter of 2023. We expect that revenues from the -- for the quarter will be approximately USD 30 million. This forecast reflects our current views on the market and operational conditions, and actual results may be subject to change.

Overall, as you might already be aware, we have navigated several Bitcoin cycles since our inception in 2013. Our task is to confront and resolve the challenges we encounter, much like Bitcoin itself, where every day we create new history. With each new day, we become more experienced and stronger than the day before. We remain fully committed to performing ahead of the market curve. Next month, on September 12, we plan to celebrate the company's 10th anniversary in Singapore. Canaan stands as an industry veteran and proudly holds the distinction of being the first NASDAQ-listed company in our industry. Over the past decade, our evolution from a project group into a multinational company with leading chip design capabilities has been remarkable. As we step into the next decade for development, Canaan's potential achievements in the coming decade are exciting to consider.

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 the call with, I would like to say the second quarter of 2023 was still a very dynamic bear market period for the Bitcoin mining machine industry with a complicated range of influences and mixed factors. First, as we observed in this period of interest rate hikes, there was no significant upside for the price of Bitcoin in Q2. The Bitcoin price settled into a range between USD 28,000 to USD 30,000, compared to the rapid growth from USD 16,500 to USD 28,500 in Q1. Secondly, in May, there was the BRC-20 incident, helping miners enjoy higher transaction fees, signaling the possibility of increased future mining revenue from these fees. Thirdly, the total Bitcoin hash rate continued to climb, increasing by 15% over the quarter. Total demand for mining machines increased compared to Q1. Moreover, we observed intensified competition among mining machine manufacturers. Inventory levels remained high, and selling prices continued to decline in Q2 compared to Q1. All the above factors should be considered when analyzing our Q2 numbers. Of course, we also did our best to deliver the numbers and keep our operation resilient.

Let's start with profit and loss. Overall speaking, in Q2, total revenue generated was USD 73.9 million, which beat our guidance of USD 72 million and represents an increase of 33.7% quarter-over-quarter. Additionally, our mining revenue reached a record high of USD 15.9 million and contributed more than 20% to our total revenue in this quarter.

Regarding our machine sales, our revenue from mining machine sales was USD 57.8 million in this quarter, 32.2% higher than USD 43.7 million in the last quarter. We delivered total computing power sold of 6.1 million terahash per second, representing a sequential growth of 44.2% and a year-over-year growth of 11.7%. However, the average selling price, (added by company after the call) or ASP, still declined slightly from USD 10 per terahash per second in Q1 to USD 9.5 per terahash per second in Q2, which resulted from fierce competition.

Specifically, for our mining machine sales, we accrued USD 45.9 million for inventories write-down, prepayment write-down and provision for reserve for inventory purchase commitments in this quarter. The inventory write-down of USD 17.4 million was recorded based on the most recent subsequent selling price, when we offered further price concessions in August. This inventory write-down decreased by 50% sequentially. Another USD 28.5 million was mainly a result of one-off inventory write-down and provision for commitment reserve for previous generation wafers, which we no longer plan to produce into mining machines. Those write-downs and provisions are made under US GAAP rules, jeopardizing our gross profit and making the quarterly loss bigger, but do not impact our cash status. If the above write-downs and provisions were excluded, we would have a gross profit for our mining machine sales of USD 0.4 million and a gross margin of 0.6%.

Turning to our mining business. Because of the Bitcoin price recovery and increased Bitcoin rewards driven from BRC-20 across the network during this quarter, our mining revenue reached a record high of USD 15.9 million, representing a sequential growth of 43.3% and a year-over-year growth of 105.1%. As of the second quarter's end, our total deployed hash rate remained at more than 5.0 exahash per second and our installed hash rate reached more than 4.9 exahash per second. We mined 569 Bitcoins in this quarter and achieved 50.4 Bitcoins for mining profit. Gross profit margin was 9.5% for our mining business in this quarter. Please note here that mining profit or loss is defined as the proportion of mining revenues deducting costs for energy and hosting in terms of mining revenues, without consideration of depreciation.

Now let us take a look at the expenses. Our R&D expenses were USD 17.9 million in this quarter, compared to USD 19.1 million in the last quarter and USD 15.6 million in the prior-year period. The slight quarter-over-quarter decrease was due to the decreases in materials used for research and development purposes. The steady year-over-year growth reflected our continuing commitment to building a talented R&D team.

