Canaan Inc. Q3 FY2023 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.'s Third 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 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; 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 thereof 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 and uncertainties 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, sir.

Hello, everyone. This is NG, the CEO of Canaan. Thank you for joining our conference call. James and I are at the company's headquarters in Singapore to share our quarterly results with you. During the third quarter of 2023, bitcoin prices continued to decline and remained within a low price range. At the beginning of the quarter, the bitcoin price was around $30,000 and reached its quarterly low point of around $25,000 in September. It then stayed in the range of $25,000 to $27,000 until the end of the quarter. During the third quarter, the total network hash rate remained fairly stable at around 400 exahash per second. Miners faced slim profit margins, and there was a lack of motivation and not enough capacity for further investments and the expansion of mining computing power. At the macro level, the U.S. Federal Reserve raised interest rates by 25 basis points to 5.5%. The high interest rate environment limited bitcoin prices' upward movement and increased miners' financing and interest costs. As a result, the industry's purchasing and deployment capabilities were impacted. Meanwhile, inventory pressure on in-store mining machine models continued to rise. As mining machine manufacturers reduced prices to clear inventory ahead of the upcoming halving event, we observed considerable price concessions in computing power. In the face of this challenging market environment, we achieved total revenue of $33.3 million, exceeding our guidance. At the same time, we kept carrying out our development strategies. This includes focusing on product R&D, promoting multi-channel sales strategies, and exploring mining partnerships. We also maintained prudent and flexible operational management to ensure stable cash flow and ongoing business operations. This will help us prepare for potential market opportunities in the future. Now let me go into more detail. First, we are committed to R&D and investment in production capacity. This allows us to upgrade our products to achieve risk-loss in machine half-rate performance and energy efficiency. During our 10th anniversary event in mid-September, we officially launched our new generation of mining machines, the A14 series. The A1466 achieves a hash rate of 150 terahash per second with a power efficiency of 21.5 joules per terahash. At the same time, we introduced the liquid-cooled A1466i mining machine, which achieves power efficiency below 20 joules per terahash for the first time and has 170 terahash per second of computing power. Besides our current offerings, we are actively developing new products. Following our euro practice, we will announce their performance once the machine testing is complete. We believe these products in the pipeline will align with next year's market mainstream production power efficiency level of 10 to 20 joules per terahash. We are also in the process of delivering our air-cooled and liquid-cooled integrated site solutions, which we have developed in-house. These include a 40-foot and a 20-foot air-cooled mining box container product and a 40-foot liquid cooling Avalon box mining container product. Our products are highly integrated, enabling rapid deployment, making them well-suited for mining in challenging natural conditions of cold and hot weather. On the sales front, we are boosting sales across various channels, including large clients, distribution networks, and online retail. We are also offering favorable prices to reduce inventory. During the quarter, we achieved a total computing power sold of 3.8 million terahash per second. This represents an 8.7% increase compared to the same period last year, contributing about $30 million in revenue. In North America, we successfully completed the delivery of back orders to Stronghold, a listed mining company. In Southeast Asia, our computing power sales reached 1.3 million terahash per second. This figure reflects a 90.7% quarter-over-quarter increase achieved through deeper collaboration with channel clients. Our online store achieved sales of 420,000 terahash per second this quarter, a 17% increase compared to the previous quarter. Our online store also expanded its reach to five new regions, including Poland and Peru, bringing its total number of regions with customer orders to 42. Following the September release of the A14 series, we have received contract sales orders and prepayments for computing power of about 2 million terahash per second from customers worldwide. Additionally, our multi-channel sales efforts are facilitating the planning and stocking of our A12 and below digital models closer to completion. As announced, our mining business in Kazakhstan has been temporarily suspended since the third quarter due to the impact of new regulatory policies; we need to obtain the relevant permits. We have also experienced a breach of contract by a mining project partner in the U.S. As a result, mining revenue for this quarter declined to $3.26 million. However, we believe that mining is a strategic part of our business, and short-term setbacks in certain regions will not affect our long-term strategy. We will continue to explore cooperation opportunities. During the quarter, we expanded and diversified our mining footprint by completing the deployment of several new projects in North and South America. Notably, the latest batch of 2000 of our A13446 mining machines was successfully deployed and launched for our mining project with the listed mining company Stronghold in the third quarter. At the end of the third quarter, we had approximately 4 exahash per second of computing power deployed. We also hold 860 bitcoins, reaching a historical high with a current market value of over $30 million. Recently, we have been expanding our mining