Canaan Inc. Q4 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. 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 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. Jin Cheng James. In addition, Mr. Xiaoming Lu, our SVP; 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 filed 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'll 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 now turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead.

Hello, everyone. This is Nangeng, CEO and Founder of Canaan. Our CFO James and I are delighted to share our quarterly results from the company's Singapore headquarters. The market environment in the fourth quarter of 2022 became even tougher, appropriately reaching the target moment. The fast rise in interest rates by 75 basis points in November and 60 basis points in December to combat inflation has created significant challenges. As such, the macro environment has been quite difficult for the bitcoin mining industry. Also in November 2022, the crypto exchange FTX and the crypto lender BlockFi both filed for bankruptcy. These unfortunate events further hurt creditors and weakened investors' confidence in the entire cryptocurrency industry. Due to this series of adverse events, the bitcoin price decreased towards a 52-week low of $16,500 at the end of the year. At the same time, energy prices remained high because of regional conflicts. While bitcoin's total network hash rate increased by more than 20% from the last quarter as new mining firms began operations and new machines came online globally. This made mining more difficult with decreased mining work and led some mining farms to cease operations. In North America, where mining has been relatively concentrated since 2021, many miners and hosts have high debt ratios and increasing financing costs, which have adversely affected their cash flows. This burden has further impacted the operations, income, and demand from miners purchasing machines. We have mixed feelings about this industry downturn. During the fourth quarter of 2022, I, together with our management team, visited investors, clients, and partners in North America, the Middle East, and Southeast Asia. I wanted to understand their business and financial positions and learn how they cope with the current industry challenges. Thanks to the proactive change in our flexible sales strategy, as well as our mining business which we have been expanding, we generated a total of RMB 392 million in revenues this quarter, exceeding our guidance of RMB 310 million. Today I want to take this opportunity to discuss three key topics. First, our continuous investment in R&D and production capacity. Second, our ongoing development and progress in our mining business. Finally, our reflections on the downturn in the bitcoin price and the overall cryptocurrency industry. First, we made substantial investments in R&D and continued to secure future production capacity in the fourth quarter. Our CFO will share more details on this later. I would like to note that during an industry downturn, it is a tough decision to maintain these investments. This decision showcases our long-term commitment to global bitcoin adoption. In late October of last year, we launched the new generation A13 mining machines after the tape-out of the advanced process node. A13 achieves new highlights in computing power and energy efficiency. After releasing our new generation mining machine, we have been strengthening our cooperation with foundry partners to secure limited surplus production capacity of wafers on the most advanced nodes. Accordingly, we are moving into mass production and upgrading our products to the new generation with better computing power and energy efficiency. Second, our mining business is bearing fruit. Our mining operation's computing power in Central Asia and North America increased slightly to 3.3 exahash per second in the fourth quarter from 3.2 exahash per second in Q3 of 2022. The power supply in Kazakhstan has been improving, but it is still unstable. Under these conditions, we generated mining revenue of RMB 72.2 million in the fourth quarter, up 16.3% sequentially. Despite the bitcoin price decrease during Q4, we now have 757 bitcoins in total. Going into the first quarter of 2023, the bitcoin price shows an upward trend, and we are making further strides in our mining business. As of the end of February, our total installed mining computing power reached 3.8 exahash per second. We expect our total hash rate to reach between 5 to 5.5 exahash per second by the end of Q1 of 2023. Our nearly ten years of industry experience has enabled us to discover diverse ways to collaborate with our partners and adapt to changing market conditions. We are proud to have become an international leader in the bitcoin mining sector. We expect to deploy more mining projects across multiple regions in the future. Finally, we have gone through