Earnings Call Transcript - CAN Q2 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.’s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Mr. Clark Soucy, Investor Relations Director of the company. Please go ahead, Clark.

Clark Soucy, Investor Relations Director

Thank you. Hello, everyone, and welcome to our earnings conference call. The company’s financial and operating results for the second quarter were released by our newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nangeng Zhang, and our CFO, Mr. James Jin Cheng. In addition, Mr. Leo Wang, IR Senior Director and Ms. Xi Zhang, IR Manager, will also be available during the question-and-answer session. Mr. Zhang will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Cheng will then provide details on the company's operating and financial results for the period before we open up the call for your questions. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release. Today's call will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations or the performance of the company. These statements speak only as of the date 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, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call and webcast, we will discuss both GAAP financial measures and certain non-GAAP financial measures which we believe are useful as supplemental measures of the company’s performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP results in our earnings press release, which is posted on the company website. With that, I will now turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead.

Nangeng Zhang, CEO

Hello, everyone. This is Nangeng Zhang, 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 second quarter of 2023, the price of Bitcoin remained around $28,000 to $30,000 US dollars at both the beginning and the end of the quarter. However, for most of the quarter, it experienced a downward trend, while the overall network cash rate continued to steadily increase by about 15%. The rise in mining difficulty coupled with the sluggish Bitcoin price did have a certain adverse impact on both mining profitability and our willingness to make purchases. With the industry's inventory level remaining relatively high, the pressure of product updates has all mining machine providers eager to clear their inventory. As a result, the competition in the mining machine market has intensified and the price of computing power continues to be under pressure. In summary, the mining machine market remains in a bear market. Given this situation, our efforts are twofold. One one hand, we are dedicated to upholding our financial resilience and ensuring stable operations. On the other hand, we are also actively allocating resources towards future growth opportunities. I would like to take this opportunity to discuss several strategic points that we are focusing on. First, we are committed to long-term investments in R&D and production capacity to continuously upgrade and integrate our products. As we mentioned earlier, our A13 Series products achieved stable supply and gained customer recognition for their performance, leading to a record increase in shipment volume in the first quarter of this year. During the second quarter, computing power sales of the A13 series significantly surpassed that of the A12 series. We are constantly investing in R&D to enhance product computing power, increase power efficiency, and reduce costs. In the first half of this year, our products reached a power efficiency of 25 to 30 joules per terahash. In the second half of the year, we will further optimize the power efficiency range of new products to 20 to 25 joules per terahash. Currently, these iterative products are in machine debugging and small-scale trial production stages. We have started to take customer preorders, even in the current challenging market environment, and will continuously invest in R&D. This remains a prudent long-term investment for us. Furthermore, in alignment with our planned strategy, we are diversifying our product portfolio beyond mining machines. Following an extensive period of R&D and testing, we are about to launch our proprietary integrated cooling solutions. These solutions will effectively assist miners in rapid deployment and adapting to mining operations in various harsh natural conditions. Our integrated 40-foot and 20-foot air-cooled mining container products and 40-foot liquid-cooled Avalon mining container products have completed product development for type testing. They have already received orders and are expected to be delivered to customers in the second half of this year. Second, we continue to develop and refine our sales system to connect and support customers worldwide. Last quarter, we highlighted our work on building, developing, and optimizing our comprehensive international sales system. We engaged with large clients, channels, and retail customers to enhance our global reach and more effectively convert customers. This quarter, despite the market still being in a bearish phase, our overall sales significantly improved on a quarterly basis. Our total computing power sales reached 6.1 million terahash per second, up 45% sequentially, contributing to product sales revenue of approximately $57.9 million. With a brief surge in Bitcoin transaction fees in early May, there was a small upturn in the demand for computing power, seizing the opportunity, we responded decisively by rapidly expanding into the North American market, engaging key clients such as Cipher and Stronghold. Specifically, we received a significant order from Cipher Mining, resulting in 1.21 million terahash per second of computing power sales. In July, we also secured a 220,000 terahash per second sales order from Stronghold Digital Mining. This marks a significant milestone in our entry into the US market. Meanwhile, in Southeast Asia, our distribution channels are steadily expanding. In the second quarter, $3.9 million of revenues was contributed by contributor sales, and this figure will likely further grow in the