Canaan Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc.'s First Quarter 2026 Earnings Conference Call. Operator provided instructions. Please note that this event is being recorded. Now I'd like to hand the conference over to your speaker today, Gwyn Lauber, Investor Relations for the company. Please go ahead, Gwyn.

Thank you, operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are our Chairman and CEO, Nangeng Zhang; our CFO, James Jin Cheng; Leo Wang, Vice President of Capital Markets and Corporate Development; and Xi Zhang, Senior IR Manager, who will also be available during the question-and-answer session. Our CEO will start the call by providing an overview of the company and performance highlights for the quarter. Our CFO 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 begin, I would like to refer you to our safe harbor statement in our earnings press release. Today's call will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future operating results and the performance of the company. These statements speak only as of today, and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call or webcast, except as required by law. These statements do not guarantee future performance and are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 20-F for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, 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's website. With that, I will now turn the call over to our Chairman and CEO, Nangeng Zhang. NG, please go ahead.

Thank you, Gwyn. Hello, everyone. This is NG, CEO of Canaan. Thank you for joining our earnings conference call today. James, our CFO, and I are here at our Singapore headquarters to share our financial results and recent business updates for the first quarter of 2026. Q1 2026 was a very challenging quarter. Bitcoin prices dropped sharply from the highs at the beginning of the year, and hash price fell to very low levels. As a result, financiers around the world became much more cautious with their investments. After entering the second quarter, the market saw some recovery, but the recovery has still been limited. At the same time, uncertainties related to the Middle East situation, energy prices, global equity markets and policies continue to keep the industry in a contracted environment. For us, our company is going through a transition period, and this kind of environment created a lot of pressure. But today, I want to focus less on the challenges we faced and more on what we did during the difficult times. I believe investors want to see whether we have strong execution, operational capabilities and the ability to navigate through market cycles. In the first quarter, we completed several concrete tasks. First, we completed the final stage of production, delivery and revenue recognition for our large order from a leading North American customer while entering the market downturn with a relatively light inventory position. Second, we continued expanding our mining business, which still generates positive cash contribution even under extremely low hash price conditions, while further increasing our digital asset treasury. Third, we completed the acquisition of ABC projects through a share exchange transaction, obtaining a 49% equity interest in three energy and operating mine sites with low power cost and favorable taxes. Fourth, we continue to advance the R&D of the A16 series and our next-generation products to prepare for the next mining equipment update cycle. Fifth, we continue shifting the company's strategic focus from a pure mining machine business towards energy + computing infrastructure. Taken together, these actions show that during a difficult market environment, we did not simply wait for the market to recover. Instead, we actively strengthened our survivability, improved our asset quality and expanded our long-term strategic options. In the quarter, we generated total revenues of USD 62.7 million, in line with our previous guidance range. As of the end of the quarter, we had 1,808 Bitcoin and 3,952 Ethereum, and our digital asset treasury reached another record high. In mining machines, industry demand was clearly under pressure in the first quarter. We sold 4.1 exahash per second of computing power at an average selling price of about $10.5 per terahash, generating USD 42.9 million in revenue. Many customers delayed purchases due to low cash prices and high market uncertainty and market pricing also came under pressure. In this environment, we did not pursue short-term sales growth through aggressive inventory buildup or lower-quality orders. Instead, we placed higher priority on inventory control, cash flow management and order quality. This also reflects the operating discipline we have emphasized over the past several quarters. In Q4 of 2025, we captured the market window and secured the large North American order with all the deliveries completed. In the first quarter of this year, we completed the final stage of execution through the successful completion of this project. We further strengthened our brand reputation and customer base in the North American market. Mining machine business may not be the hottest story in the capital market today, but it remains the foundation of Canaan. As long as the Bitcoin network continues to operate and low-cost power resources continue to exist around the world, miners will continue to need machines that are more efficient, more reliable and easy to deploy. Our job is to run the mining machine business with stronger discipline and stay closer to the real needs of our customers. In the fourth quarter, we continued advancing customized products and system-level solutions. Recently, we expanded our collaboration with a tier-one customer by providing customized high-density racks for models for its