four major bitcoin bear markets. I want to share my perspective on the low point of this bitcoin cycle. The fourth quarter of 2022, in my view, was the darkest time for bitcoin and the entire cryptocurrency industry over the past two years. Bitcoin's price dropped significantly, and some unexpected events also occurred within the industry. This decline deeply hurt the confidence of industry players and drew regulators' attention, but I don't believe this should cause us to lose faith. We should view this as an opportunity for the industry to separate reputable companies from the bad actors. This process will drive the industry towards greater sustainability in the future. Despite the numerous negative headlines recently, I want to emphasize the positive aspects. Reflecting on the 14 years since bitcoin's inception, we can see significant differences today when compared to the past. Even when looking back over the last two years, we can appreciate great developments. Currently, the number of bitcoin miners and the total computing power of the network are at much higher levels compared to the low point of the 2020 crypto cycle. Moreover, bitcoin mining now occurs worldwide, contributing to a more decentralized trading network. Many miners are actively searching for and adopting low-cost, sustainable energy sources across the globe. These miners have monetized many power plants, strengthening their capacity and helping many developing regions establish green power infrastructures. Bitcoin has increasingly distanced itself from traditional finance and is now facing growing regulatory scrutiny in many parts of the world. We should recognize that this trend is indicative of the growing user base of bitcoin and other cryptocurrencies, which have formed a strong consensus that cannot be ignored. Bitcoin has transitioned from an asset that few people understood to becoming mainstream, now embraced by tens of millions of users. An industry that has only existed for 14 years will naturally experience cycles, but it will undoubtedly evolve progressively. Throughout this industrial development, we must expose illegal and unethical behaviors. Industry players are learning, improving, and adapting. Therefore, companies that comply with regulations and act transparently will stand out. This takes us back to our original aspiration we founded the company ten years ago. At that time, our goal was to create a compliance-driven company that supports the groundbreaking invention of the bitcoin system with superior computing technology. To achieve this goal and along with the global decentralization of bitcoin, we continue to globalize our company. By the end of 2022, we had established an overseas supply chain capable of quickly fulfilling orders from international markets and expanding our service capabilities with various sales and service stations worldwide. We developed a headquarters in Singapore with a multifunctional team dedicated to producing best-in-class products. By continuously integrating our technology and improving chip fabrication, we maximize our products' computing power and energy efficiency, aiming to provide a superior experience for bitcoin miners and collaborate with them to strengthen the bitcoin network. Since the second half of 2021, we have begun exploring the mining business and evolved our business model with the growing aspirations of our team and our mining operations. Our installed mining hash rates have shown promising growth as of today. Ultimately, we remain bullish on the future of bitcoin and the supercomputing technology underpinning it. Moving into the first quarter of 2023, we expect to see improvements. We believe the most challenging phase of the bitcoin cycle is nearing its end. We are now looking forward to a market recovery. Recently, we have received mining orders and purchase inquiries. However, we have also observed that many miners are unable to place orders due to financial difficulties. Overall demand for computing power is gradually recovering, but this recovery has only just started. We expect our total revenue in the first quarter of 2023 to be approximately RMB 450 million or USD 65 million. We anticipate our total installed hash rate from mining to reach 5 to 5.5 exahash per second by the end of the first quarter of 2023. Our core strategy involves building our proprietary mining machines in tandem with our mining operations. We are focusing on two reinforced business segments centered on bitcoin. Moving forward, we will continue to iterate on our products and deliver excellent services to our mining clients as we support the growth of the bitcoin ecosystem. Alongside miners worldwide, we will contribute to bitcoin's globalization and endeavor to explore favorable mining stacking opportunities during this age of global bitcoin mining exploration. This concludes my prepared remarks. Thanks, everyone. I will now turn the call over to our CFO, James.

