CAN

Ladies and gentlemen, thank you for standing by. Welcome to Canaan Inc.'s second 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. I'll now hand the conference over to your speaker today, Gwyn Lauber, investor relations for the company. Please go ahead, Gwen.

Thank you, operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are Chairman and CEO, Nangeng Zhang, and our CFO, James Jin 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, Gwen. 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 second quarter of 2026. Q2 2026 remained a difficult environment for the Bitcoin mining industry. In the first half of the quarter, Bitcoin prices recovered from approximately $62,000-$82,000, before declining sharply and reaching a period low of about $58,000 at the end of the quarter.

During the quarter, hash price fluctuated between $0.028 and $0.039 per terahash per second per day and remained at low levels. At the same time, in the U.S., the capital markets and the traditional mining companies continued to shift more attention toward AI and HPC. Localized armed conflicts in certain countries and regions, and the tighter mining-related policies in China and elsewhere are factors that affected miners' investment willingness and capacity.

From the second half of the quarter onward, miner sales weakened noticeably and elevated industry inventory levels further intensified price competition. During the quarter, the company generated total revenues of approximately $32 million, below our previous guidance range of $35 million-$45 million. We sold 2.5 exahash per second of computing power, and our mining business produced 243 Bitcoins. When we issued guidance in May, our demand outlook was primarily based on the market conditions in the first half of the quarter. We did not fully expect the later decline in the demand and pricing.

In the second half of the quarter, Bitcoin prices fell quickly. Miners became more cautious about equipment purchases, and high industry inventory levels increased price competition. These were the main reasons revenues came in below expectations. In response to the revenue decline, we further tightened our spending, strengthened cash flow and liquidity management, and continued organizational optimization.

As of quarter end, the company held 1,915 Bitcoins and 3,952 ETH, bringing our digital assets treasury to another record high. I will start with our mining machine business. As mining economics weakened, many miners delayed equipment purchases, and the average selling prices remained under pressure. During the quarter, we generated approximately $40 million in product revenue. In response to softened demand, we adjusted pricing, more flexibility. At the same time, we again emphasized production based on actual sales.

We controlled new production according to real orders and put more focus on inventory management, cash flow, and order quality. For existing machines, we will evaluate whether to sell them to customers or deploy them in our own mining operations based on cash collection, deployment conditions, and additional investment requirements. Now, let me turn to our mining operations. In Q2, we adjusted our deployed hash rate in a timely manner based on power prices, load management, and operating conditions at different sites.

We allocated resources to projects with better economics. Mining revenues were approximately $80 million, accounting for more than 50% of the company's total revenue in Q2, and continued to cover direct operating costs such as power and hosting. As of the end of June, our installed hash rate in non-JV projects was approximately 10.05 exahash per second, and average all-in power cost in June was about $0.043 per kilowatt hour. Overall power and hosting costs remained relatively competitive.

Project ABC remains one of our key priorities. For Project ABC, we focus not only on current period profit, but more importantly on the cash it can generate and the long-term returns that can be created after optimization. This is consistent with the transformation the company is pursuing. Whether it is Project ABC or the longer-term power resources we are developing, our goal is to gradually build mining and energy infrastructure assets that have a cost advantage and can generate sustainable cash flow.

In Q2, together with our partner, we continued the mining machine upgrade at Project ABC. The project generated a positive cash flow and maintained efficient operations. At the end of July, installed hashrate at Project ABC, which reached 4.85 exahash per second, up 10% from the end of March. Through this project, while increasing hashrate and cash generation, we also gained experience in operations, power dispatch, fleet upgrades, and the management of low-cost power sources.

Beyond traditional mining use cases, we continue to advance energy utilization partnerships such as compute-to-heat. Our earlier Nordic project has already validated the feasibility of using HydroCool equipment for district heating. Our high-temperature HydroCool equipment can supply the hot water needed for heating, which is particularly suitable for winter heating demands. These products are still relatively small in scale, but using the heat generated from computing for comfort heating is a useful explanation of our compute-to-heat closed loop.

