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Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc.'s first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the management 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 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, and our CFO, Jin James Cheng. Leo Wang, Vice President of Capital Markets and Corporate Development, and Xi Zhang, Senior IR Manager, 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 of 2026 was a very challenging quarter. Bitcoin prices dropped sharply from the highs at the beginning of the year, and the hash price fell to very low levels. As a result, miners 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 liquidity and the policies continue to keep the industry in a cautious environment.

For us, a company going through a transition period, this kind of environment created a lot of pressure. Today I want to focus less on the difficulties we faced and more on what we did during the difficult times. I believe investors want to see whether we have strong execution, disciplined operations, and 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 generated 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 energized and operating mining sites with low power costs in West Texas. Fourth, we continue to advancing the R&D of 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 plus 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 $62.7 million, in line with our previous guidance range. As of the end of the quarter, we held 1,808 Bitcoins and 3,952 Ethereum. Our digital asset treasury reached another record high. In mining machine sales, industry demand was clearly under pressure in the first quarter. We sold 4.1 exahash per second of computing power with an average selling price of about $10.5 per terahash, generating $42.9 million in revenue.

Many customers delayed purchases due to low hash price and high market uncertainty, and the market pricing also came under pressure. In this environment, we did not pursue short-term scale 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 a large North American order with most of the deliveries completed. In the first quarter of this year, we completed the final stage of execution.

Through this, 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 the 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 first quarter, we continued advancing customized products and the system-level solutions.

Recently, we expanded our collaboration with Tether by providing customized high-density hash board modules for its next-generation immersion mining and compute systems. This type of partnership shows that leading customers are shifting from purchasing single-standard miners to seeking integrated systems that are modular, maintainable, upgradable, 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 the global product delivery can create value. In addition, as we announced earlier today, we sold approximately 8 MW of hydro cool equipment to 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 having an Avalon Home series in the first half year has been channel expansion, customer reach, and service system development. Since the beginning of this year, Avalon Home 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 are not only about hash rate, but also about noise level, stability, product design, easy for installation and after sale service. We are currently working on the product upgrades for several Avalon Home models and hope to launch them in the second half 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 quality revenue. Now let me move to our mining business. The mining environment in the first quarter was also very challenging. In January, during severe winter storm across North America, we voluntarily powered down and hotel operations in the certain regions to prioritize electricity supply to local residents and the power grid. We want to be a trusted and responsible partner with a flexible computing load for the grid, rather than adding additional pressure during period of grid stress. More importantly, even under a low hash price environment, our mining business continued to show strong competitiveness.

During the quarter, we generated 257 Bitcoins 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 continued 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 kWh.

At the same time, the ABC JV Project also adds 4.82 exahash per second of installed hash rate and 120 MW 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 help us to accumulate BTC and help us better understand the real operational needs and the pain points of miners. More importantly, it help us to build real power consumption and operational capabilities as we continue to advancing in energy and the computing infrastructure in the future. The most important development this quarter was the ABC Project.

In late February, we acquired 49% equity interest in Alborz, Bear, and the Chief Mountain projects in West Texas from Cipher through a share exchange transaction. Together with 6,840 Avalon A15 Pro mining machines. The biggest advantage of the ABC Project is the highly competitive power cost, which is below $0.03 per kWh. Because of this cost advantage, the projects maintain a strong profitability and a high uptime even during period of Bitcoin price volatility. Among the ABC Projects, the Alborz site has successfully completed grid interconnection and now operates under a hybrid model combining behind-the-meter wind power and grid power, which significantly improved over uptime.

We have also been working closely with our partner, WindHQ, to steadily upgrade the mining fleets 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 project also has potential for future power load expansion, and we are currently evaluating related opportunities. Overall, the ABC projects operate under a hybrid mining power model, combining wind power and grid electricity with a total installed capacity of 120 MW and the power cost below $0.03 per kWh. The projects currently have an installed hash rate of approximately 4.82 exahash per second.

We have maintained a strong long-term relationship with Cipher over the past years. The completion of the ABC Projects transaction also reflects our ability to take over high quality assets released during the Cipher's business transaction based on our long-standing cooperation with these high quality power resources and the infrastructure capabilities will become increasingly important competitive advanced advantages in the industry over the long term. The completion of ABC Projects not only future strengthen our footprint in North American energy and infrastructure, but also represented an important step in the advancing our long-term energy plus computing infrastructure strategy.