third quarter. Our online retail store catering to overseas customers continues to expand its global customer base in the second quarter, reaching customers from Brazil, the UAE, Hungary, Cyprus, and Latvia for the first time. It’s worth noting that the world is vast, and establishing a global sales system takes time. We are working diligently, and we'll share with you further positive updates. Third, we remain committed to our mining strategy and will continuously explore mining projects. During the second quarter, our mining business successfully initiated several new projects. Through our partnership with the publicly listed company Stronghold, we installed the initial batch of 0.4 exahash per second of computing power. Recently, we have reached an agreement with Stronghold to further expand our partnership, adding 0.2 exahash per second of computing power, which is expected to be deployed and operational during the third quarter. Since the second quarter, we have also installed small-scale computing power for testing in Ethiopia and Paraguay, marking the first expansion of our mining business into these regions. Although the total network computing power continued to rise in the second quarter, our mining operations achieved remarkable results, thanks to our increased uptime and industry events such as BRC-20, which boosted Bitcoin rewards for mining activities. During this quarter, we produced 569 Bitcoins, contributing to mining revenue of $15.9 million, a sequential growth of 43.3%. As previously announced, our mining business has been affected by recent policy changes in Kazakhstan, leading to the temporary shutdown of approximately 2 exahash per second of installed mining power since early July. Furthermore, due to a default by a partner in a US project, 13,000 mining machines that we had already installed, along with the remaining computing power yet to be installed, will be affected. These two incidents are expected to impact the operation of close to 3 exahash per second of installed computing power starting in the third quarter. At present, we are actively working with local partners in Kazakhstan to apply for the relevant licenses and adjusting our collaborative approach to resume regular operations at the mining site. At the same time, we are working diligently to address the default issue with the partners in the US project through legal means, safeguarding the rights and interests of the company and our investors. It's important to note that we believe active global business expansion intermittently comes with various challenges, and setbacks are a normal part of this journey. The key point is that our fundamental direction remains unchanged. We continue to leverage our advantages in computing power supply while upholding mining as a key development strategy. At present, we are taking proactive steps to minimize the losses while ensuring that the license learned are not ignored. We are learning from our experiences and proceeding cautiously, expanding and exploring new mining project opportunities while accommodating high-quality Bitcoin assets. Finally, we will persevere through challenges, strive to maintain cash flows, and ensure sustainable operations. At the same time, we will accumulate assets with robust growth potential while strategically allocating resources to be fully prepared for the upcoming bull market. Overall, the market environment was weak in the second quarter, yet our operational performance remained positive. However, the continued selling price decline has created a series of material non-cash write-downs and/or provisions, resulting in substantial losses on our financial statements for this quarter. In this challenging market environment, our focus on cash preservation has intensified. During the quarter, we didn't utilize our ATM facility or conduct financing activities. Our cash flow levels experienced only a slight sequential decline and were prudently managed overall. As we move further into the second half of 2023, US interest rate hikes have not come to a complete stop and the global economic outlook remains increasingly uncertain. Amidst this uncertainty, unforeseen events still have the potential to cause significant fluctuations in the Bitcoin price. We believe that the broader market lacks sufficient upward momentum. In addition, large-scale miners' financing capabilities remain constrained. The recent hash rate growth curve also indicates a notable decline in the overall industry's incremental hash rate investment and deployment during the first three quarters of this year. This trend aligns with our market assessment. Policy changes concerning cryptocurrencies and mining in various countries introduced further uncertainty to both the industry and our operations. In some cases, these changes could present unforeseen challenges to our actual operations. Given all the factors I have just outlined, we have a cautiously optimistic outlook for the third quarter of 2023. We expect that revenues for the quarter will be approximately $30 million. This forecast reflects our current views on the market and operational conditions; actual results may be subject to change. Overall, as you might already know, we have navigated several Bitcoin cycles since our inception in 2013. Our task is to confront and resolve the challenges we encounter. Much like Bitcoin itself, where every day we create new history, with each new day, we become more experienced and stronger than the day before. We remain fully committed to performing ahead of the market curve. Next month, on September 12, we plan to celebrate the company's 10th anniversary in Singapore. Canaan proudly holds the distinction of being the first NASDAQ-listed company in our industry. Over the past decade, our evolution from a project group into a multinational company with leading design capabilities has been remarkable. As we step into the next decade of development, Canaan's potential achievements in the coming decade are exciting to consider. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.