next-generation emerging mining and utility systems. This type of partnership shows that leading customers are shifting from pursuing single standalone miners to seeking integrative systems that are modular, manageable and adaptable to different operating scenarios. For Canaan, this is exactly where our long-term strengths in ASIC design, system engineering, supply chain management and global project delivery can create value. In addition, as we announced earlier today, we sold approximately 8 megawatts of hydro-curde equipment to a Nordic heating service provider to produce high-grade hot water for district heating systems. Projects like this show that mining machines are gradually expanding beyond pure mining use cases into broader energy utilization scenarios. The combination of computing power, heat recovery and the local energy infrastructure is also an area we will continue to explore going forward. In the consumer and SMB market, the main focus of our Avalon Home series in the first half of the year has been channel expansion, customer reach and service system development. Since the beginning of this year, Avalon products have entered platforms including Best Buy Canada's online channel and Amazon. The consumer market is very different from the industrial mining machine market. Customers care not only about hash rate, but also about noise level, stability, product design, ease of installation and after-sales service. We are currently working on product upgrades for several Avalon Home models and hope to lock them in the second half of this year. We hope that better products, stronger sales channels and the year-end shopping season together can help this business line contribute to higher core revenue. Now we move to our mining business. The mining environment in the first quarter was very challenging. In January, during the winter storm across North America, we materially powered down some hosted operations in certain regions to prioritize electricity supply to local residents and the power grid. We want to be a trusted and responsible partner that can lower computing load for the grid rather than adding additional pressure during a period of great stress. More importantly, even under a low hash price environment, our mining business continued to show strong competitiveness. During the quarter, we generated 257 Bitcoin in total and recognized $19.12 million in mining revenue. From a cash operating perspective, this business continued to contribute positive liquidity inflow to the company. By the end of the quarter, our global installed hash rate reached 11 exahash per second, up 66% year-over-year and 11% quarter-over-quarter. Our operating base continues to expand while our power and hosting costs remained relatively competitive. In April, our non-JV installed hash rate remained around 11 exahash per second with an average all-in power cost of about $0.044 per kilowatt hour. At the same time, the ABC JV program also added 4.82 exahash per second installed hash rate, and 120 megawatts of installed power capacity. I believe these numbers show one important thing: the mining business still has value even during the low point of the cycle. It helped us to accumulate BTC and helped us better understand the real operational needs and the pain points of miners. More importantly, it helped us to build real power consumption and operational capabilities. We continue to advance energy and computing infrastructure for the future. The most important development this quarter was the ABC project. In late February, we acquired a 49% interest in the Alberta and Chief Mountain projects in the U.S., Texas from Cyber Digital through a share exchange transaction together with 6,840 Avalon A15 Pro mining machines. The biggest advantage of the ABC projects is highly competitive power cost, which is below USD $0.03 per kilowatt hour. Because of this cost advantage, the projects maintained strong profitability and a high uptime, even during a period of Bitcoin price volatility. We have also been working closely with our partner to steadily upgrade the mining fleet at the site. At the end of April, the project's installed hash rate increased from about 4.4 exahash per second to 4.82 exahash per second. In addition, the JV program has potential for future power load expansion, and we are currently evaluating related opportunities. Overall, the ABC projects operate a hybrid power model, combining wind power and grid electricity with a total installed capacity of 120 megawatts and power cost below USD $0.03 per kilowatt hour. The projects currently have an in-situ hash rate of approximately 4.82 exahash per second. We have maintained a strong long-term relationship with Cyber over the past years. The completion of the ABC Project transaction also reflects our ability to take over high-quality assets released during the divestiture of other businesses. Based on our longstanding cooperation, we believe high-quality power resources and the infrastructure capabilities will become increasingly important competitive advantages in the industry over the long term. The completion of ABC projects not only further strengthened our footprint in North America energy and infrastructure, but also represents an important step in advancing our long-term Energy + Computing infrastructure strategy. Following the transaction, Cyber also became an important shareholder of Canaan, laying the foundation for deeper cooperation between the two parties in the future. This project has very important meaning for us. First, these are low-cost power assets that are already energized, already operating and already generating computing power in today's North American market. Assets with real operations are much more valuable than pipeline opportunities on paper. Second, the program is a concrete