Following the transaction, Cipher also became an important shareholder of Canaan, laying the foundation for deeper cooperation between the two parties in the future. This project has three 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 project is a concrete result of our energy strategy. It further strengthens our access to low cost power resources, mining operation, experience, and local partnership networks in the U.S. Third, it also provides us with stronger infrastructure capabilities and greater strategy 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 disclosure milestones required for us to provide more specific details publicly. At this stage, I cannot share too much additional information, but I can reaffirm our strategic view. 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 opera-upgradable 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 the 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 end 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 low as 12.8 joules per terahash. During the first quarter, some customers received simple 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 the third-party reviewers toward the Avalon A16 series, which has been very encouraging for our team. The Avalon 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 capabilities in system engineering, thermal design, firmware, reliability, and cost control. Advanced semiconductor process are becoming increasingly expensive. Simply pursuing the lowest joules per terahash does not always deliver the best returns on investment for customers. We pay more attention to the product's full life cycle economics for customers, including machine pricing, power costs, operational stability, maintenance costs, delivery certainty, and resale value.

Because we have secured 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 Avalon A16 series mass production and future product introductions in a more stable and a cost-controlled way, even under the current environment where AI-related demands is competing for advanced semiconductor capacity. For our mining machine delivery, we leverage manufacturing capacity across Malaysia, the United States, and Mainland China. This allow us to remain compliant while responding more flexibility to changes in the global trade environment and the tariff policies.

In particularly, during the delivery of our large North American order, our manufacturing, quality control, and the logistics teams worked closely together and successfully handled the pressure from concentrated shipments and tight delivery schedules, demonstrating the resilience and expansion 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. Some products have recently completed tape-outs for technical validation. After we complete product testing and the real operation, operating conditions, we will disclose 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 specifications, but systems that can operate stably by deployed 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's approach, which will be steadier and more practical. For AI and HPC, our long-term strategy has two major pillars. The first pillar is energy.

The completion of the ABC Projects shows that we have already make 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 a more controllable power resource development. Our goal is to gradually build power infrastructure capabilities that are financeable, developable, and operable by the company in compliant regions that are close to key markets and have long-term expansion potential. Energy infrastructures projects usually take a long time. The process from permitting land acquisition and the grid connection to construction and operational all requires time. Therefore, we will not make over-aggressive promises based on the short-term market sentiment.

Once these projects are completed step by step, we believe they will become one of the most important long-term modes for our future computing infrastructure strategy. The second pillar is 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, modularized, 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 development, standardized operations, and clear economic models.

This 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 workload today that already generates cash contribution and help us validate power assets and operational capabilities. AI and HPC represent future computing demand with larger scale and higher infrastructure standards. The company's 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 toward broader computing platforms. At this stage, we prefer to spend less time talking about concepts and more time building real assets, products, and engineering capabilities.

What we want to do is gradually expand our existing strengths in mining, energy, chip, and system engineering into broader AI and blockchain computing infrastructure. We believe the right approach is to first build a strong foundation in power resources and operations, and then gradually integrate new types of computing system when the timing is right. In this way, the company can continue benefiting from the cash contribution and the flexible load value of BTC mining, while also creating long-term opportunities in AI HPC and in variable and settlement-enabled digital economic network 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, scarce resources will gradually shift from GPUs themselves to compliant low-cost power, dispatchable loads, domain-specific architecture-based AI computing systems, and long-term operational capabilities. The hardest part is finding the right path from where we are today to the future. What we do now, including the ABC Projects, direct power pipeline development, chip design, system engineering, and organizational efficiency improvements. This essentially building the foundation for that path. Finally, I want to talk about our organization and the cost structure. Since the fourth quarter of last year, we have continued optimizing our organization. In Q1 of 2026, the result of these efforts already started to appear in our operating expenses.

Going forward, we will continue to focusing 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 measurement. 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 own organizational efficiency today. We want to achieve more, go deeper, and deliver higher quality work with our linear organization. Going forward, we will continue managing expenses with stronger discipline while improving business responsiveness and execution efficiency. We believe these are critical capabilities for the company to successfully navigate industry cycles.