Thank you, Mr. Nangeng, and good day everyone. This is James. I'm with our CEO in our Singapore office. Broadly speaking in the fourth quarter, as our CEO has already stated, the market situation was very tough for both Canaan and our customers, as well as the whole industry. At the same time, we also faced our own challenges in executing all our product upgrades from the A12 series to the A13 series. As a result, we had to make upfront payments for new waivers, while sales were impacted due to the low bitcoin price. However, we made good progress in developing the scale of our mining operations in quarter four, which contributed more revenue than ever. Despite all the difficulties, we achieved total revenues of RMB 392 million, exceeding our previous guidance by more than RMB 80 million. Regarding machine sales, we endured the market conditions and continued to decisively execute our strategy. Considering the limited demand, we further lowered the selling price for our legacy A12 series models to spur sales. As a result, we delivered 1.9 million terahash per second in the quarter, contributing approximately RMB 318 million in mining machine sales, which was better than we expected. I would like to share a few points about our mining business. During the market downturn, we actively explored and developed our mining business because these mining resource assets are undervalued in the current bear market, making it an ideal time to invest in and deploy valuable assets for the long run. It also allowed us to allocate our machines in inventory to generate bitcoin. We further improved power supply, and our revenue from mining reached RMB 72 million, up 16.3% sequentially. This impressive growth occurred despite the decreasing bitcoin prices during the quarter. This marks the first time our mining revenue crossed the USD 10 million milestone in a single quarter. Please note, revenue from mining is recorded according to the bitcoin price when a bitcoin is mined. After accounting for power fees using bitcoin, we held 757 bitcoins as of the end of 2022. This bitcoin balance rose 41% quarter-over-quarter compared to 535 in the third quarter. By the end of 2022, we had installed a mining hash rate of 3.3 exahash per second across Central Asia and North America. By the end of February, we reached a total installed hash rate of 3.8 exahash per second. With these favorable developments in our mining collaborations recently, we expect the company's total online mining machines to achieve a hash rate of 5 to 5.5 exahash per second by the end of the first quarter of 2023. The installment progress may be subject to unexpected issues, which may influence the final installed hash rate. The total energized hash rate is also contingent on the local power supply. Let's talk more about the profit and loss. We incurred a gross loss of RMB 230.9 million for the fourth quarter of 2022 due to lower top-line revenue amidst an unfavorable market and higher costs. Specifically, our mining machine sales had a gross loss of RMB 136.7 million for the quarter, mainly due to an inventory write-down of RMB 205.3 million. This write-down resulted from a lower-than-cost average selling price for the previous generation machines, which suffered from the declining bitcoin price. The inventory write-down decreased by 7% sequentially as we strived to sell our inventory in the fourth quarter. If the inventory write-down were excluded, we would have recorded a gross profit for our mining machine sales of RMB 68.7 million. The decreased average selling price of machines also narrowed profits compared to the third quarter of 2022. Regarding our mining business, we recorded a gross loss of RMB 77.0 million for the quarter. Our costs for energy and hosting amounted to RMB 74.2 million, primarily due to increased energy prices. Additionally, we incurred depreciation costs of RMB 74.9 million in the fourth quarter due to our increasing number of deployed mining machines. Excluding depreciation, our profitability from mining revenue, after deducting energy and hosting costs, was a loss of RMB 2.1 million for the fourth quarter. This loss was primarily due to lower revenue per bitcoin mined, resulting from decreased bitcoin prices during the fourth quarter. We recorded RMB 223.5 million in R&D expenses during this quarter. This included about RMB 96 million for a one-off expenditure on our new generation chips. The remaining RMB 127.5 million resulted from our ongoing research and development efforts, which grew steadily both sequentially and year-over-year. Most of our sales contracts are denominated in U.S. dollars, hence we recorded a foreign exchange gain of RMB 26.6 million in the fourth quarter due to the depreciation of the RMB against the U.S. dollar. As the company continues to internationalize and drive global sales, we are considering adjusting our reporting currency, which may impact our foreign exchange gains moving forward. As a result of higher depreciation, inventory write-downs, and relatively higher R&D expenses, we recorded a net loss of RMB 438.3 million. As we continue to grow our mining scale, we expect to incur higher depreciation, and considering the modest machine selling prices and potential inventory write-downs as a result, we are not expecting substantial profits in the next one or two quarters. However, from a longer-term perspective, this depreciation will not extend beyond the useful life of the machines, and the selling prices could be readjusted upward with rising demand once the bitcoin price increases. Despite these near-term headwinds, we remain optimistic about generating substantial profits in the long run. Turning to our balance sheet, as of December 31, 2022, our cash and cash equivalents decreased to RMB 707 million. This cash decline amounted to RMB 1,295 million, primarily attributed to RMB 848 million for prepayments to secure wafer supply and production, as well as RMB 205 million for value-added tax and income tax expenses. Our operating expenditures used RMB 149 million in cash. We also made upfront deposits of RMB 21 million to secure mining pharma resources for expanding our business. Our investments in the supply chain have equipped us with adequate production resources to manufacture our next-generation mining machines and allocate increased computing power for mining. We made these strategic investments during this bear market, preparing us with sufficient inventory for sales and positioning ourselves for the upcoming bull market. As bitcoin prices rise, we are confident these investments will yield notable returns. Our cash allocation also aims to deliver value to shareholders. During the fourth quarter of 2022, we utilized approximately RMB 72 million, equivalent to USD 10.5 million, to repurchase 3.5 million ADSs under our current stock repurchase program approved in March 2022, averaging $3 per ADS. In late November, we filed a prospectus supplement on Form 424B5 to officially establish the ATM facility for future financing. We have not yet used the ATM and will continue to assess appropriate financing opportunities to fuel our business growth. We maintain our belief in bitcoin's resilience during its most challenging times and have seen a silver lining as bitcoin prices have moderately improved since the beginning of 2023, consistent with our outlook. I'm pleased to report that in February, we received over 200 orders from customers. Although the average contract amount is not particularly large, it indicates that customers are in a more positive mood compared to the fourth quarter of 2022. During this recovery phase, we will allocate our cash to critical aspects such as wafer supply to seize market opportunities and expand our scale when the market recovers. Now I would like to briefly walk you through our financial results for the quarter. Total revenues in the fourth quarter were RMB 391.9 million, compared to RMB 2,184.6 million in the same period of 2021 and RMB 978.2 million in the third quarter of 2022. Gross loss was RMB 230.9 million. Total operating expenses for the fourth quarter of 2022 reached RMB 393.5 million compared to RMB 273.7 million in the same period of 2021 and RMB 275 million in the third quarter of 2022. Loss from operations totaled RMB 624.4 million. Net loss attributable to ordinary shareholders was RMB 438.3 million. Non-GAAP adjusted net loss was RMB 341.8 million. Basic and diluted net loss per ADS for the quarter amounted to RMB 2.61. As of December 31, 2022, the company had cash and cash equivalents of RMB 707.3 million. This concludes our prepared remarks. We are now open for questions.