result of our energy strategy. In future, it strengthens our access to low-cost power resources, mining operation experience, and local partnership networks in the United States. Third, it also provides us with stronger infrastructure commodities and greater strategic flexibilities as we continue to explore future AI and HPC opportunities. Regarding our energy pipeline, we have indeed made some meaningful and encouraging progress. However, as a responsible public company, we do not believe these developments have yet reached the closure milestones required for us to provide more specific details publicly. So at this stage, I cannot share too much additional information, but I can reaffirm our view that high-quality power resources will become one of the most important barriers in future computing infrastructure. Our goal is to secure power infrastructure that is controllable, developable and available in regions that are compliant, close to major customer markets, large in scale, capable for long-term grid connection and expandable over time. The United States remains one of our most important markets. We hope that in the future, once project conditions become more mature and disclosure requirements are met, we will be able to provide the market with more concrete and substantial updates. Now let me talk about our R&D and products. In the fourth quarter of last year, we officially launched the Avalon A16 XP. It delivers up to 300 terahash per second per machine with energy efficiency as well as 4.8 joules per terahash. During the first quarter, some customers received sample units and began testing. Based on the feedback we have received so far, the A16 series has performed well in hash rate stability, energy efficiency, noise control and deployment capability. We have also seen growing attention from the mining community and third-party reviewers towards the A16 Series, which has been very encouraging for our team. The A16 Series will become the core of our future industrial mining machine product line. It is not only a performance upgrade but also represents our overall improvements in system engineering, product design, firmware, reliability and cost control. Advanced semiconductor process are becoming increasingly contested and simply pursuing the highest terahash per joule does not always deliver the best returns on investment for customers. We pay more attention to products for life cycle economics for the customers, including machine pricing, power costs, operational stability, maintenance costs, delivery certainty and risk-adjusted value. Because we have secured a part of our key product capacity early and have maintained long-term cooperation with our foundry and supply chain partners, we are still able to move forward with A16 series mass production and future product introductions in a more stable and cost-controlled way, even under the current environment where AI-related demand is competing for advanced semiconductor capacity. For our mining machine delivery, we leverage manufacturing capacity across Malaysia, the United States and Mainland China. This allows us to remain compliant while responding more flexibly to changes in the global trade environment and tariff policies. Particularly during the delivery of our large North American order, our manufacturing, quality control and logistics teams worked closely together and successfully handled the pressure from concentrated shipments and tight delivery schedules, demonstrating the resilience and execution capabilities of our supply chain team. In addition, assembly capacity for our Avalon Home series has also been expanded to our Malaysia facility. Beyond the current A16 series, the R&D of our next-generation products has also entered the final stage, and some projects have recently completed tape-out for technical validation. After we complete product testing and real operating condition validation, we will close more detailed technical specifications to the market. We are confident in the performance improvements of our next-generation products. And we will continue to follow our principle: customers are not just buying a machine but systems that can operate stably over the long term and generate stable and reliable returns. Today, I also want to talk more systematically about our AI and HPC strategy. As AI computing demand continues to grow rapidly, power resources, data centers and the computing infrastructure are becoming increasingly important. The market is also paying close attention to mining companies moving into AI and HPC. We understand this interest. Many companies are talking about AI and HPC, but I hope investors will see Canaan be steadier and more practical. For AI HPC, our long-term strategy has two major pillars. The first pillar is energy. The completion of the ABC project shows that we have already made real progress in energy and infrastructure. These are not conceptual pipeline projects, but assets that are already energized, already operating and already generating computing power and cash flow. At the same time, we are also advancing large-scale and more controllable power resource development. Our goal is to gradually build power infrastructure capabilities that are financeable, developable and available by the company in compliant regions that are close to key markets and have long-term expansion potential. Energy infrastructure projects generally take a long time. The process from permitting, land acquisition and grid connection to construction and operation requires time. Therefore, we will not make over-aggressive promises based on the short-term market sentiment. But once these projects are completed step by step, we believe they will become one of the most important long-term moats for our future computing infrastructure strategy. The second pillar