In March this year, James and I also purchased company's ADS in the open market using our own personal funds. The amount itself is not a key point. What matters is that management stands on the same side as all shareholders. Today's market environment is indeed 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 the hash price have recovered somewhat from the lows in the first quarter, miners globally are still taking a conservative approach to the investment. In addition, energy prices and the geographic and the geopolitical uncertainties may continue to affect customer decisions.

Therefore, we expect total revenues for the second quarter of 2026 to be between $35 million and $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, Bitcoin prices, and customer demand. In the short term, Canaan 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 the market sentiment will continue to change. What we can control are our execution, discipline, 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 concludes 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. Good day, everyone. This is James speaking in our Singapore headquarters. As NG highlighted, the first quarter of 2026 was defined by significant volatility. Global liquidity was tightening, and the Middle East geopolitical conflicts were escalated during the quarter, together with energy price rises and regulation bumps. Bitcoin entered the year trading near $95,000 level in the middle of 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 of going through industry cycles. We successfully delivered the total revenue within our guided range.

We increased the 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 the 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 a 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 $10.5 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 asset treasury 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 last year. This indicates a year-on-year growth of 66%. The growth is mainly driven by our developments in North America. In Q1 2026, we have expanded our installed mining hash rate in North America 7.7 times of Q1 2025. North America's occupation increased from 11.5%-53.6% in 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 cooperation acquired from Cipher Digital in February, as we own 49% of the interest.

As part of our HODL strategy, we ended the quarter with 1,808 Bitcoin and 3,952 Ethereums on our balance sheet. With a production of 257 Bitcoins in this quarter, the total market value of our Bitcoin holdings stood at $121 million as of March 31st, 2026. This growing reserve serves as a key pillar of our balance sheet strength. With the recent price recovery toward $77,000 level, the market value of 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 non-cash inventory write-down entering product cost.

Excluding this impact, our adjusted gross profit was approximately $1 million, representing a break-even 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 the organization across all functions and our set discipline to control expenses. Specifically, research and development expenses were $15 million, down 19% year-over-year. Selling expenses were lowered to $1 million, down 59% year-over-year. The general and administrative expenses were reduced to $15 million, down 11% year-over-year.

These expenditure reductions are the direct result of our ongoing commitment to eliminating non-essential spending and focusing our resources on core strategic priorities. By all methods, we have built a leaner and more cycle-resilient organization. I would like to provide more details on the non-cash items that impacted our bottom line results. This quarter, we recorded a $41 million fair value loss on our digital asset holding. 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 market-to-market accounting adjustment and does not represent a 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 reevaluation 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 operation 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 expenditures were partially offset by $28 million in total cash inflows, which mainly consisted of sales collection, ADR rebate, and value-added tax refund. The sequential decrease in our cash balance from $81 million last quarter was primarily driven by collection timing and our planned capital outlets.

This position has already been changed as we have 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 Project ABC acquisition that closed in late February. This transaction was structured as a share for asset exchange, where we issued approximately 54 million ADSs with a total fair value of $25 million. This consideration was allocated between two key assets. $14 million as equity investment for 49% of stake in the JV comprising Alborz and Chief Mountain, and $11 million for the 6,840 A15 Pro mining units now recognized as a part of our PPE, property, plant, and equipment.

By utilizing an entirely share-based structure, we secured 100 MW of high-quality North American power infrastructure with electricity costs below $0.03 per kWh without cash outlay. This approach allowed us to preserve our liquidity while onboarding Cipher 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 Cipher. We remain anchored in 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 quarter. The fundamental value of our linear cost structure and de-risked 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 to provide our guidance. We estimate our revenue would be $35 million-$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. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question and one follow-up. If you have any additional 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 a question to management in Chinese, please immediately repeat your question in English. If you wish to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Your first question comes from the line of Logan Hennen from Northland Capital Markets. Please go ahead. Your line is open.

Hey, guys. Good morning. Thanks for taking our question. First, can you just help us educate us again on how Canaan is strategically positioned to secure and develop power for HPC infrastructure? Will you be making any upcoming hires or working with a development partner to make this transition? Thank you.