Thank you. We will now begin the question and answer session. Our first question comes from the line of Michael Donovan from H.C. Wainwright. Please go ahead, Michael.

Kevin is currently traveling, so I'm substituting for him. The first question is about the current machine demand given the low pricing, and how Canaan is managing the balance between developing self-mining and selling machines.

Thank you. For this question, on the positive side, the demand for high hash rates has started to increase slightly in the beginning of this year. So the overall demand for computing power has shown some recovery. We have received more purchase inquiries and small orders. For instance, in the past months, we received over 200 new orders worth about USD 35 million because the situation has just begun to improve, though the total amount isn't that large. Demand from Asia has recovered most quickly while we haven't seen much recovery from North America yet. On the downside, inventory in the market has not completely been resolved. As a result, the selling price of machines has not increased in alignment with the rise in bitcoin prices or the number of mining machine orders delivered. Consequently, our selling prices remain constrained by the state of the industry. We have prepared for low bitcoin prices and reduced demand for an extended period. Our current strategy is to grow our mining presence by enhancing partnerships with mining farms and obtaining reasonable power prices. This strategy allows us to leverage our inventory of mining machines for mining operations. By investing when bitcoin prices are low, we anticipate rewarding returns as prices rebound. We expect that contracts will not remain constrained in the next one or two years and will likely see an increase. Therefore, we are willing to lock in wafer production capacity to ensure we have enough machines with higher performance for both sales and mining. Thank you.

Thank you, Nangeng. And for my second question, it's specifically about bitcoin price. So you've been quite good at predicting the price of bitcoin. From your perspective, how do you see the bitcoin price's correlation with risk-on assets? And do you see there being a decoupling from risk-on asset prices?

I believe the bitcoin price currently correlates closely with high-risk assets. When risk assets recover, I think bitcoin's price will follow suit. This is my personal view.

Thank you. Our next question comes from the line of Jiaer Zhu from China Renaissance. Please ask your question, Jiaer.

Hi, Nangeng. My first question is about the pricing strategy and inventory management. How much computing power do you plan to allocate for the self-mining business?