James Jin Cheng, CFO

Thank you, Nangeng, and good day, everyone. This is James speaking from our Singapore headquarters. As Nangeng started the call, I would like to say the second quarter of 2023 was still a very dynamic bear market period for the Bitcoin mining machine industry with a complex range of influences and mixed factors. First, as we observed in this period of interest rate hikes, there was no significant upside for the price of Bitcoin in quarter two. The Bitcoin price settled into a range between $28,000 to $30,000, compared to the rapid growth from $16,500 to $28,500 in quarter one. Secondly, in May, there was the BRC-20 incident helping miners enjoy higher transaction fees, signaling the possibility of increased future mining revenue from these fees. Thirdly, the total Bitcoin hash rate continued to climb, increasing by 15% over the quarter. Total demand for mining machines increased compared to quarter one. Moreover, we observed intensified competition among mining machine manufacturers. Inventory levels remained high and selling prices continued to decline in quarter two compared to quarter one. All the above factors should be considered when analyzing our Q2 numbers. Of course, we also did our best to deliver the numbers and keep our operations resilient. Let's start with profit and loss. Overall, in quarter two, total revenue generated was $73.9 million, which beat our guidance of $72 million and represents an increase of 33.7% quarter-over-quarter. Additionally, our mining revenue reached a record high of $15.9 million and contributed more than 20% to our total revenue in this quarter. Regarding our machine sales, our revenue from mining machine sales was $57.8 million in this quarter, 32.2% higher than $43.7 million in the last quarter. We delivered a total computing power sold of 6.1 million terahash per second, representing a sequential growth of 44.2% and a year-over-year growth of 11.7%. However, the average selling price still declined slightly from $10 per terahash per second to $9.5 per terahash per second in quarter two, which resulted from fierce competition. Specifically, for our mining machine sales, we accrued $45.9 million for inventory write-down, prepayment write-down, and a provision for reserves for inventory purchase commitments in this quarter. The inventory write-down of $17.4 million was recorded based on the most recent subsequent selling price, where we offered further price concessions in August. This inventory write-down decreased by 50% sequentially. Another $28.5 million was mainly a result of one-off inventory write-down and a provision for commitment reserve for previous generation wafers, which we no longer plan to produce into mining machines. Those write-downs and provisions are made under US GAAP rules, jeopardizing our gross profit and making the quarterly loss figure, but do not impact our cash status. If the above write-downs and provisions were excluded, we would have a gross profit for our mining machine sales of $0.4 million and a gross margin of 0.6%. Turning to our mining business, because of the Bitcoin price recovery and increased Bitcoin rewards driven from BRC-20 across the network during this quarter, our mining revenue reached a record high of $15.9 million, representing a sequential growth of 43.3% and a year-over-year growth of 105.1%. As of the end of the second quarter, our total deployed hash rate remained at more than 5 exahash per second and our installed hash rates reached more than 4.9 exahash per second. We mined 569 Bitcoins in this quarter, achieving 50.4 Bitcoins for mining profit. Gross profit margin was 9.5% for our mining business in this quarter. Please note here that mining profit or loss is defined as the proportion of mining revenues deducting the cost of energy and hosting in terms of mining revenues, without consideration of depreciation. Now let us take a look at the expenses. Our R&D expenses were $17.9 million in this quarter, compared to $19.1 million in the last quarter and $15.6 million in the prior year period. The slight quarter-over-quarter decrease was due to the decreases in materials used for research and development purposes. The steady year-over-year growth reflected our commitment to building a talented R&D team. Our sales and marketing expenses were $2.4 million, compared to $1.5 million in the last quarter and $3.2 million in the prior year period. Sales commissions increased quarter-over-quarter because of revenue upsizing from quarter one to quarter two. Our general and administrative expenses in this quarter were $26.4 million, compared to $17.6 million in the last quarter and $22.1 million in the prior year period. The year-over-year and sequential increases were mainly due to $8.8 million in impairment