Canaan Inc. Q1 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc. First 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 were released by 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. 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. I’m Nangeng, the CEO of Canaan. Thank you for joining our conference call. James and I are at the company's headquarters in Singapore, sharing the quarterly report conference call with you. Compared to Q4 of the previous year, Q1 of 2023 has brought more hope to the bitcoin mining industry. Although the bitcoin price still fluctuates, it has generally stepped out of the bear market. The confidence of miners has gradually recovered, coupled with the traditional peak season in the first quarter, showing signs of revival in purchasing demand. Although the purchasing power of large miners is still limited by cash flow, facility construction, and the financing environment, this has not affected the positive trend of the market. The selling price in the mining machine market is still declining, and the first quarter remains in a challenging market state. In this ever-changing market environment, we believe that maintaining strategic continuity while timely adjusting tactical decisions according to market dynamics is crucial. In other words, we need to keep investing in business and assets that bring long-term value while also carefully managing our company's balance sheet. I would like to introduce to investors the four strategic focuses that we have concentrated on and our actions in this area. First, we insist on long-term R&D and production capacity investment. Second, we continue to develop and improve our multifaceted sales system to connect with and assist global customers. Third, we adhere to our mining strategy, overcome difficulties, and continue to expand our mining deployment. Finally, we maintain a solid balance sheet and accumulate valuable assets with great potential. I will elaborate on these four points one by one. Firstly, we are committed to R&D and production capacity. Product development and capacity assurance remain our major input and investments in the first quarter of 2023. The specific data will be shared by James later. As a technology and product-oriented company, the importance of product development is self-evident. We always put product development first. As mentioned in the last financial report, our latest generation A13 series mining machine was introduced during the industry's downturn in late October last year. We insisted on maintaining close cooperation with upstream foundries, achieving mass production in the first quarter and further improving yield and computing power efficiencies through technical adjustments and process improvement. Our A13 series has reached and exceeded our production design expectations in terms of yield rate and actual performance. In the first quarter, we have achieved stable supply. In actual use by customers, the performance, power consumption, and quality of the A13 series have been recognized, and shipment volume has grown rapidly. Whether in a bear or bull market, we always insist on integration and strive to make the best mining machines. Even when the A13 series was not yet in mass production and the market was at its most bearish, our new product development was always in full swing. We are well aware that the market requires performance of mainstream products to improve significantly about every six months, and we must keep up. Continuous launching of new products and supply chain investments are crucial. In the first quarter, our mass production and investments in the supply chain exceeded $50 million. I believe that our efforts will pay off in subsequent product performance improvement and supply chain stability. Secondly, we are dedicated to developing and enhancing our sales system to reach global customers. The industry we are in is fast-growing and unpredictable. In each cycle, the industry undergoes reshuffling, with some miners leaving and new ones joining. As miners continually adapt to developing standards worldwide, transforming wasted energy into reusable power, both the identity and location of miners are constantly changing. Starting from the first quarter of this year, we accelerated the construction and improvement of our comprehensive international sales system. Our sales system is now divided into three parts: large clients, channels, and retail, assisted by online stores and primary business development, allowing us to better reach and convert customers worldwide. In the first quarter of 2023, the overall industry was affected by inventory, competition, financing conditions, and cash flow. Although sales volume in the mining machine market saw slight recovery compared to Q4 of 2022, we still remain in a bear market characterized by a continuous decline in average selling prices of computing power. A series of small and medium-sized bank failures in the U.S. late in the quarter also had some impact, causing delays in payments and shipments for some orders. These factors resulted in lower-than-expected sales revenue for this quarter. We achieved total sales of 4.22 million terahash per second, sequential growth of 126.8%, but the total quarterly revenue of $55 million was below our expectations. However, we also see positive aspects. Demand from large clients in the U.S. fluctuated. Our expanding sales system quickly identified many opportunities in other regions. With the total number of purchase orders rising to over 500 in Q1, we actively developed sales channels in Southeast Asia and established cooperation with local distributors in Thailand and Malaysia for the first time. Our online store targeting overseas retail customers attracted orders from about 20 countries, including first-time contacts in several countries such as Greece, the Netherlands, Argentina, Brazil, Mexico, and the Philippines. As we enter Q2, the activities and efforts we implemented in Q1 are starting to yield results. For instance, we recently signed a contract order for 11,000 units of our A13 product with Cipher, a publicly listed institutional mining client in North