is our computing systems. Over the past decade, Canaan has been deeply involved in ASIC design, mining machine development, large-scale delivery and real-world mining operations. We are familiar with turning high-density computing equipment into products that are standardized, modernized, mass-producible, remotely manageable and easy to deploy at scale. We believe broader AI and HPC infrastructure in the future will increasingly require these same capabilities. Our thinking is how to gradually make AI computing systems, which may become the largest source of new computing demand in the future, more like mining machines with scalable deployment, standardized operations and clear economic models. This growth process will not happen overnight, but we believe the direction is becoming increasingly clear. I don't believe BTC mining and AI HPC are completely separate businesses. For Canaan, blockchain computing is a proven workflow today that already generates cash contribution and helps us validate power assets and operational capabilities. AI and HPC represents future computing demand with larger scale and higher infrastructure standards. The cost transformation is already fully underway internally. Our power infrastructure planning is being designed for long-term and higher-density computing demand, while our chip and system capabilities are also gradually expanding towards broader computing platforms. But at this stage, we prefer to spend less time talking about concepts and more time building real asset products and engineering capabilities. What we want to do is gradually expand our existing strengths in mining, energy, chip and system engineering into broader computing infrastructure. We believe the right approach is to first build a strong position in power sources and operations and then gradually integrate new types of computing systems when the timing is right. In this way, the company can continue benefiting from the cash contribution and the flexible low value of BTC mining while also creating long-term opportunities in AI HPC and in variable and settlement-enabled digital economic networks in the future. This path fits well with the foundation we have built over the years. We believe we already know where the industry is heading. In the future, resources will gradually shift from GPUs themselves to compliant low-cost power, a patch for loads to massively specific, texture-based AI computing systems and long-term organizational capabilities. The hardest part is finding the right path from where we are today to the future. What we are doing now, including the ABC projects, direct power pipeline development, chip demand, system engineering and organizational efficiency improvements, is essentially building the foundation for that path. Finally, I want to talk about our organization and cost structure. Since the fourth quarter of last year, we have continued optimizing our organization. The result of these efforts already started to appear in our operating expenses. Going forward, we will continue to focus our resources on core products, key projects and areas that can build long-term competitive advantages. At the same time, we are also introducing AI tools more deeply across the company, including R&D collaboration, coding and testing, supply chain planning, financial analysis, customer support and operational management. My view on AI is very practical. AI is not only a market that we may serve in the future, but also a tool that helps us to improve our organizational efficiency today. We want to achieve more, go deeper and deliver higher-quality work with a leaner organization. Going forward, we will continue to manage expenses with stronger discipline while improving business responsiveness and future efficiency. We believe these are critical priorities for the company to successfully navigate industry cycles. In March this year, James and I also purchased company ADS in the open market using our personal funds. The amount itself is not a key point. What matters is that management stands on the same side as all shareholders. This market environment is deeply challenging, but we remain confident in the company's long-term direction and our ability to execute. Looking ahead to the second quarter, we remain cautious. Although Bitcoin price and hash price have recovered somewhat from the lows in the first quarter, miners globally are still taking a conservative approach to investment. In addition, energy prices and geopolitical uncertainties may continue to affect customer decisions. Therefore, we expect total revenues for the second quarter of 2026 to be between USD 35 million and USD 45 million. This outlook is based on the current market and operating conditions, and actual results may differ due to changes in the market conditions, policies, compliance and customer demand. In the short term, China is still going through a difficult transition period. We do not avoid this reality, but I also want to make it clear that the company is not standing still. We are reducing inventory, controlling costs, advancing new products, expanding sales channels, strengthening mining operations, securing low-cost power resources, advancing our U.S. power infrastructure pipeline and exploring long-term opportunities in AI and HPC computing systems. The industry cycle will continue to fluctuate and market sentiment will continue to change. But what we can control are our execution, our cost structure, products, asset quality and long-term direction. As long as we continue improving in these areas, we believe Canaan will become stronger in the next cycle. That is the conclusion of my remarks. Thank you again for your continuous support. I will now turn the call over to our CFO, James, to discuss our financial results in more detail. Go ahead, James.