of property and equipment. As we announced on August 18, we temporarily shut down 2 exahash of our mining computing power in Kazakhstan since July 2023 in order to issue legal compliance and we initiated the dispute resolution process with a partner on a US-based mining project. These challenges are anticipated to substantially affect our operational mining computing power starting in the third quarter of 2023. Therefore, we recorded $0.6 million and $8.2 million impairment for the related machines deployed in Kazakhstan and the United States, respectively. This is a necessary action under US GAAP affecting profit and loss, while having no immediate impact on Q2 cash status. The net result of the foregoing was an operating loss of $119.1 million for this quarter compared to $85.7 million in the last quarter. The net loss was $110.7 million compared to $84.4 million in the last quarter. The loss included a series of necessary write-downs of inventory, one-off reduction of holding prepayments, and PPE impairment totaling $54.7 million. Turning to our balance sheet, first of all, let us keep our eyes on the cash status. We held cash and cash equivalents of $66 million as of June 30, with a $6 million decrease compared to $72 million at the end of March. In the second quarter, we spent $76 million to sustain the wafer supply and machine production. Other cash payments included $21 million for operations and $3 million in tax expenses. The total cash-out of $100 million was netted by inflows of $93 million from sales and accumulated value-added tax refunds for exported sales. As previously mentioned, I'd like to reemphasize that we've recorded a series of material non-cash accruals or provisions in this quarter, including inventory write-down, one-off provision for commitment reserve, and PPE impairment. These non-cash accounting treatments were based on US GAAP requirements and resulted in expanded current losses. However, these non-cash accruals and provisions did not materially influence our cash flow. As of the end of this quarter, we recorded account receivables of $10.1 million. In order to strengthen collaborations with key clients, we have implemented an installment policy for certain key account customers who meet certain conditions, resulting in account receivables at the end of this quarter. In the future, we will continuously evaluate market demand and customer credit prudently and adopt corresponding credit policies. Now turning our attention to our Bitcoin assets. We held 747 Bitcoins as our own holding assets as of June 30, which is 124 more than 623 at the end of March 31. For the first half, we also held 378 Bitcoins received as customer deposits, which is new to our balance sheet. From May 25, 2023, the date we reported our financial results for the first quarter of 2023 to August 29, 2023, we neither utilized the ATM nor purchased any ADS. In the future, we will prioritize shareholder value, carefully monitor cash flows and stock prices, and flexibly execute any potential ATM sales or stock repurchases. In quarter three, we anticipate revenue of $30 million. In the second half of 2023, the price of Bitcoin is still facing a challenging environment and the price competition remains intense. Policy changes regarding cryptocurrencies and mining in different countries will also add uncertainties to industry operations. We will face unforeseen obstacles. Based on the above comprehensive situation, we give a cautious expectation for the third quarter of 2023. Now I would like to briefly walk you through our financial results for the quarter. Revenues in the second quarter of 2023 were $73.9 million as compared to $55.2 million in the first quarter of 2023 and $245.9 million in the same period of 2022. Gross loss in the second quarter of 2023 was $70.1 million compared to a gross loss of $47.5 million in the first quarter of 2023 and a gross profit of $138.3 million in the same period of 2022. Total operating expenses in the second quarter of 2023 were $49.0 million compared to $38.1 million in the first quarter of 2023 and $45.4 million in the same period of 2022. The loss from operations in the second quarter of 2023 was $119.1 million, compared to a loss from operations of $85.7 million in the first quarter of 2023 and an income from operations of $93.0 million in the same period of 2022. The net loss in the second quarter of 2023 was $110.7 million, compared to a net loss of $84.4 million in the first quarter of 2023 and a net income of $90.1 million in the same period of 2022. Basic and diluted net loss per ADS in the second quarter of 2023 was $0.65. As of June 30, 2023, the company had cash and cash equivalents of $66.1 million. This concludes our prepared remarks. We are now open for questions.