Regarding R&D and the products, we continued advancing the A16 series in the second quarter with a focus on cost-effective air-cooled models and high-temperature HydroCool models. We pay close attention to products' full lifecycle economics, including purchase cost, power consumption, stability, maintenance, and deployment efficiency. On the consumer side, the second quarter was mainly devoted to R&D on new Avalon Home products, which we will prepare for mass production in the third quarter.

These home series products are designed for home heating use cases, and we hope to capitalize on the winter heating season in the northern hemisphere and deliver a solid sales performance. Long-term power resources remain another key focus of the company's transformation. Over the past several quarters, we have been advancing long-term, stable, cost-advanced, and expandable power resources products in North America. On our first quarter 2025 earnings call, we mentioned our confidence in our ability to secure a substantial load by year end 2026, potentially reaching the gigawatt scale.

Based on the progress we have made so far, our confidence in securing gigawatts scale load by the end of 2026 remains intact. We continue to work with all the stakeholders and hope to provide an update when we are in a position to do so. Finally, let me discuss capital allocation. Since the beginning of the second quarter to date, the company has not utilized the ATM program or raised capital. Under the existing 30 million share repurchase authorization, we recently mentioned a portion of our digital assets and used to proceed to repurchase the company's ADSs.

We believe that the current share price meaningfully undervalues the company while retaining the capital needed for operations and project environment investment. We choose to use a portion of our digital assets for buybacks. We deployed around $2 million in the first quarter and around $5.4 million in August to repurchase our ADS shares. in 2026, the company deployed $7.4 million and repurchased approximately $16.4 million ADSs so far.

James will provide more details on the execution of digital asset monetization and the buyback. James and I also continue to purchase the company's ADS in the open market this quarter. We remain confident in company's long-term development and the transformation underway. We hope these purchases further align management interest with those of our shareholders. Digital assets remain an important part of the company's asset allocation. We will continue to evaluate the risks and the rewards of holding digital assets, investing in mining and the power infrastructure, and repurchasing the company's shares.

While meeting our operating and liquidity needs, we will choose the uses of capital that we believe can create the best long-term value per share. Finally, during this quarter, the company completed its transfer to NASDAQ Capital Market and has been granted an additional 180-day grace period to regain compliance with the minimum bid price requirement with a deadline of January 11, 2027. We will continue to monitor the trading price of our ADS and take necessary actions to regain compliance and maintain the company's listing status.

Despite the significant impact of industry volatility on our second quarter financial results, changes in the macro environment have actually strengthened our conviction in Bitcoin as a decentralized financial asset. In response to market changes, we managed the inventory, expenses, and cash flow more strictly, while continue to organize our mining fleet, advance fleet upgrades at Project ABC, explore compute-to-heat applications, and prepare Avalon Home products for mass production. Work on power resources also continued.

In addition, we monetized a portion of our digital assets to fund share repurchases. We believe we have come through the most difficult period and were able to sell these digital assets at relatively favorable prices. Looking ahead to the third quarter, although Bitcoin price recovered somewhat at the end of August, Miner procurement remains cautious, and the industry inventory still needs to be digested. Some competitors have adopted a more aggressive pricing strategy to speed up cash collections. We expect miner sales and the average selling prices to remain under pressure in the third quarter.

Therefore, we remain cautious about the near-term mining machine market. Based on the current market and operating conditions, we expect total revenues for the third quarter of 2026 to be between $11 million and $15 million. This outlook reflects management's current judgment, and actual results may differ due to changes in macroeconomic conditions, policies, Bitcoin prices, and the industry demand. That concludes my remarks. Thank you. I will now turn the call over our CFO, James.

Thank you, NG. Hello, everyone. This is James speaking to you from our Singapore headquarters. NG just walked you through the market environment and our business progress during the second quarter. To summarize, in the second half of the quarter, Bitcoin prices and hash price weakened again. Miners became more cautious with equipment purchases, and the elevated industry inventory added a further pressure on pricing.

These pressures directly impacted our financial results. Computing power sold, average selling price, and revenue all declined, while lower market prices also affected the value of our inventory and fixed assets. In this environment, we are not waiting for the market to turn. We are focusing on what we can control. From a financial perspective, we are focused on three things. First, managing cash and maintaining sufficient liquidity. Second, actively allocating capital, including repurchasing our shares when we believe they are significantly undervalued.