Thank you, NG, and good day, everyone. This is James speaking on our first quarter. As NG highlighted, the first quarter of 2026 was defined by significant volatility: global liquidity was tightening and the Middle East geopolitical conflicts escalated during the quarter, together with energy prices and regulatory bonds. Bitcoin entered the year trading near the $95,000 level in mid-January before experiencing a quick decline and bottoming at approximately $66,000 in early March. This fluctuation of Bitcoin price directly impacted industry-wide mining economics and hash price, forcing a cautious wait-and-see posture across the institutional sector. Despite these headwinds, our operational performance demonstrates our resilience in going through industry cycles. We successfully delivered total revenue within our guided range, we increased revenue from our North American sales, and we strengthened our mining operations by securing a 49% membership interest in three high-quality mining projects. At the same time, we also de-risked our inventory position through an accrued write-down, continuing to optimize our operational efficiency by continuous expense control. Collectively, these actions allow us to remain lean and agile, positioning us to navigate ongoing market volatility and prepare to capture future high-margin opportunities as the cycle eventually turns. Moving on to our financial performance. We delivered total revenue of $63 million in the first quarter, which was within our guided range. Our product revenue contributed $43 million to the top line. This represents a sequential decline because of the market environment change from Q4 to Q1. North American customers contributed over 80% of total product sales, which increased from 75% in the last quarter. During the quarter, we sold 4.1 exahash per second of computing power at an average price of $10.50 per terahash per second. Within product revenue, our Avalon Home series generated $2.7 million as we continue to invest in channel development for this segment. Our mining business generated $19 million in revenue. While this figure reflects the lower Bitcoin prices during the quarter, the business continues to serve as a consistent engine for our asset accumulation. By maintaining our mining activities throughout the market cycle, we are effectively strengthening our digital assets inventory and building long-term value for our shareholders. Turning to our mining operations. We concluded the first quarter with a total installed hash rate of 11 exahash per second, up 11% from Q4 and indicating a year-on-year growth of 66%. The growth is mainly driven by our development in North America. In Q1 we increased our installed mining hash rate in North America by 7.7x versus Q1 '25. North America's proportion increased from 11.5% to 53.6% of our quarterly global hash rate. This is fully aligned with our set strategy of continuously investing in mining operations in North America. This has not even included another 4.4 exahash installed hash rate in the JV projects acquired from Cyber Digital in February as we own 49% of the interest. As part of our asset strategy, we ended the quarter with 1,808 Bitcoin and 3,952 Ethereum on our balance sheet. With the production of 257 Bitcoin in this quarter, the total market value of our Bitcoin holdings stood at $121 million as of March 31, 2026. This growing reserve serves as a key pillar of our balance sheet strength. With the recent price recovery towards the $77,000 level, the market value of our Bitcoin holdings has increased to nearly $140 million. I would like to address our gross loss of $23 million this quarter, which was entirely driven by a $25 million noncash inventory write-down recorded in product costs. Excluding this impact, our adjusted gross profit was approximately $1 million, representing a breakeven adjusted gross margin. This accounting treatment was due to continuous pricing pressure and aligned our inventory cost structure with the market environment. Moving to our financial efficiency. Total operating expenses for the first quarter were $31 million, an 11% reduction from last quarter and an 18% reduction from $38 million in the same period last year. This improvement reflects our efforts to streamline our organization across all functions and our strict discipline to control expenses. Specifically, research and development expenses were $15 million, down 19% year-over-year. Selling expenses were $1 million, down 59% year-over-year, and general and administrative expenses were reduced to $15 million, down 11% year-over-year. These expense reductions are the direct result of our ongoing commitment to eliminating nonessential spending and focusing our resources on core strategic priorities. By all measures, we have built a leaner and more cycle-resilient organization. Now I would like to provide more details on the noncash items that impacted our bottom line results. This quarter, we recorded a $41 million fair value loss on our digital asset holdings. This reflects the significant Bitcoin price fluctuation, which declined from approximately $87,000 by the year end of 2025 to $67,000 by the end of the first quarter of 2026. I want to emphasize that this is a mark-to-market accounting adjustment and does not represent realized cash loss as we continue to hold these assets on our balance sheet. Consistent with industry practice, these fair value changes are included in our adjusted EBITDA calculation. Consequently, our adjusted EBITDA loss for the quarter was $76 million, reflecting the combined impact of the operational environment and the period-end revaluation of our digital assets. Regarding our liquidity, we ended the first quarter with a cash balance of $43 million. On the cash outflow side, we allocated $57 million during the quarter for manufacturing and operations to support our global supply chain, $6 million in wafer procurement payments to secure future production capacity and $2 million for share repurchases. These strategic outlays were partially offset by total cash inflows, which mainly consisted of sales collections, ADR-related receipts and value-added tax refunds. The sequential change in our cash balance from $81 million last quarter was primarily driven by collection timing and our planned capital outlays. This position has already been improved as we collected $42 million in cash receivables from miner sales in April. This post-quarter cash recovery demonstrates that our liquidity remains healthy and provides a solid foundation to navigate near-term market conditions while remaining prepared to capture future opportunities. I would also like to provide more details on the ABC project acquisition that closed in late February. This transaction was structured as a share-for-asset exchange, where we issued approximately 54 million ADS with a total fair value of $25 million. This consideration was allocated between two key assets: $14 million as equity investment for 49% of the stake in the JV comprising Alberta and Chief Mountain, and $11 million for the 6,840 A15 Pro mining units now recognized as part of our property, plant and equipment. By utilizing an entirely share-based structure, we secured 120 megawatts of high-quality North American power infrastructure with electricity costs below $0.03 per kilowatt hour without cash outlay. This approach allowed us to preserve our liquidity while onboarding Cyber as a strategic shareholder. We view this project as a highly capital-efficient deployment of our equity that significantly strengthens our North American footprint and cements our long-term partnership with Cyber. We remain anchored in a long-term strategy that prioritizes structural resilience and asset quality over short-term market fluctuations, while we maintain a cautious and disciplined stance for the upcoming quarters. The fundamental value of our linear cost structure and the strength of the balance sheet will become increasingly evident as this industry cycle evolves. By securing critical infrastructure and optimizing our manufacturing operations, we have built a platform that is prepared to capture the next wave of institutional growth. Moving forward, we will continue to safeguard our liquidity and leverage our technological edge to drive sustainable value. Given the headwinds and uncertainties in Q2, we are taking a very prudent approach in providing our guidance. We estimate our revenue would be $35 million to $45 million. This concludes our prepared remarks. We will now open the floor for questions. Thank you.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Logan Hannan from Northern Capital Markets.