Operator, Operator

We will now begin the question-and-answer session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to three questions at a time. If you have any follow-up questions after the Q&A session, the Investor Relations team will be available after the call. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Thank you. We will now take our first question. And your first question today comes from the line of Mike Legg from The Benchmark Company. Please go ahead.

Mike Legg, Analyst

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

Nangeng Zhang, CEO

Hi, good evening, or good morning. Regarding power efficiency, it's a critical factor for customers. In the first half of this year, our products have already entered a range of 25 to 30 joules per terahash. This is a significant improvement compared to last year. By the second half of this year, the power efficiency of the products is below 35 joules. This progress in our products and our efficiency improvement is on track and as planned. We are gradually narrowing the gap with our main competitors. Beyond the power efficiency number, our products are balanced in terms of stability, environmental adaptability, and cost-effectiveness. Our product line is diverse, so the return on investment and profitability for miners are influenced by both OpEx and CapEx, and our goal is to have an advantage in both of these indicators, making our products the preferred choice for customers. Regarding self-mining, the policy environment in Kazakhstan has issued a new regulatory process related to mining. Since the detailed regulations came into effect in early July, the company immediately issued applications for licenses. However, we found that due to the early stage of the entire regulatory process, the specific requirements in execution are leading to delays in license applications. For instance, we learned that we need to wait for our mining partners to obtain a Type 1 license before submitting applications for a Type 2 license. As far as we know, the progress of obtaining the Type 1 license for local mining facilities is generally slow. The costs and execution of new regulations are still in early stages, and this will impact the process for resuming our local mining projects. The company and our local mining partners are actively progressing with required license applications. We are also exploring various ways to adjust our cooperation agreements with local miners to ensure compliance with laws and regulations. Furthermore, we are exploring more valuable mining cooperation opportunities globally. Our business has reached many geographic regions where we haven't ventured before. The political and economic environments, legal policies, and infrastructure conditions in different places are complex and subject to change, which presents challenges to our exploration and development. Where there is business, there are risks associated. We monitor policy and operational environment changes in the countries and regions of our projects closely and make operational adjustments as necessary. As a public company, we will also announce important developments in a timely manner for our investor's reference. Regarding counterparty risk, we acknowledge that in any business market, there may be those who do not act in good faith. We are resolutely addressing issues encountered in projects through legal measures. At the same time, we are learning lessons from our experiences, being more cautious in selecting partners, taking preventive measures, balancing risk and rewards, and proceeding cautiously with projects. Thank you.

Mike Legg, Analyst

Thank you very much.

Operator, Operator

Thank you. We will now take our next question. Please stand by. This is from the line of Kevin Dede from H.C. Wainwright. Please go ahead.

Kevin Dede, Analyst

Hello, gentlemen. Thank you for taking my questions. Nangeng, you mentioned inventory, as did James. Can you provide more insight into what you're observing regarding inventory levels worldwide? There's clearly a lot of pressure on pricing. Could you compare global inventory levels with those at the end of March? Do you believe they are still high or have they decreased a bit? It's great to see that you've sold more of the A13 series. I'm also curious about the trends in price per terahash for the future.

Nangeng Zhang, CEO

Thank you. Good morning. I think in the past few months, the mining machine market’s main focus has been on product upgrades and clearing inventory. As a result, the overall market entry has aggressively decreased. However, it's important to note that the market inventory still remains at relatively high levels. Taking a global view of the market, I think with the gradual recovery of the Bitcoin price this year, both the company and some clients worldwide have been provisioning themselves ahead of the next market cycle. However, it is crucial to understand that private market sentiment is somewhat fragile and affected by policy exchanges and reform price fluctuations. Due to competitive reasons, we cannot disclose specific client improvement plans. But the overall trend in the second half of the year is clear. High-quality expansion-minded clients will prepare for the next cycle after having acquired new machines. Meanwhile, many small and medium-sized miners will operate with cost-effective traditional models to expand short-term gain at lower levels. Due to the current intense competition in the mining machine market, computing power prices are generally at minimal profit or even negative margin levels. From the perspective of machine prices, the current competitive environment is pushing mining machines to offer great value. We hope that customers who are still considering their purchase options will place orders as soon as possible. Thank you.