Thank you. Good morning. Let me start with the vision, because that is the most important part. We want to do this. We are building power resources. In short term, I think mining is the best immediate load for the power. It is simple, fast to deploy and flexible. In long term, these power resources and our partner network can become our entry point into AI HPC infrastructure. This is already underway. On the last earning call, I said Canaan was in transformation. Only three months has passed. We already have a future progress. We believe we will continue to show progress step by step.

On the, on chips, we have long, Personally, 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 most, almost certain. For many years, we were searching for the right path. Now the path is, that can truly use our ASIC design strengths. It's became, becoming, much clear. In summary, for question, the summary is very simple. We want to build around energy, computing infrastructure and, specialized, ASIC design. Mining give us, the starting load. AI HPC give us the long-term opportunity.

About the partners, I think the specific sites will always have their own design. But the dual deployment and the cooperate 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 needs power or when total power is limited, mining can release load. When there is excess power, low pricing, or AI HPC demand is in a low use period, mining can rev up and in some cases run at a higher performance.

The economic benefit is clear because mining machine is relatively low cost and a clean load. More importantly, it has social value. Grids like stable, controllable loads. This model can help power assets, the grid and computing customers to work together more efficiently. I hope I answered your question. Thank you.

Yeah. Yeah, thank you. That was very helpful. 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 in the current steps being made would be great. Thank you.

I really want to say more, but we sit down with our compliance advisors and agree that it's better to announce details after some important commercial and legal documents are formally signed with the grid and our partners. There is certainly still uncertainty as always with large power projects. But our target, what we are working on is very clear. We want to, we want sites that can support both mining and AI HPC, and also have scale, have a low power cost, and give us enough control to lead the project ourselves.

Today I will not disclose the site count, capacity, or by stage or status, but I can say the work is moving faster, very quick and our direction is unchanged. Thank you.

Thanks, guys. I'll hop back on the queue.

Thank you. We will take our next question. Your next question comes from the line of Ben Sommers from BTIG. Please go ahead. Your line is open.

Hey, good morning, and thank you for taking my question. Appreciate all the color on the ABC acquisition. Was just kind of curious, you know, talking about the power pipeline. If you could talk about maybe if there are potential opportunities out there similar to that one to, you know, maybe acquire whether it's a stake or a full project from, you know, 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. Thank you.

Yeah. I think the ABC acquisition has been very good for us. It gives us directly exposure to high quality, low cost power, invest access. The electricity cost is below $0.03 per kilowatt hour, so the project remains resilient even when the Bitcoin hash price volatile. Operationally, ABC has been one of our strongest sites with very high uptime. We also been upgrading our miners with WindHQ. By the end of April, the hash rate had increased from 4.4 to 4.82 exahash per second. The Alborz site also added grid connection which improves uptimes through a hybrid wind plus grid structure.

This project provides our low-cost power and distribution matter. We will keep looking for similar assets and larger upstream opportunities. Yeah, thank you.

Super helpful. You know, 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? Just kind of curious on what you're seeing from the demand profile for those rigs. Thank you.

Yeah. I think for the, you know, Currently I think we are under some pressure. Let me see. Yeah. This year, Avalon Home was hit by some policy changes in some important markets. For example, China strengthened restricts on mining products later last year, other countries also had policy changes. This made us more aware that compliance and a stable market must be our main battlefield. This year, our focus has been channel building and product development. In the second half, we have plans to launch several new products and several existing models upgrades. We are also building channels that match a more complete product line.

We hope that can support higher revenue in the second half. The growth market is still good on our product quality. I encourage you to look at the community and the QOL reviews on YouTube. I think in Avalon Home series product line, we believe we are far ahead. Also, about the expansion in Avalon Home series. We have plans.

Great. Thank you for taking my questions, and thanks for the update.

Thank you. We will take our next question. The question comes from Mark Palmer from The Benchmark Company. Please go ahead.

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

I think, first we're talking a little bit about the Bitcoin price. You know, I think the two new highs last year have partly related to a weak U.S. dollar last year. It's not a very typical breakout cycle. This year, from a technical perspective, Bitcoin has shown some patterns of falling to break higher and then pulling back. I think currently, the In Q1, our ASP is about $10.5 per dollar per terahash. Currently because the demand supply imbalance and the hash price decrease, the ASP is really under pressure.