First, can you just help educate us again on how Canaan is strategically positioned to secure and develop power for HPC infrastructure and will you be making any upcoming hires or working with a development partner to make this transition?

Let me start with the reason because that is the most important part: we want to do this. We are building our resources in the short term; I think mining is the best immediate load for the power. It is simple for us to deploy a flexible load in the long term. These power sources and our partner network can become our entry point into AI HPC infrastructure. This is already underway. On the last earnings call, I said a transformation was underway. Only three months has passed, and we already have further progress. We believe we will continue to show progress. On our chips, I have long been looking for a way to turn large-scale highly dedicated AI workloads into ASIC-friendly workloads closer to the mining computation today. For the end state, I think that direction is almost certain. For many years, we were searching for the right path. Now the path that can truly use our ASICs has become much clearer. So in summary, for your question, the summary is very simple: we want to build around energy, computing infrastructure and specialized ASIC design. Mining gives us the starting load. AI HPC gives us the long-term opportunity. Yes. And about the partners, yes, I think the specific sites always have their own design. But development in cooperation with other partners is an important model for us. The value is not only about putting money and AI HPC in the same place. The bigger value is time-based load management: when AI HPC is powered or when total power is limited, mining can reduce load. When there is excess power or pricing for AI HPC demand is in a low-use period, mining can ramp up and in some cases run at a higher performance. So the economic benefit is clear because mining machines are relatively low cost and provide a controllable load. More importantly, it has social value attributes like being stable and controllable, and this model can help power assets, the grid and computing customers to work together more efficiently. Yes. I hope I answered your question.