Our sales and marketing expenses were USD 2.4 million, compared to USD 1.5 million in the last quarter and USD 3.2 million in the prior-year period. Sales commission increased quarter-over-quarter because of revenue upsizing from Q1 to Q2.

Our general and administrative expenses in this quarter were USD 26.4 million, compared to USD 17.6 million in the last quarter and USD 22.1 million in the prior-year period. The year-over-year and sequential increases were mainly due to USD 8.8 million in impairment of property and equipment. As we announced on August 18, we temporarily shut down 2.0 exahash of our mining computing power in Kazakhstan since July 2023 in order to ensure legal compliance, and we initiated the dispute resolution process with a partner at a U.S.-based mining project. These challenges are anticipated to substantially affect our operational mining computing power starting in the third quarter of 2023. Therefore, we recorded USD 0.6 million and USD 8.2 million impairment for the related machines deployed in Kazakhstan and the United States, respectively. This is also necessary action under US GAAP, hitting profit and loss, while having no immediate impact on Q2 cash status.

The net result of the foregoing was an operating loss of USD 119.1 million for this quarter, compared to USD 85.7 million in the last quarter. The net loss was USD 110.7 million, compared to USD 84.4 million in the last quarter. The loss included a series of necessary write-downs of inventory, one-off reduction of holding prepayment and PPE impairment totaling USD 54.7 million.

Turning to our balance sheet, first of all, let us keep eyes on the cash status. We held cash and cash equivalents of USD 66 million as of June 30, with a USD 6 million decrease compared to USD 72 million at the end of March. And in Q2, we spent USD 76 million to sustain the wafer supply and machine production. Other cash payments included USD 21 million for operations and USD 3 million in tax expenses. The cash-out, totaling USD 100 million, was net off by inflows of USD 93 million from sales and accumulated value-added tax refund for exporting sales.

As previously mentioned, I'd like to re-emphasize that we've recorded a series of material non-cash accruals or provisions in this quarter, including inventory write-down, one-off provision for commitment reserve and PPE impairment. These non-cash accounting treatments were based on US GAAP requirements and resulted in expanded current losses. However, these non-cash accruals and provisions did not materially influence our cash flow.

As of the end of this quarter, we recorded accounts receivable of USD 10.1 million. In order to strengthen collaborations with key clients, we have implemented an installment policy for certain key account customers who meet certain conditions, resulting in accounts receivable at the end of this quarter. In the future, we will continuously evaluate market demand and customer credit prudently, and adopt corresponding credit policies.

Now turning our attention to our Bitcoin assets. We held 747 Bitcoins as our own holding asset as of June 30, which is 124 more than 623 at the end of March 31. For the first time, we also held 378 Bitcoins received as customer deposit, which is new to our balance sheet.

From May 25, 2023, the date we reported our financial results for the first quarter of 2023, to August 29, 2023, we neither utilized the ATM nor repurchased any ADS. In the future, we will prioritize shareholders, carefully monitor cash flows and stock prices, and flexibly execute any potential ATM sales or stock repurchases.

In Q3, we anticipate a revenue of USD 30 million. In the second half of 2023, the price of Bitcoin is still facing a challenging environment, and price competition remains intense. Policy changes regarding cryptocurrencies and mining in different countries will also add uncertainty to industry operations. We may face unforeseen obstacles. Based on the above comprehensive situation, we give a cautious expectation for the third quarter of 2023.

Now, I would like to briefly walk you through our financial results for the quarter.

Revenues in the second quarter of 2023 were USD 73.9 million, as compared to USD 55.2 million in the first quarter of 2023 and USD 245.9 million in the same period of 2022.

Gross loss in the second quarter of 2023 was USD 70.1 million, compared to a gross loss of USD 47.5 million in the first quarter of 2023 and a gross profit of USD 138.3 million in the same period of 2022.

Total operating expenses in the second quarter of 2023 were USD 49.0 million, compared to USD 38.1 million in the first quarter of 2023 and USD 45.4 million in the same period of 2022.

Loss from operations in the second quarter of 2023 was USD 119.1 million, compared to a loss from operations of USD 85.7 million in the first quarter of 2023 and an income from operations of USD 93.0 million in the same period of 2022.

Net loss in the second quarter of 2023 was USD 110.7 million, compared to a net loss of USD 84.4 million in the first quarter of 2023 and a net income of USD 90.1 million in the same period of 2022.