opportunities in South America and Africa. In the Middle East, we carried out our first pilot collaboration with our integrated liquid cooling mining solutions. We have also been addressing some previously announced issues. In Kazakhstan, we worked together with local mining partners to obtain the type 2 license required for mining equipment owners in mid-November. We are currently working to register our locally deployed mining machines and are in discussions with our mining partners to prepare for the resumption of operations. We expect that our mining projects in Kazakhstan will gradually resume around the end of 2023. For the project I just mentioned, where our U.S. partners breached the contract, we have successfully taken possession of nearly all the mining machines involved. We have now restored about half of these machines. At the same time, we are carrying out legal procedures to protect our rights. The marketing environment in the third quarter was challenging. We endeavored to maintain cash flows and operations and accumulate assets with strong growth potential. This will help us allocate resources and lay a foundation for the full market after the next halving. We have also managed costs more prudently and optimized and adjusted our company's organization. We have reduced our total headcount to increase operational efficiency and reduced fixed operating cash outflows, smoothly navigating through the market downturn. These measures have gradually been carried out in the fourth quarter. We expect to see potential data reflecting these changes beginning from the first quarter of 2024. Meanwhile, due to the overall weakness in market purchasing power, we further adjusted prices to quickly clear inventory and generate cash inflow. However, these adjustments also resulted in some non-cash provisions and impairments, leading to a considerable loss this quarter. In terms of financing, we announced today the sales of convertible preferred shares of up to $125 million, subject to customary closing conditions with an institutional investor. This ensures we can carry out R&D and the mass production of new products in case of tightening cash flow amidst the bear market. This safeguards our product supply and market share in the future full market. We have not utilized our ATM since the fourth quarter to date. However, we recently adjusted our ATM project by appointing B. Riley as a new sales agent. Looking ahead, the bitcoin price has notably rebounded since mid-to-late October, which is encouraging. We are closely monitoring the market and flexibly adjusting our sales strategy and supply chain to adapt to changing market demands. However, it's important to note that sudden price increases in Bitcoin often come with increased volatility. The U.S. Federal Reserve seems likely to keep interest rates high for a while, and a rate-cutting cycle may not happen for some time. The financing and operating costs of our downstream mining customers remain high, and the basic landscape is unchanged. Additionally, with bitcoin halving approaching, market sentiment will likely be more cautious. Taking these factors into consideration, I believe that the fourth quarter has shown signs of improvement compared to the third quarter. However, we shouldn't expect the best-case scenario of both rising price and volumes to happen quickly. Based on the overall situation mentioned above, we provide a highly cautious outlook for the fourth quarter of 2023. We expect revenue for the fourth quarter of 2023 to be approximately $34 million, slightly higher than the third quarter. This forecast is based on the company's current market and operational conditions, and the actual results may vary. Finally, I would like to discuss our AI business with you. After several years of hard work, we have built a solid foundation for our AIoT chip R&D and sales, especially with the industry recognition since the release of K230. This is a small step in our strategic plan. Given the significant changes in the AI industry over the past few months, we have been strategically discussing the future of our AI business. In light of our current industry and marketing environment, we believe that the development of our AI business should take a more defined, independent, and long-term direction. So we are internally restructuring the business with the goal to clearly separate the mining machine and mining teams from the AI business as different units. This prepares us for future independent operations and potential financing for the AI business. Both businesses will have enough scope for their future development. Personally, I'm really excited about this internal organizational change. We operate in an industry full of variables and rapid changes creating new history every day. This truly tests our operational capabilities. Over the 10 years since Canaan's inception, we have run into many difficulties and challenges. We have constantly improved our technical and operational competitiveness to confront and resolve these issues. Amidst many uncertainties, one thing is certain: our strong confidence in the bitcoin network. This emerging transaction system has operated remarkably stable over the past 14 years. Its user base and network hash rate have both continuously expanded. In recent years, more investment institutions have shown increased interest in corporate currencies, especially bitcoin, and they have recognized it as an important asset class. With ongoing progress in the regulatory environment, the divide between the general public and bitcoin is narrowing. I believe this will be a crucial driver for the next full market. We remain committed to growing alongside cutting-edge technology partners to continuously upgrade chip features. At the same time, we will support the bitcoin system and other beneficial activities with robust computing power. We will continue to deliver superior products and services to our customers while contributing to societal progress. Thank you, everyone. This concludes my prepared remarks. Thank you. I will now turn the call over to our CFO, James. Thank you.