Thank you. I'll take this one. Regarding the pricing strategy, we observe that the bitcoin price has only slightly recovered, and the entire mining demand is gradually improving. However, we still see significant inventories of machines in the market. Current conditions are not favorable for a rapid increase in selling prices. If bitcoin prices experience another decline, we may need to further reduce our selling prices. From our perspective, we will closely monitor market demand and adopt flexible pricing strategies to swiftly sell our inventory and recover cash. We are also taking advantage of market opportunities as they arise. As of the end of February, we have sold most of the limited quantity of A13 new models in stock and are currently producing a new batch. We shipped many older models in the fourth quarter of 2022 and recently in the first quarter of 2023. Currently, our overall inventory level is sufficient. In the context of a slowly recovering market, we will actively explore mining projects and utilize more inventory for our mining business to generate bitcoin rewards, anticipating our installed computing power to be between 5 and 5.5 exahash per second by the end of the first quarter of 2023. So we are also actively exploring market demand for mining machine sales and negotiating with large customers to identify sales opportunities as the bitcoin price improves. Overall, we believe that the bitcoin price will not remain restricted in the coming one to two years, leading to greater demand for computing power and mining equipment. Hence, we have locked in wafer production capacity in anticipation of a forthcoming bull market. Thank you.

Thanks, James. And my second question is whether you have any stock incentive plan and dividend distribution plan?

Thank you for the question. Before the company went public, we established a program to incentivize our employees with stock options. This program has been operating smoothly since going public and is one of our key strategies for attracting talented employees and research teams. We will continue discussing and planning with our Board of Directors regarding the employee incentive plan. As for dividends, we currently do not have plans to distribute dividends to shareholders. Instead, we plan to invest more in research and development, as well as production deployment to create long-term shareholder value. As the company continues to grow and accumulate assets, we will keep focusing on R&D operations to expand our business. We will discuss the possibility of dividend distribution when the timing seems more appropriate. Thank you.

Thank you. Our next question comes from the line of Mike Legg from The Benchmark Company. Please ask your question, Mike.

Thank you, good morning. You mentioned that you have 200 new orders, roughly USD 35 million on the books now. Can you discuss how the demand has changed from the fourth quarter to now with bitcoin moving up to $22,000, and the related margin pressure on that? Also, are these new entrants inquiring about machines, or are traditional players increasing and upgrading their fleets? Thanks.

I will take this one. We have indeed collected a number of small orders recently, but overall, demand is just beginning to recover. The total volume is not significant yet. Some traditional miners are unable to place orders due to financial limitations, and high industry inventory levels have also restricted our sales volume and prices. We are prioritizing efforts to sell our inventory of old models and parts to quickly recover cash. If fluctuations in bitcoin prices lead to slower sales of our automotive inventory, we may have to further adjust prices. If this occurs, our gross profit will likely be affected. Regarding our mining business, we expect our mining revenue in the first quarter to grow further, assuming we increase the number of mining machines installed and online quarter-over-quarter while benefiting from the rebound in bitcoin prices. However, as energy prices remain high, we expect our mining business's gross profit to improve only slightly in the first quarter. Additionally, as we deploy more computing power, depreciation of mining machines will increase in conjunction with our deployment program, which will also impact gross profits. Thank you.

Thanks. Can you discuss the operating environment in China right now and elaborate on the build-out in Singapore and the U.S.?

Thank you. At the end of 2022, China adjusted its COVID control procedures, leading to an increase in the efficiency of transportation and logistics, returning to pre-pandemic conditions. Our employees can now work more efficiently in operations, finance, and R&D through online and in-person collaboration. This enables us to grow our international business via in-person meetings with overseas customers. The size of our teams at our Singapore headquarters, covering R&D, operations, and finance, has steadily increased and is playing an increasingly important role in our overall operations. We have also established teams in North America dedicated to mining operations, sales, warehousing, logistics, and after-sales services, providing enhanced support for local market development and after-sales services. Thank you.

Thank you. Our next question comes from the line of Shuang Sun from Guosheng Securities. Please ask your question, Shuang.

My first question is whether you anticipate additional inventory write-downs in the next quarter?