America. Before placing the order, we participated in conducting extensive on-site product tests at their mining site in Texas, where the client ultimately recognized the excellent performance of our A13 series products under relatively extreme weather conditions. Recently, we have also signed a series of large-scale contract orders for an additional 36,000 mining machines in other regions, expected to be delivered before the end of the fourth quarter of 2023. The appearance of these large contract orders across multiple markets confirms that our business and product strategies are correct. Finally, the return of contract sales orders will also help us improve our cash flow situation. Thirdly, we continue to expand our mining deployment. Since the company started mining operations in the second half of 2021, we have faced many challenges. Despite this, we have firmly established mining as a strategic priority and secured our place in the rapidly developing global bitcoin mining industry. In the first quarter of 2023, the profitability of mining improved due to recovery in bitcoin prices and miners affected by the market downturn in the fourth quarter of 2022 being able to restart operations. This quarter, we produced 476 bitcoins, contributing to mining revenue of $11 million, a slight increase from the previous quarter and a record high. We are continuously exploring more mining opportunities in different regions and reducing our comprehensive mining operation costs. Even though the total network computing power is still rising, the increase in bitcoin price and recent industry events like BRC20 have boosted mining income during certain periods. We anticipate that the company's mining income will reach a new high in the second quarter. As of March 31, 2023, we have deployed computing power of over 5 exahash per second to our mining sites. However, due to severe cold weather and contract execution issues, the total installed power is over 4 exahash per second. This figure is lower than our forecast in the previous quarter's financial report. We will continue to strive to improve our deployed computational power with our cash flow and operational capabilities. Lastly, we are dedicated to maintaining healthy cash flow and accumulating assets with strong growth potential. Canaan has just completed a full decade from its inception in early 2013 to the first quarter of 2023. We have weathered many market ups and downs and gained unique experience in managing our balance sheet. In the first quarter of this year, our predictions about the price of bitcoin were mostly accurate, but selling our mining machines proved more difficult. We achieved improvements in sales and the return of contract sales orders in the second quarter, contributing to our revenue and cash flow. Additionally, our healthy and stable supply chain resources accumulated over the years have helped us seize opportunities to mass produce and deliver mining machines at an advantageous time. Meanwhile, our bitcoin assets continue to grow. Once again, we emphasize our strategy of holding bitcoins. Bitcoins generated from mining are only used to pay for direct operation costs such as electricity. Our self-developed mining machines and deployed mining power are important assets for producing bitcoin, with huge growth potential as prices remain favorable in the medium and long term. In some cases, already deployed mining machines can be restored with warranties. In this brand new industry, we are making history every day. Even for me, the first quarter of 2023 was a challenging start. The uncertainty has made our performance less than ideal. However, our direction has not wavered significantly. Since the second quarter, although the price of bitcoin has not risen sharply, the original results of the company have been more positive, thanks to the hard work of all Canaan employees. However, we must also see that the current economic environment is not optimistic. The cloud of uncertainty still looms over us, and the price of bitcoin may continue to fluctuate. At least in the United States, the financing and processing capabilities of large miners have not yet recovered. Coupled with the current situation where the industry inventory has not yet stabilized, both sales prices and gross profit will continue to be under pressure. Based on this comprehensive situation, we are extremely cautious about expectations for the second quarter of 2023. The revenue for the second quarter of 2023 is expected to be about $72 million. This forecast is based on current market and operational conditions, and actual results may vary. In the final section, I would like to share some new insights on my perspective regarding decentralization and bitcoin. I believe that the utility of bitcoin is complementary to the development of new technologies, and its function as a medium of payment and a store of value has never changed. Over the past ten years, the core components leading to Web3 have largely been completed, namely blockchain-based digital currencies and smart contract technology. In our last earnings call, someone asked me if I think bitcoin is a risk asset. I have reflected on this question since then. In the short term, bitcoin indeed shows characteristics similar to risk assets. However, in the medium term, bitcoin should be seen as a tool against systemic risk and geopolitical uncertainties in the current global financing system. This is not hard to understand. In the long term, in the new information-driven world of Web3, blockchain-based digital currencies are likely to become mainstream applications with broader prospects. At that time, digital currencies and smart contracts will reshape the financial system of a new world, greatly improving efficiency and productivity, promoting societal progress. Today, we are a provider of computing power products and services in the blockchain industry. Going forward, I hope to expand our technology and participate in broader changes in the future, bringing value to customers and supporting societal progress with our computing power products and services. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James.