Kevin Dede, Analyst

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

Nangeng Zhang, CEO

Let me see. Currently, we are building the machines based on contracts with our customers. I think that semiconductor foundries have relatively ample competitive production capacity, albeit with good wafer prices. In contrast, wafers for advanced process nodes have a higher cost due to the technology and lower supply. Therefore, for the next couple of quarters, the supply chain is not the primary issue for us. Our focus will be on our sales system and providing machines with the best performance in the market while continuing to invest in our R&D.

Kevin Dede, Analyst

Okay. Last question for me, Nangeng. Understand maybe 2 exahash not running in Kazakhstan and perhaps 2 exahash not running in the US, given about 5 exahash installed. Can you talk to what you expect your self-mining hash rate to be through the September quarter and what your investment thinking is regarding Canaan's self-hash rate for the balance of the year?

Nangeng Zhang, CEO

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

James Jin Cheng, CFO

Kevin, this is James. We are talking about a total of 4.9 exahash of mining power. The loss from Kazakhstan is about 2 exahash as you said, but the loss from the US is only 1 exahash, not 2. So the total loss here is 3 exahash compared to the total 4.9 exahash. In quarter two, we successfully deployed 0.4 exahash with Stronghold in the United States. We have another 0.2 exahash to collaborate with Stronghold in the US as well. In quarter three, we started pilot runs in new cooperative sites in Africa, South America, and North America. However, electricity access is slow, and it will take time. In my estimation for quarter three, we will lose at least half of our total capacity if the Kazakhstan machines do not recover quickly. This is also reflected in our total revenue estimation for quarter three. However, we are looking for different sites in various locations to recover this quickly in quarter four. Thus far, in quarter four, we will have a greater chance to recover the mining operation hash rate and will continue to execute our mining strategy consistently.

Kevin Dede, Analyst

Well, thank you, James. I really appreciate it. Thank you for chiming in and thank you so much, Nangeng, for offering additional color. Thanks, gentlemen.

Operator, Operator

Thank you. We'll now take our next question. This is from the line of Shuang Zhang from Guosen Securities. Please go ahead.

Shuang Zhang, Analyst

We will have a greater chance to recover the mining operation hash rate in quarter four and will continue to execute our mining strategy consistently. Thank you for chiming in and for offering additional information. We will now take our next question. This is from Shuang Zhang from Guosen Securities. Please go ahead.

Operator, Operator

This is the operator. Shuang Zhang, your line is not too clear. Could you please try asking your question again?

Shuang Zhang, Analyst

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

James Jin Cheng, CFO

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

Shuang Zhang, Analyst

My second question is, how was your progress on mining cash rate deployment and installment?

James Jin Cheng, CFO

As I mentioned earlier to Kevin, we have lost 3 exahashes in Kazakhstan and one site in the United States. We successfully installed another 0.4 exahashes during quarter two with Stronghold, one of our key mining partners in the United States. We also implemented another 0.2 exahashes in quarter three with Stronghold. Additionally, we deployed new sites in Africa, South America, and North America during quarter three with pilot runs. While those small sites together cannot recover 100% of our total hash rate back to 4.9 exahash from quarter two, we expect to gradually recover that in quarter four with all the new sites ready and shipments scheduled.

Shuang Zhang, Analyst

Thank you. And the last question is, how do you expect the upcoming events to impact computing power demand and price?

Nangeng Zhang, CEO

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

Shuang Zhang, Analyst

Okay. Thanks for the answer.

Operator, Operator

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.

Clark Soucy, Investor Relations Director

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

Operator, Operator

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