Thank you, NG, and good day, everyone. This is James speaking from our Singapore headquarters. As NG started with the call, I would like to say the market environment in the third quarter of 2023 was still unfavorable. First, after the Q1 surge and Q2 calmness, bitcoin prices in quarter three showed a downward trend, declining from $30,000 in July to about $25,000 in September, even though they climbed back to nearly $27,000 by the quarter's end. Secondly, miners' profits remain limited by the high level of total network computing power around 400 exahash per second, and the miners' purchasing power was weakened by the high financing interest costs. Thirdly, along with product upgrading, the price competition among mining machine manufacturers has become more fierce, especially as the prices of older generation machines continue to decline. These factors should be considered when analyzing our Q3 numbers. Despite the market downward volatility, geopolitical headwinds, regulatory changes, and other unfavorable operational factors, we continued to execute our strategy and deliver results through continuous investments in R&D, multiple channel sales development, and prudent cash flow management. Let's start with profit and loss. Overall, in quarter three, total revenue generated was $33.3 million, which beat our guidance of $30 million but was down 54.9% quarter-over-quarter. Our revenue from machine sales was $29.8 million, and our mining revenue was $3.3 million. Regarding our machine sales, we delivered a total computing power sold of 3.8 million terahash per second, representing a year-over-year growth of 8.7%, but a sequential decline of 38.7%. As the average selling price declined from $9.5 per terahash in quarter two to $7.9 per terahash in quarter three, the decrease in ASP was mainly due to the reduction in selling price and the increase in the sales proportion of the A12 series in terms of stock clearance. Considering both factors of power sold and ASP, our revenue from mining machine sales decreased to $29.8 million, down 48.5% from $57.8 million in the last quarter. Specifically, for our mining machine sales, we accrued $53.9 million for inventory write-down, prepayment write-down, and provision for reserve for inventory purchase commitments in this quarter. The inventory write-down was recorded based on the most recent subsequent selling price when we offered further price concessions for the A13 series. Those write-downs and provisions are made under U.S. GAAP rules, jeopardizing our gross profit and making the quarterly loss larger, but do not impact our cash status. If we excluded the above write-downs and provisions, we would have a gross profit for our mining machine sales of $1.1 million and a gross margin of 3.9%. Turning to our mining business, our mining revenue was down 79.5% quarter-over-quarter and down 64.6% year-over-year. As we announced in August, we temporarily shut down 2 exahash of our mining computing power in Kazakhstan since July to ensure legal compliance, causing our total deployed hash rate to decrease to 4 exahash and our installed hash rate to decrease to 1.9 exahash in this quarter. As NG previously stated, we have actively worked with local partners and local government, and we've obtained all the relevant licenses in mid-November. Despite these effects, we mined 117 bitcoins in this quarter and achieved 14.5 bitcoins in mining profit. The gross profit margin reached 10% for our mining business this quarter. Please note here that mining profit or loss is defined as the proportion of mining revenues deducting costs for energy and hosting, without consideration of depreciation. Shifting to our AI business, AI revenue was $0.2 million this quarter. As NG mentioned, we are now restructuring the AI business into a more independent segment from the mining machine and self-mining business, which could benefit our long-term development and open the possibility for AI to conduct independent financing. Now, let us look at the expenses. Our R&D expenses were $17.2 million this quarter compared to $17.9 million last quarter and $17.6 million in the prior year period. Our sales and marketing expenses were $2.5 million compared to $2.4 million last quarter and $2.1 million in the prior