Yes, that was very helpful. Then one more. Is there any additional color you can provide into your pipeline—maybe how many sites are in that gigawatt, what stage are these sites in? Are they under exclusivity, development, due diligence? Any color there and the current steps being made would be great.

I really want to share more, but we sit down with our compliance advisers and agree that it's better to announce details after some important commercial and legal documents are formally signed with the grid operators and our partners. There is certainly still uncertainty as always with large power projects. But our target—what we're working on—is very clear. We want sites that can support both mining and AI HPC, and also have scale, have low power cost and give us enough control to lead the project ourselves. So today, I will not disclose the site count, capacity by stage or status, but I can say the work is moving fast, very quickly, and our direction is unchanged. Thank you.

We will take our next question. Your next question comes from the line of Ben Sommers from BTIG.

I appreciate all the color on the ABC acquisition. I was just kind of curious, talking about the power pipeline. If you could talk about maybe if there are potential opportunities out there similar to that one, maybe acquire, whether it's a stake or a full project from a previous miner or someone that was mining Bitcoin there and just kind of what you're seeing in the market for potential opportunities similar to that one.

Yes, I think the ABC acquisition has been very good for us. It gives us direct exposure to high-quality, low-cost power, investable assets. The electricity cost is below $0.03 per kilowatt hour, so the project remains resilient even when required cash price is volatile. Operationally, the project has had very high uptime. We have also been upgrading our miners with our partner; by the end of April the hash rate had risen to 4.82 exahash per second. Also, the Alberta site added grid connection, which improves our time-to-scale with wind-plus-grid structure. This project provides low-cost power and execution capability. We will keep looking for similar assets and other accretive opportunities.

And then my next question, just kind of given the current market conditions and the outlook you guys provided, how do you think about the future growth for the Avalon Home Series? And just kind of curious on what you're seeing from the demand profile for those rigs?

Yes. Currently, I think we are under some pressure, but we see potential. This year, Avalon Home was hit by some policy changes in some important markets. For example, some countries strengthened restrictions on mining products later last year, and other countries also had policy changes. This made us more aware that compliant and stable markets must be our main focus. So this year, our emphasis has been channel building and product investment. In the second half, we have plans to launch several new products and upgrades to existing models. We are also building channels that match a more complete product line. We hope that can support higher revenue in the second half. Also, the gross margin will depend on our product quality. If you look at community and KOL reviews on YouTube, I think home mining product line reviews suggest we are far ahead in that segment. So yes, we have plans for expansion in the Avalon Home series.

The question comes from Mark Palmer from Benchmark, StoneX.

Yes. You mentioned that you have seen a pickup in the price of Bitcoin during the second quarter and that that has caused some recovery in the Bitcoin mining equipment market, but it has been limited. If you could just provide some perspective on this. In the past, when we've seen significant drawdowns in the price of Bitcoin, and then a recovery, to what extent does Bitcoin need to recover and then stay at higher levels before you begin to see an increase in demand for your products?