Thank you, Nangeng, and good day, everyone. This is James speaking from our Singapore headquarters. Firstly, I would like everyone to notice that we have changed our reporting currency. Starting from January 1, 2023, we decided to change our reporting currency from renminbi, or Chinese yuan, to U.S. dollars. This change will better illustrate the results of our global sales and is another important step in our internationalization strategy. We have applied this change retroactively to our historical results of operations and financial statements. It will also make it easier for our investors to read and analyze our financial reports in one currency. As Nangeng mentioned, the first quarter of 2023 was challenging due to revised but still weak market demand and a declining selling price. From a company perspective, we are committed to maintaining our strategic continuity. We kept investing in R&D and production capacity, developed and upgraded our sales system to reach global customers, continued to expand our mining deployment, and strove to maintain healthy cash flow while accumulating assets with growth potential for our shareholders. Overall, in Q1, total revenue generated was $55.2 million, which did not meet our guidance of $65 million. The gap consisted of approximately $6 million in machine sales and $4 million in mining business. Let's begin by discussing our machine sales. Our revenue from mining machine sales was $43.7 million in this quarter, 7.6% lower than $47.3 million for the last quarter. In Q1 of 2023, the industry was affected by inventory competition, financing conditions, and cash flow, with the average selling price of computing power declining further. We actually increased our sales volume in computing power, reaching 4.2 million terahash per second, a substantial increase of 126.8% compared to Q4. However, the average selling price dropped to $10 per terahash per second. We needed to adjust our prices in line with the overall market for bitcoin mining machines. Additionally, the recent series of U.S. bank failures in mid-March caused delays in payments and shipments for some orders. After that period, we received more orders and recorded customer advances of $8.3 million at the end of March. This laid a good foundation for the machine sales revenue in Q2. Our gross profit for mining machine sales was $5.2 million with a gross margin rate of 11.9% for this quarter. Turning to our mining business, our mining revenue was $11 million this quarter with a 3.3% sequential increase compared to $10.7 million in Q4 last year, marking a new record high. However, this revenue did not meet our expectations. We temporarily shut down machines at several mining sites in January due to low bitcoin prices, which was a necessary measure to minimize operating losses and impacted quarterly mining revenue results. In this quarter, our total deployed hash rates reached over 5 exahash per second, and our installed hash rates surpassed 4 exahash per second. We mined 476 bitcoins this quarter, achieving a mining profit of 19.8 bitcoins. Gross profit for our mining business in this quarter was $0.2 million. Please note that mining profit or loss is defined as a proportion of mining revenue deducting costs for energy and hosting, without considering depreciation. Now talking about our AI business, we recorded $0.41 million for AI revenue in this quarter, reflecting a 68.6% increase compared to $0.24 million in the previous quarter. This sequential revenue growth was mainly driven by increased sales volume in AIoT customers. Switching to the expense side, our R&D expenses stood at $19.1 million in this quarter, compared to $33.4 million in the last quarter and $15.2 million in the prior year period. The quarter-over-quarter decrease was due to a one-off expenditure for our new generation chips incurred in the last quarter. Excluding this one-off expenditure impact, our R&D expenses remained stable. The steady year-over-year growth reflects our commitment to building a talented R&D team. Our sales and marketing expenses were $1.5 million compared to $1.1 million last quarter and $3.0 million in the prior year period. Sales commissions reduced year-over-year because of revenue downsizing. Our general and administrative expenses were $17.6 million this quarter compared to $24.6 million last quarter and $19.8 million in the prior year period. The decrease was mainly due to a realized gain of $2.6 million on bitcoin sold in this quarter for electricity costs, which offset our G&A expenses. The net result of the foregoing was an operating loss of $85.7 million, which is 31.4% narrower than the last quarter. The net loss was recorded at $84.4 million, which is 8% narrower than the last quarter. It is important for us to remain focused on cash flow; we held $72 million in cash and cash equivalents as of March 31. As our CEO shared, during this quarter, we committed to securing future production capacity, spending $53.9 million to secure wafer supply and machine production. Other cash payments included $28.6 million for operations and $4.7 million in tax expenses. Note that the year-end bonus paid in January resulted in higher than usual operation outflow. The total cash outflow of $87.1 million was offset by inflows of $54.8 million from sales and proceeds of $3.1 million from the ATM facility. Turning our attention to our bitcoin assets, we held 623 bitcoins as of March 31, down from 757 bitcoins by the end of 2022. We mined 476 bitcoins this quarter and implemented a plan to exchange bitcoins for U.S. dollars for electricity costs. In total, we exchanged 699 bitcoins for electricity costs in this quarter, resulting in a decline of 134 bitcoins quarter-over-quarter. This was a one-time change. From March 7, 2023, to May 25, 2023, we utilized the ATM for a small amount of fundraising via financing facilities. During this period, we sold 1,532,219 ADSs with net proceeds of approximately $4.2 million at an average price of $2.73 per ADS. We executed these sales within ten trading days in March and did not utilize the ATM after March 31. Going forward, we will prioritize our shareholders, carefully monitoring cash flows and stock prices while executing ATM or stock repurchase as needed. For the second quarter, we anticipate a revenue of $72 million, a 30% increase from Q1. Despite the market's gradual recovery, we have secured some contract sales orders from major clients and distributors, bolstering our cash flow and allowing us to invest in strategic areas. However, it's important to note that we operate in a dynamic market with uncertainties, so our estimation reflects our current perspective and understanding of operations. Now I would like to briefly walk you through our financial results for the quarter. Revenues in Q1 2023 were $55.2 million compared to $58.3 million in Q4 2022 and $201.8 million in the same period of 2022. Gross loss in Q1 2023 was $47.5 million compared to a gross loss of $64.1 million in Q4 2022 and a gross profit of $123.5 million in the same period of 2022. Total operating expenses in Q1 2023 were $38.1 million compared to $60.8 million in Q4 2022 and $38.0 million in the same period of 2022. Loss from operations in Q1 2023 was $85.7 million compared to a loss of $125.0 million in Q4 2022 and an income of $85.4 million in the same period of 2022. The net loss in Q1 2023 was $84.4 million, compared to a net loss of $91.6 million in Q4 2022 and a net income of $65.1 million in the same period of 2022. Basic and diluted net loss per ADS in Q1 2023 was $0.51. As of March 31, 2023, the company had cash and cash equivalents of $72.0 million. This concludes our prepared remarks. We are now open for questions.