In my experience, there are some index I can tell you to observe the recovery of the machines market. I think it's about the hash price. Currently, I think the hash price is about $30 some per exahash per day. It's quite low. When the hash price grows to like $40-$45, then you will observe a significant market recovery for the mining machines. The market will went crazy when the hash price hit $55. You can check the number on website in real time. Yeah.

I think in the last month before the Middle Eastern situation, the hash price is climbing slowly but steadily, to close to $40. It's dropped back in the last few weeks. The, I think that the market still needs some more time to have a real recovery. Yeah. Thank you.

Thanks very much.

Thank you. We will take our next question. The question comes from Michael Donovan from Compass Point. Please go ahead.

Hi, NG and James. Thanks for taking my questions. Can you discuss how much Avalon A15 series inventory remains in terms of exahash? How should we think about the timeline for ramping Avalon A16 production?

Yeah. This question is about inventory. To be very honest, this time we entered the bear market with a relatively light inventory compared to the previous cycles, like at the end of 2022 or early 2023. At that time, our inventory was higher than this cycle. Because in Q4, we locked the giant order, and we deliver in Q4 and early quarter one. Actually, our inventory is not high. For certain older generation machines, we still have some inventory, and we lower down the price. We try to clear that inventory within quarter two. I think that's the plan. It seems like the semiconductor sector is in a fierce competition with the AI-related applications. They are occupying more and more wafer capacity.

That's why for the second half, we still need to prepare for the wafers for our supply and make sure the demand can be covered. We don't believe the market will continue to be very quiet like the quarter one and quarter two. With all this news, like CLARITY Act be approved by the banking committee, and we will see CLARITY Act.

Go to the senator, and eventually we will see, second half the Bitcoin price has the possibility of going up. At that time, the machine demand could recover, so we better prepare for that. Even currently, our inventory structure is not bad, it's quite light, and cash flow is good, still we would like to prepare for second half.

Yeah. I will add some parts on this. Our production preparation for A16 is ready. The tests are public, you can check it on YouTube, I mentioned. Also the product performance is real and strong. Yeah. Another information is most prepared wafers are for A16. Even currently we have low inventory, but when the market improves, we are in a good position to re-respond. Yeah. Thank you.

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

I think after U.S., we have some customers from Europe. Like, we have cooperated with district hot water providing for their homes. I think we just announced today about 8 MW orders from our European customers. Also we have same like the customers from other country, they don't want to mention. I think today other regions still have alternatives. Near term, the U.S. is still the main focus. This is where we see that most important, they have power mining fleets and AI HPC infrastructure.

Yeah, they remain the most important part for miner sales. Yeah. Thank you.

Appreciate it, NG and James.

Thank you.

Thank you.

Thank you.

Thank you.

We will take our next question. The next question comes from Nick Giles from B. Riley Securities. Please go ahead.

Thanks, operator. Hi, NG. Hi, James. Just wondering if you could speak to.

Hi, Nick.

Yeah. Hi. I was wondering if you could speak to the Tether relationship and just touch on, you know, maybe just 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, just wanted to get a better sense for the overall revenue opportunity in this partnership. Thanks.

Yeah. I think we already cooperate with the tech, the technical line, and their R&D department, from Tether for some really long times. Yeah. I think to customize development service, like Tether you just mentioned, they need that they need more than standard machines. We built, we do co R&D and build specialized, customized modules, using the different boards, to our mass production model. Also we provide software and hardware system-level solutions for them. Also they take the development by themselves for very significant part. Yeah.

By this, I think we are close, quite close to have some mass production contracts. This is what we are here today. I hope we can do some announcements after the last one. The other thing is we are doing open source. We have already released the code and we will continue to improve the quality of our open source work. Tether is the pioneer customer, but sure, I think they are not the last. For the third-party solutions, I think Canaan is clearly one of the friendliest manufacturer.

We provide open source code for software and we also can sell chips. We provide the most easy way for our partners to build their own system. I think it will be more and more friendly in the future. Yeah. Thank you.

Great. 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.