year period. Our general and administrative expenses were $21.9 million this quarter compared to $26.4 million last quarter and $21.7 million in the prior year period. Our operating expenses totaled $43.8 million, remaining year-over-year stable and decreasing 10.7% quarter-over-quarter. The sequential decrease was mainly attributable to reduced staff costs. We have recently optimized and adjusted our organization through a series of measures, including reducing total headcount, increasing operational efficiency, and lowering operating cash flows. These measures are moving that can help us achieve near-term operational leverage against fierce competition. The effects of these measures will begin to be reflected in our operating data from the first quarter of 2024. The next result of the foregoing was an operating loss of $112.8 million this quarter compared to $119.1 million last quarter. Benefited from foreign exchange gain and deferred tax assets, the net loss was $80.1 million compared to $110.7 million last quarter. Turning to our balance sheet and cash flow, during quarter 3, we spent $36 million to sustain the wafer supply and machine production. Other cash payments included $15 million for operations. The cash flow totaling $51 million was partially offset by cash inflow of $26 million from sales. So net-net, at the end of the third quarter, we had cash and cash equivalents of $41 million on our balance sheet. We are glad to announce today that our balance is further bolstered with a capital injection of up to $125 million in the form of convertible preferred share sales with multiple trenches, subject to customary closing conditions. We intend to use the net proceeds from this capital raise to fund the R&D, expand production scale, and other general corporate purposes. As of the end of this quarter, we recorded accounts receivable of $9.8 million, declining by $0.3 million compared to the end of quarter 2. We did not implement more installments in quarter 3 and will continuously evaluate market demand and adopt corresponding credit policies with caution. Now turning to our bitcoin assets, we held a record high of 860 bitcoins as our own holding asset as of September 30, up from 747 at the end of June. We also held 378 bitcoins received as customer deposits, which is the same as the balance of June 30. From August 29, 2023, the date we reported our quarter 2 financial results to November 28, 2023, we neither utilized the ATM nor purchased any ADS. On November 10, we terminated the ATM agreement with the former sales agent, and we announced on November 13 that we adjusted our ATM project by appointing B. Riley as the new sales agent. 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 quarter 4, we anticipate revenue of $34 million. By the end of 2023, the price of bitcoin still faces a challenging environment, and the 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 this comprehensive situation, we give a cautious expectation for the fourth quarter of 2023. Now, I would like to briefly walk you through our financial results for the quarter. Revenues in the third quarter of 2023 were $33.3 million, compared to $73.9 million in the second quarter of 2023 and $145.5 million in the same period of 2022. Gross loss in the third quarter of 2023 was $69.1 million, compared to a gross loss of $70.1 million in the second quarter of 2023 and a gross profit of $32.6 million in the same period of 2022. Total operating expenses in the third quarter of 2023 were $43.8 million, compared to $49.0 million in the second quarter of 2023 and $43.1 million in the same period of 2022. Loss from operations in the third quarter of 2023 was $112.8 million, compared to a loss from operations of $119.1 million in the second quarter of 2023 and a loss from operation of $10.5 million in the same period of 2022. Net loss in the third quarter of 2023 was $80.1 million, compared to a net loss of $110.7 million in the second quarter of 2023 and a net income of $6.3 million in the same period of 2022. Basic and diluted net loss per ADS in the third quarter of 2023 were $0.47. As of September 30, 2023, the company had cash and cash equivalents of $40.6 million. This concludes our prepared remarks. We are now open for questions.