Thank you. We will now begin the question-and-answer session. Your first question today comes from the line of Kevin Dede from H.C. Wainwright. Please proceed.

Thank you very much for taking my question. I was wondering if you might be able to offer a self-mining hash rate target for the year and perhaps share a bit on what you're seeing in terms of the availability of hosting sites? Secondly, I was hoping you could share a little more geographic information on equipment sales. It's comforting to see that sales are growing outside of North America, and I was wondering if you might be able to segment sales from Asia, North America, and Europe. Thank you very much.

As we mentioned, as of March 31, the deployed computing power at our mining farms exceeded 5 exahash per second. However, in Q1, the installation of computing power was lower than expected due to weather conditions and contract execution issues, resulting in a total installed hash rate of over 4 exahash per second. In Q2, we entered into a mining partnership with Stronghold in early May, involving 4,000 mining machines with a total capacity of 0.4 exahash per second. We are also exploring more mining partnerships in regions with abundant energy resources worldwide. Our mining business has expanded into geographical areas where we had no presence. The local economic and infrastructure conditions in these regions are complex and subject to change, challenging our expansion and development efforts. Hence, we have a more cautious outlook on mining expansion. We currently estimate the installed mining hash rate in Q2 will be around 4.5 exahash. This forecast is based on current operating conditions, and actual situations may vary. Mining is a long-term strategic focus for us and complements our mining machine sales business, enabling effective utilization of more inventory. We will actively and prudently explore collaboration opportunities, negotiate terms of cooperation, and strive to continuously increase installed mining capacity to generate bitcoin mining income.