Thank you for this question. In response to the continuing decrease in bitcoin prices in the fourth quarter, we lowered the selling price of some older models, which resulted in expected cash inflow from selling these models being below cost. Consequently, we recorded a provision for inventory write-down of over RMB 200 million, recognized as a cost for this quarter. Furthermore, depreciation costs associated with our mining machines increased due to the expansion of our equipment. These factors led to a negative gross profit for this quarter. In 2023, bitcoin prices have only shown moderate recovery and have recently declined. Should we further adjust the prices for the higher hash rate A12 model, we may incur additional inventory write-downs in the fourth quarter of 2023. However, if we can sell this inventory at prices above cost, the provision for inventory write-down we recorded could offset the sales cost, improving our gross profit margin. I believe I have answered your question.

So the next question is about recent developments regarding audit risk?

I believe you are referring to the previous PCAOB issue. Regarding the audit issue faced by Chinese stocks and the consequential delisting risk, we have witnessed positive developments recently. On December 15, 2022, the PCAOB announced it could fully inspect registered public accounting firms headquartered in Mainland China and Hong Kong. Given this solid progress, the market is more optimistic about resolving audit issues. From our perspective, we actively explore solutions since the emergence of the delisting risk caused by audit challenges. Our goal is to protect our stakeholders' interests, particularly our shareholders', while maintaining data and compliance advantages as a listed company. In our globalization efforts, we have expanded operations and supply chains overseas. As a listed company, the majority of our revenues are generated internationally. We will continue to enhance our governance capabilities for compliance and legal operations across various countries and regions and maintain active communications with the capital markets.

Thank you. Our next question comes from the line of Chris Brendler from D. A. Davidson. Please ask your question, Chris.

Hi, thanks. Good morning and thanks for taking my questions. My first question is regarding the excitement around ChatGPT and AI. Can you provide an update on your AI business?

Thank you for your question. Our current lineup of AI chips primarily focuses on computer vision applications, such as analyzing processing regions for machine learning tasks. While this differs from the models shown by ChatGPT, we are excited by technological advancements in AI, which hold promise for addressing industry challenges like user experience and underwriting intelligence levels. We believe this is the direction we should pursue. However, it's important to note that these new AI technologies necessitate different hardware requirements than before, and we will need time to explore and research these areas. In the short to mid-term, we will continue to work on familiar AI chip technology, iterating and improving our products that are still valuable to users. In the long term, we hope to leverage advancements in high-end technology into the development of AI chips.

Great. I have a different question, maybe for James. Can you help clarify the share buyback and the ATM? Is the ATM primarily for growth initiatives while the share buyback is focused on utilizing excess cash?

Yes, we did execute share repurchases based on our program in quarter four, and we have yet to commence utilizing our ATM facility. In late November, we filed the 424B5 and established the ATM facility to enable quick financing actions when the timing is appropriate. We will assess our performance against market conditions for any decisions around the ATM. Currently, we believe some recovery in valuations needs to occur. After considering the interests of our shareholders, we plan to carry out financing activities flexibly and prudently. Given the specific financial needs of our industry, it's essential to have a long-term strategy in the capital market, enabling us to mitigate operational risks and seize fleeting business opportunities.

Our next question comes from the line of Andrew Bond from Rosenblatt Securities. Please ask your question, Andrew.

Could you discuss your growing focus and plans for business growth in the U.S. and how that market is progressing?

Thank you. We highly value the North American market due to its large concentration of miners. To that end, we have established a multifunctional team locally that handles warehousing logistics, sales, and after-sales services. We have also set up several maintenance service centers and spare part warehouses to provide prompt after-sales support for our customers in both North and South America. Despite the high inventory levels for used mining machines currently in the U.S., we believe customers will find value in acquiring our new machines, which come with one year of free warranty service, offering a better mining experience than used machines. Additionally, the mining environment across North America varies significantly, affecting the types of mining sites and the conditions. We are collaborating with our customers to deliver customized cooling and mining solutions based on their geographic challenges. Thank you.

Thank you. There are no further questions. Now I'd like to turn the call back to the company for any closing remarks.

Hi, everyone. We truly appreciate you all taking the time to join the call today. If you have any further questions, please feel free to reach out to our team through the contact information on our website, and we look forward to our next discussion with you. Thank you.

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