Basic and diluted net loss per (added by company after the call) American Depository Share, or ADS, in the second quarter of 2023 were USD 0.65.

As of June 30, 2023, the company had cash and cash equivalents of USD 66.1 million.

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 3 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. (Operator Instructions) and your first question today comes from the line of Mike Legg from the Benchmark Company.

I'm curious about your focus on rig efficiency and how you view your product versus the competition, specifically versus Whatsminers and Antminers, and then also wanted to understand your viewpoint on self-mining versus hosted environments given the release last week. Thanks.

Yes, for the -- in terms of the power efficiency, I think it's a critical factor for customers. In the first half of this year, our products have already entered the range of 25 to 30 Joules per terahash. This is a significant improvement compared to last year. And by the second half of this year, the power efficiency of the products we have sampled for customers is already below 25 Joules. This fulfilled our commitment. The progress in our products' power efficiency improvement is on track, and as planned.

We are gradually narrowing the gap with our main competitors. Yes. I think the R&D and switch, the foundries take some time. But yes, we are closing. So I think beyond that, I mean, beyond the power efficiency number, our products are balanced in terms of stability, environmental adaptability, and cost effectiveness. And our production -- product line is diverse. So the miners -- I think the miners return on investment and profitability are influenced by both OpEx and CapEx, and our goal is to have an advantage in both of these indicators, making our products the preferred -- is a preferred choice for customers.

Yes, about the self-mining. Regarding the policy environment, Kazakhstan has issued new regulatory policies related to mining. Since the detailed regulations came into effect in early July, the company immediately initiated the application for licenses. However, in the actual process, we found that due to the early stage of the entire regulatory process, there were specific requirements in execution, which led to the license application taking longer than initially anticipated. For instance, we learned through practical operations that we need to wait for our mining partners to obtain a type 1 license before we can submit an application for a type 2 license.

As far as we know, the progress of obtaining a type 1 license for local mining facilities has generally been slow. It seems that because the execution of the new regulations is still in the early stages, the specific execution procedures will take time to ramp up, which has impacted the progress of resuming our local mining projects. The company and our local mining partners are actively progressing with the required license applications. We are also exploring various ways to adjust our cooperation (corrected by company after the call) arrangements to continue working with local miners in compliance with laws and regulations.

Furthermore, we are exploring more valuable mining cooperation opportunities globally. Our business has reached many geographic regions where we haven't set foot before. The political and economic environments, legal policies, and infrastructure conditions in different places are complex and subject to change, which presents challenges to our exploration and development. Where there's business, there's associated risk. We closely monitor policy and operational environment changes in the countries and regions of our projects and make operational adjustments as necessary.

As a public company, we will also announce important developments in time for investors' reference. Regarding counterparty risk, we acknowledge that in any business market, there may be (corrected by company after the call) participants who do not act in good faith. We are resolutely addressing issues encountered in projects through legal measures. At the same time, we are learning lessons from experiences, being more cautious in selecting partners, taking preventive measures, balancing risk and rewards, and progressing projects conservatively.

This is from the line of Kevin Dede from H.C. Wainwright.

NG, you spoke a little bit to inventory, I think so did James, and inventory levels worldwide. Could you give us a little more color on what you're seeing? Clearly, there's lots of pressure on pricing. But I was wondering if you could compare global inventory levels with the end of March. Do you think they're still high? Do you think they've come down a little bit? Clearly, you're seeing -- you've sold more of the A13 series. So congratulations on that. I'm just kind of curious about future price per terahash trends.

Thank you. I think in the past few months, the mining machine market's main focus has been on product upgrades and clearing inventory. So as a result, the overall market inventory has gradually decreased. However, it's important to note that market inventory still remains at relatively high levels. Taking a global view of the market, I think with the gradual recovery of Bitcoin prices this year, both the company and some ambitious clients worldwide have been positioning themselves ahead of the next halving and the next bull market.

However, it is also crucial to understand that the current market sentiment is somewhat fragile and vulnerable to short-term policy changes and Bitcoin price fluctuations. So due to the competitive reasons, we cannot disclose specific client procurement plans, but the overall trend for the second half of the year is clear: High-quality, expansion-minded clients will prepare for the next four years after halving by procuring the latest machines through futures contracts, while many small and medium-sized miners will opt for cost-effective traditional models to expand short-term gains with lower risk.