I will take the second question from Kevin regarding the geographical situation of the mining industry. The leading market is still the United States, but inventory levels, both new and second-hand, are still quite sufficient in the North American market. It appears that more opportunities are emerging from Southeast Asia, the Middle East, and even the South American market. We've even noticed retail customers ordering machines from Africa and Western Europe, depending on local energy conditions. The mining business is expected to grow globally, as more areas join the mining sector. Additionally, as CEO mentioned, we have established connections with distributors in Malaysia and Thailand, enabling us to reach local customers in those countries. We hope to continue dialogue with major clients in North America; Cipher is just the beginning for us, and we have confidence in our ability to engage with more customers and enable their mining operations utilizing our A13 machines.

Yes, that's phenomenal. I really appreciate the detail. I hear great things about the A13, but I cannot leave the call without hearing from Nangeng what bitcoin price is going to be this year?

In short-term, I think we have no need for mid-term or long-term predictions of bitcoin price. But for the short-term, I believe bitcoin price is related to the economic environment, especially in the U.S. You know the answer; I believe you know the numbers. I trust that focus will return in the second half of this year.

Great, thank you very much, gentlemen. I appreciate the opportunity to ask questions.

Thank you.

One moment for the next questions. Next, we have the line from Shuang Sun from Guosheng Securities. Please go ahead.

I want to ask about the new progress and application scenarios of the company's AI edge computing chips.

Recently, the AI industry, represented by products like ChatGPT, has emerged as an important area. The AI industry has not evolved as expected due to the contradiction between user expectations for product capabilities and what the industry can provide at a certain cost. When AI products can deliver significant benefits to users, we will see positive results. The service policy is very encouraging. Therefore, I am extracting the company's AI department and business to ensure that our technology and investments can embrace the future of AGI, artificial general intelligence. In the short to medium term, we believe that a critical function of AIoT and edge AI is to convert real-world data, such as images, sounds, and sensor data, into text and code that can be understood by large models like ChatGPT. While complex decision-making is not a strength of edge AI today, it is an area where large models excel. Our K230 chip has highly efficient AI capabilities with advantages in terms of low costs and low power consumption. We are adjusting our product direction to adapt to this trend. In the long run, as I mentioned in the CEO remarks, I plan to explore ways to horizontally expand our technology and participate in broader future transformations, bringing value to our customers through general-purpose computing power products and services while supporting societal progress.

Is there any upside for the company's mining business going forward due to the very high transaction fees?

Yes, transaction fees will become an important complement to miners' income after multiple increases. The industry is developing as expected. Recently, due to events like BRC20, the increase in bitcoin transaction fees has benefited both miners and our mining business. If the network's total computing power remains constant, miners can earn more mining fees. We hope that both miners and ourselves can improve our financial situations and that our customers can quickly recover their purchasing power.

Given the overall growing supply of bitcoin on your balance sheet, what is your strategy for potentially selling them?

Currently, we do not have any plans to sell our bitcoin for several reasons. Firstly, our mining operations are still in the early stages of scaling up, so we have been focused on development. You may notice that we do sell mined bitcoin to cover our mining facilities' electricity costs, minimizing cash outflow. Regarding selling bitcoin, we choose to hold it in anticipation of future price appreciation. We believe that bitcoin is undervalued and have long-term confidence in its global adoption; thus, we currently do not plan to sell bitcoin in the upcoming quarters. If bitcoin prices increase significantly, we will revisit this topic.

Next up, we have the line from Mike Legg from The Benchmark Company. Please go ahead.

Thank you. Good morning. Could you comment on the Cipher 11,000 unit sale, plus you mentioned you had another 36,000 units being sold? Can you comment on what you're seeing regarding pricing environments and how margins are holding up?