Yes, I can comment. First, on Bitcoin price dynamics: last year's new highs were partly related to a weak U.S. dollar, and it was not a very typical breakout cycle. This year, from a technical perspective, Bitcoin has shown patterns of falling to retest rather than a clean pullback. In Q1, our ASP was about $10.5 per terahash because the demand-supply imbalance and lower prices put pressure on ASPs. In my experience, one useful index to observe the recovery in the machine market is the hash price. Currently, I think the hash price is in the low $30s per TH/day, which is quite low. When hash price grows to around $40 to $45, you will observe a significant market recovery for mining machines. The market tends to accelerate strongly when hash price hits the mid-$50s. You can check these numbers live in real time. So I think month-to-month the hash price may climb slowly but steadily toward those ranges, but it has dropped back in recent weeks. So the market still needs some more time to have a real and sustained recovery.

We will next question. The question comes from Michael Donovan from Compass Point.

NG and James, can you discuss how much A15 series inventory remains in terms of exahash? How should we think about the timeline for ramping A16 production?

Like the end of 2022 or early 2023 at that time, our inventory was higher than in this cycle—just because in Q4 we locked the giant order and delivered in Q4 and early Q1. So actually, our inventory is not high. But for certain older-generation machines, we still have some inventory, and we lowered the price to try to clear that inventory within Q2. I think that's the plan. It seems like the semiconductor sector is in fierce competition with AI-related applications. They are occupying more and more wafer capacity, that's why for the second half we still need to secure wafers for our supply and make sure demand can be covered. We don't believe the market will remain very quiet like Q1 and Q2 all year. With regulatory clarity and other macro improvements, we will see the possibility of Bitcoin price going up in the second half. At that time, machine demand could recover. So we're preparing for that. Currently, our inventory structure is not bad—it's quite light—and our cash flow is good, but still, we would like to prepare for the second half.

Yes, I will add some thoughts on this. Our production preparation for A16 is ready. The tests are public, you can check them on YouTube, as I mentioned. Also, the product performance is real and strong. So even currently, we have low inventory, but if the market improves, we are in a good position to respond quickly.

Appreciate that. What are you seeing in miner demand outside the U.S.? Which international markets are showing strongest today?

I think after the U.S., we have some customers in Europe. For example, we have cooperation to provide hot water for local heating systems. I think we just announced about an 8-megawatt order from our European customers. We also have likely customers in other countries. But near term, the U.S. is still the main focus because this is where we see the most important opportunities for large power mining fleets and AI HPC infrastructure. Yes, the U.S. remains the most important market for miners.

Next question comes from Nick Giles from B. Riley Securities.

Yes. Thanks, operator. James, I was wondering if you could speak to the Tiger relationship and just touch on maybe a little bit more on the economics of that deal. And how could this expand? I believe that the agreement includes an option for additional volume, but just wanted to get a better sense for the overall revenue opportunity in this partnership.

Yes. I think we have already cooperated with them and their R&D departments for a long time. For customized development services, like Tiger just mentioned, they need more than standard machines. So we do core R&D and build specialized customized modules to integrate into our mass production model. We also provide software and hardware system-level solutions, and they take on development for significant parts as well. So by this collaboration, I think we are quite close to some mass production contracts. I hope we can make announcements after finalizing terms. The other thing is we are doing open-source work—we have already released the code, and we will continue to improve the quality of our open-source contributions. Tiger is a pioneer customer, but for third-party solutions, I think Canaan is clearly one of the brands manufacturers. We provide open-source code for software and we also can sell chips. So we provide the easiest way for our partners to build their own system, and I think it will be more and more friendly in the future.

Thank you so much, NG. I really appreciate the update this morning.

Thank you. As there are no further questions now, we would like to close the call. Thank you once again for joining today. If you have further questions, please feel free to reach the company through the contact information provided on its IR website.