So due to the current intense competition in the mining machine market, computing power prices are generally at minimal profit or even negative margin levels. So I think from the perspective of mining machine prices, the current period presents a good opportunity for purchasing mining machines, offering great value for money. We hope that the customers who are still considering their purchase plan will place orders with us as soon as possible, yes.

So NG, you also spoke to maybe holding back on your wafer orders from your foundry suppliers, I'm curious on how you see being able to resume those orders if and when the mining machine market returns to strength. Are you at all concerned that you will not be able to get wafers that you need to build new inventory? How concerned are you about your supply chain?

I think currently, we are building the machines from when we have -- when we started the contract with our customers. Recently, I think that semiconductor foundries have relatively ample production capacity, with (corrected by company after the call) favorable wafer prices. However, in a broader sense, wafers for advanced processes tend to have higher costs due to their high technology and lower supply. So I think for the next maybe two quarters, the supply chain is not the primary problem for us. Our -- we will focus on the -- our sales system and provide machines with the best performance in the market, and continue to invest in our R&D, yes.

Okay. Last question for me, NG. Understand maybe 2.0 exahash not running in Kazakhstan and perhaps 2.0 exahash not running in the U.S. given about 5.0 exahash installed, can you talk to what you expect your self-mining hash rate to be through the September quarter and what your investment thinking is regarding Canaan's self hash rate for the balance of the year?

For the numbers, I will pass this question to James.

Kevin, this is James. We are talking about a total of 4.9 exahash of mining power. And the loss from Kazakhstan is about 2.0 exahash, as you said. But the loss from the U.S. is only 1.0 exahash, it's not 2.0 exahash. So the total loss here is 3.0 exahash compared to the total 4.9 exahash. And also in Q2, we have already successfully deployed 0.4 exahash with Stronghold in the United States. And we have another 0.2 exahash to collaborate with Stronghold as well in the United States. And also in quarter three, we have started to bring some pilot runs in the new cooperative sites in Africa, South America, and North America. But of course, getting electricity is a slow process, it will take some time.

So in my estimation about quarter three, we definitely will lose half -- at least half of our total capacity if the Kazakhstan machines could not recover quickly. So that's also reflected in our total revenue estimation about quarter three. But we are looking for different sites in different locations so we can recover from this quickly in quarter four. So from my estimation, in quarter four, we will have a bigger chance to recover in the mining operation hash rate. And we will continue to take mining as one of our important strategies and execute the strategies consistently. Thank you, Kevin.

We'll now take our next question. This is from the line of Shuang Sun from Guosheng Securities(inaudible) your line is not too clear. Could you please try asking your question again?

Okay. My first question is, when do you expect to clear out the A12 inventory?

Thank you, Shuang. I think we are actively working on clearing the inventory of A12 models, although the progress has been a little bit slower than we anticipated. At this point, we expect to complete the clearance by the fourth quarter of this year for the A12 series. Thank you.

My second question is how was your progress on mining hash rate deployment and installment (foreign language).

Yes. As just now I referred to Kevin, we have lost 3.0 exahash in Kazakhstan and also one site in the United States. We quickly installed another 0.4 exahash during Q2 with Stronghold, one of our important mining partners in the United States. And we implemented another 0.2 exahash in quarter three with Stronghold. And also, we deployed some new sites in Africa, South America, and North America during quarter three with pilot runs. Those small sites together, I don't think we can recover 100% of the total hash rate back to 4.9 exahash as quarter 2, that means we definitely will lose some of our capacity in quarter three. But we will step by step recover that in quarter four with all the new sites ready, and we have the shipment schedule to make our total capacity come back to the bigger one.

So I think to your question, I will still consistently say we put mining as our important strategy, and we will consistently invest and deploy machines to support that strategy. Thank you. Thank you Shuang.

And the last question is how do you expect the upcoming halving event to impact computing power demand and price [Foreign Language]?

Okay. Okay. As previously mentioned, we observed two trends in the past half-year. On one hand, our high quality and expansion-minded customers are opting to procure the latest machine models through futures contracts. On the other hand, a significant number of small to medium-sized miners are hedging the halving risk by purchasing older models at lower prices. So in general, the market demand is recovering with fluctuation. However, due to the relatively high market inventory and intense competition, the mining sector will continue to experience pressure on computing power prices.

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.

Hi, everyone. This is Clark. Thank you so much again for joining us today. If you have any further questions, please feel free to reach out to us to the contact information provided on our website, and have a nice day.

Thank you. That concludes the call today. Thank you, everyone, for attending. You may now disconnect.