Thank you, Michael. This is James. Recently, we have secured more large-scale orders, including the agreement with Cipher for 11,000 machines. I participated in a meeting with the Cipher team in New York and Singapore. I think their strategic ambition and professional execution capability align well with us, so our A13 series seems very suitable for their new mining operation in West Texas. This deal benefits both Cipher and Canaan. Regarding the current pricing environment, customer demand is gradually returning. However, inventory levels, both new and second-hand machines, especially in North America, remain plentiful, preventing prices from increasing. In Q1, we observed prices decline while bitcoin showed slight increases with some turbulence. Nevertheless, we anticipate that in the coming months, bitcoin prices will rise again; however, predicting this remains uncertain, and I wanted to be frank about this.

Could you comment on the inventory — how much is finished goods versus raw materials chips? And then also, how long do you depreciate your mining equipment on the operational side?

Currently, looking at the overall situation in the mining machine market, customer purchasing demands have partly recovered, reflecting a significant growth of 126.8% in the company's first-quarter computing power sales compared to the previous quarter. However, the financial situation of miners remains challenging, limiting their purchasing power. The market inventory supply is still substantial, while selling prices for mining machines remain low. Compared to the end of December, we have seen a rebound in prices over this past quarter, improving mining profits for miners and helping their financial situations. In the industry cycle, some miners are restructuring, while new miners enter the market, driving the continuous increase in network computing power. As mining constructions gradually complete and the Northern Hemisphere's weather improves, we expect more abandoned hydroelectricity resources will stimulate demand for computing power. Regarding depreciation, our mining machines deployed in mining farms have an 18-month depreciation policy; typically, after that period, the total depreciation will be completed. As for inventory composition, I can say that finished goods represent less than 50% of our total inventory, consisting of steel wafers and chips. It takes time to assemble those materials into machines. We also control the speed of assembling to ensure that we have a sufficient inventory, avoiding excess storage costs or shortages.

To answer your question about the depreciation of our mining machines deployed in mining farms, it is 18 months as our depreciation policy. Typically, after 18 months, the total depreciation will be completed. As for the inventory, it is less than 50% in finished goods; the remainder consists of raw materials. It takes time to assemble those materials into machines, and we control the pace to ensure our inventory meets demands without incurring unnecessary storage costs.

Yes, that was perfect. Thank you very much. Appreciate it and congrats on completing the quarter.

Thank you, Michael.

Thank you for the questions. Our last question comes from the line of Jiaer Zhu from China Renaissance. Please go ahead.

I just want to know what the estimated revenue contribution for A13 series products will be this year. And also, do we see any increased room for our average selling price per terahash in Q3 or Q4?

This is a specific question about the A12 and A13 series. We are transitioning to clear the inventory of the A12 model, while the A13 series, upon launch, has seen customers testing and beginning to place orders in Q1. The performance of the A13 series has exceeded our expectations. In Q1, the total revenue contribution from the A13 series has already made up approximately 47% of total machine sales revenue. I am confident that in Q2, the A13 series will become our largest revenue source. Our target for the A12 series is to clear the inventory by the end of Q3. We currently have very low prices for the A12. Regarding pricing strategy in upcoming quarters, demand remains weak, and we need time to recover and stabilize prices. I expect Q3 is when we might see prices go up significantly. We also consider a possible price increase for the A13 series, but currently, in Q2, we are not implementing that as the market inventory digestion is still ongoing. We hope to see more positive changes in Q3 and Q4.

I have a follow-up because I remember in last quarter's call, we mentioned that we expect A13 series to account for 70% to 80% of total revenue for the whole year. Just wondering if this forecast might improve a bit, given the better performance of the A13 series.

Currently, I still believe that the A13 series could exceed 70% of total annual sales. If our projections about bitcoin prices hold true, Q4 will likely become a peak season, resulting in strong Q4 sales for the A13 series. I anticipate the A13 series could represent 70% to 80% of total revenue for the year. Let's hope this occurs, especially if prices have potential upside.

Thank you very much. All clear.

Thank you.

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

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

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