The first question comes from Mr. Lucas Pipes from B. Riley Securities. Please go ahead, Mr. Pipes; your line is now open. You may unmute.

Thank you very much, operator. Good morning everyone. Good evening. My first question is on the marketing side and I wonder in the current environment, could you speak to what you compete on, is it price? Is it financing? Is it the quality of your product? If you could maybe just share a little bit of color on that, I would appreciate it. Thank you.

Yes. Good evening or good morning. I think for this industry, the most important factors are product performance and price. Regardless of the ways of competition, these two aspects should always be top priorities. In addition, it's crucial to establish our unique features. Looking at the current and future market, it is essential to make targeted adjustments and customize product designs at the system level based on the specific needs of our customers. For example, we have dedicated a lot of effort recently to ensure our systems can operate reliably in harsh environments, and this has received a lot of positive feedback from our customers. I believe we are industry leaders regarding product quality and customization. Right now, I think the key focus is on rapidly improving product performance while reducing costs. Thank you.

Very helpful. Thank you for that. And then I wanted to touch on the chip procurement strategy at this time. With where the market is today, how are you looking at making commitments to your suppliers? Thank you very much.

Yes. I think given that we are currently in the process of product integration and considering the volatile market conditions, we have a sales-driven production strategy. This means that we determine the quantity of wafers to be ordered based on the number of contracts on the sales side, certainly with a certain percentage added. Yes.

That's very helpful. Good to hear as well. Thank you. And then one last one for me. I'm just curious how the U.S. market is holding up more specifically and also what some of the key differences you might be seeing between the U.S. and other markets globally. Thank you.

In the United States, many customers are formerly institutional clients, and their funding often comes from the capital markets. Currently, financing costs in the United States remain relatively high. However, we have observed that financing channels that were almost closed in the past year are gradually reopening. As a result, there are signs of recovery in mining machines demand in the U.S. market along with the reopening of financing channels. The U.S. market has a relatively high demand for mining machines, and the competition is quite intense. It's necessary to provide both top performance and competitive pricing. Given that the U.S. market has always been sizeable, it's become a highly competitive battleground. Yes. Thank you.

Thank you very much for all the color. And to you and the team, best of luck.

One moment for the next questions. Our next question comes from the line of Michael Donovan from H.C. Wainwright. Please go ahead.

Thank you, operator. This is Michael Donovan calling in on behalf of Kevin Dede. NG and James, congrats on the quarter. Can you discuss a bit more about the inventory levels of older generation machines? Are they completely gone now?

Yes. As planned, the destocking process of models up to A4 is now nearly complete. So our focus has recently shifted to clearing stock of the A13 series.

Okay. Thank you. That's helpful. Now for the order levels for the new A14 series, what are the trends you're seeing in the fourth quarter?

Yes. Our newly launched A14 series mining machines have a higher computing power and much greater power efficiency, making them more competitive. Since we started pre-sales in mid-September, we have received future contracts for about 2 million terahash per second. These orders are gradually making their way into the supply chain for production.

Okay. Great. Now let's switch to self-mining. You have about 4 exahash currently deployed. How much are you generating now in terms of the mid-fourth quarter? And how much more do you have to deploy?

Yes. Mining remains a long-term strategic part of our business. So we continue to explore mining cooperation opportunities with other regions. In the third quarter, the pilot batch of computing power for new projects in North and South America entered operation. We successfully deployed and launched a batch of 2000 of our A13446 mining machines for our mining project with Stronghold. Thus, at the end of the third quarter, we have about 4 exahash per second of computing power deployed. We recently expanded our mining computing power in South America and Africa. In addition, we signed contracts for a new project in the Middle East during the fourth quarter. This includes our first pilot collaboration with our in-house integrated liquid cooling mining system, which is currently undergoing deployment and installation testing. We also obtained the type 2 license for our mining operations in Kazakhstan in mid-November, as required by the country's new mining policy. Obtaining this license means we are legally permitted to conduct bitcoin mining activities in Kazakhstan. Currently, we are in the process of adjusting the mining machines deployed under this license. We are in discussions with our partners to prepare for the resumption of operations. If all goes smoothly, we can expect our mining projects in Kazakhstan to gradually resume around the end of the year. Thank you. Thank you, NG. I'll hop back in the queue. Thank you for the questions.

One moment for the next questions. Our next question comes from the line of Michael Legg from The Benchmark Company. Please ask your question.

Thanks. Wanted to touch base on the preferred offering you're doing of $125 million. Can you talk about some of the terms of that, whether it's convertible, whether there's a dividend, board seat, et cetera? Just give us a little bit more information on that, please.

Thank you, Michael. James speaking. I think today we announced sales of convertible preferred shares of up to $125 million with multiple trenches subject to the customary closing conditions. The specific preferred share details are available in the documentation released today on our Form 6-K. We intend to use the net proceeds from this capital raise to fund our R&D, expand our production scale, and for other general corporate purposes. I think that’s the fundamental idea behind this fundraising.

Okay. I'll check the 6-K for the details. And then just I want to follow up on Michael's question on the inventory. What percent is finished goods A14s of the inventory, and how much of it is still raw materials versus all the models?

Michael, currently the A14 series is still a purely new product. So we are placing wafer orders, and then we can expect finished goods in late quarter one. I think that's the schedule. So currently we don't have any finished goods. I mean the current stock; we will wait for the wafers, produce the chips, assemble the machines, and then deliver to our customers later.

Okay. So of the $217 million of inventory, how much is raw materials versus finished goods?

Okay. I think about maybe one-third of the numbers is finished goods for the A13 series. The other two-thirds are diversified across many different stages, like chips that are already assembled but still waiting to be assembled into machines and some that are still at the wafer level. Yes, but I think there are no wafers still in process.

Okay. And then just one last question. Can you comment on where you think your market share is today when you're seeing yourself versus your competition? Thanks.

Yes, it's a very volatile market this quarter. But for the third quarter, it's been a relatively boring quarter. So I don't think the market share numbers have seen any significant changes in quarter three. Usually, we think it's about 20% or close to that number is our market share. For the first quarter, we can observe a significant sales spike, yes, but still, there’s about one month to go. And also, we can observe that there’s a notable hash rate increase in quarter four. So we are still waiting for that number. Yes.

Okay. Thank you.

And Michael, our two major competitors are private companies, so they don’t disclose their results. So we have no accurate number of the whole market share.

Okay. Great. Thank you.

Our next question now comes from the line of Shuang Sun from Guosheng Securities. Please go ahead.

Hello. So can you hear me?

Yes, please.

Okay. My first question is, how has the computing power price recovered from the bottom when and to what extent?

Yes, thank you for your question. From what we've seen so far, the demand was quite low throughout the entire third quarter. However, as we move into the first quarter, we noticed an increase in demand, especially in the past few weeks, but there has not been a significant increase in the average selling price. It's important to note that bitcoin price has only experienced a noticeable upturn in the past few weeks, and the market typically does not react so quickly.

Okay.

Thank you.

Okay. Thank you. My second question is that with increasing demand for AI computing power nowadays, can you secure enough wafer supply with the foundry? What's the chip process node of your mainstream products, and which foundry do you collaborate with now?

Yes. The chips used in our mining machines adopt a different process node, and we are fabricated on a different production line from mainstream cloud-based AI computing chips. I think the current bottleneck in AI chip production primarily lies in advanced packaging. From my observation, it has not yet impacted the production capacity of the advanced process node. The fabrication process of our current mainstream products aligns with that of our peers, so the capacity for this advanced process is only available from selected top-tier semiconductor foundries. We have established long-term partnerships with these foundries.

Okay. Thank you.

Thank you for the questions. In the interest of time, I would like to turn the call back over to the company for any closing remarks.

Hello, everyone, and thank you again for joining our Q3 earnings conference call today. If you have any further questions, please feel free to reach us through the contact information provided on our website. And thank you again.

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