Third, managing and optimizing our strategic assets, so they can generate stronger cash returns over time. Let me go through each of these areas. First, cash. As market conditions weakened, we tightened our expense and inventory management and placed even greater emphasis on cash flow. At the end of the second quarter, we had $66 million in cash, up about $23 million from $43 million at the end of the first quarter.

So despite generating less revenue during the quarter, our cash position improved. During the quarter, we collected $54 million in cash from product sales. We also received $15 million from value-added tax refunds, cash distributions from equity investments, and Bitcoin-backed financing. On the cash outflow side, we used $35 million for operating expenses and working capital, and another $11 million for wafer purchases. We also continued to exercise discipline on expenses.

Total operating expenses were $40 million in the second quarter, including $9.2 million of impairment charges on property, plant, and equipment, and $2.7 million of credit losses. Excluding these items, operating expenses were $28.2 million, down 9% sequentially and 14% year-over-year. This is consistent with the build-to-order approach that NG discussed earlier, control new commitments, accelerate collections, manage inventory and working capital, and protect liquidity.

In a down cycle, we believe financial resilience itself is a competitive advantage. Second, capital allocation. At the end of the second quarter, we held 1,915 Bitcoin and 3,952 Ethereum. Based on their carrying value as of June 30, our digital assets holdings were worth $112 million. Digital assets remain an important part of our asset base, but we do not believe they should simply be held passively.

We continuously compare different uses of capital, holding digital assets, investing in mining and power infrastructure, and repurchasing our own shares. When our shares trade significantly below what we believe to be their long-term intrinsic value, we view share repurchases as an attractive use of capital. In late August, we were authorized by our board and sold all our Ethereum holdings and 54 Bitcoins, generating approximately $13.9 million in cash. We used a portion of these proceeds to repurchase our shares.

In the first half of 2026, we repurchased 2.8 million ADSs for about $2 million. In late August, we repurchased an additional 13.6 million ADSs for $5.4 million. Year to date, we have repurchased 16.4 million ADSs for a total consideration of $7.4 million. Third, strategic assets, especially mining sites in the U.S. NG discussed the operational recovery and Bitcoin miner upgrades at Project ABC.

Let me add a few points from a financial perspective. During the second quarter, we have been upgrading the mining fleet at Project ABC to improve efficiency, received $5.2 million in cash from Project ABC, including sales collections and cash distributions. As of August 31st, cumulative cash received had reached $8.4 million. We would like to thank our partner, WindHQ, for the top-tier management and the result of Project ABC. Their long-term commitment and shared vision give us confidence in the future of ABC.

As part of this process, the retirement of older mining machines and the related accounting treatment resulted in a one-time loss. As a result, we recognized approximately $4 million of equity investment losses for Project ABC in the second quarter. There is an important distinction here between short-term accounting results and the long-term cash-generating ability of the assets.

We are not trying to preserve the book value of older equipment. We are trying to improve asset quality and generate more computing power and better economics from the same energy resources. For Project ABC or other strategic assets, we look beyond the current period earnings. We are focused on the cash the asset can generate and the returns it can produce after optimization. This is also consistent with the broader transformation NG discussed earlier.

Let me briefly add a few operating and financial metrics. Total revenue for the second quarter was approximately $32 million. Product revenue was approximately $14 million. We sold 2.5 exahash per second of computing power at an average selling price of $5.5 per terahash per second. Mining revenue was approximately $18 million, with 243 Bitcoin mined during the quarter. Mining accounted for 55% of total revenue.

Excluding depreciation, the gross margin for the mining business was 20%. These numbers also showed that during a weak market for mining machines, our mining operation have become an important contributor to revenue. Over time, we want to build a business that combines technology and mining machines, Bitcoin mining, power resources, and infrastructure. Next, let me briefly discuss our income statement. Adjusted EBITDA was a loss of $74.9 million in the second quarter, broadly in line with the previous quarter.

Our results included several significant non-cash accounting adjustments, primarily inventory write-downs, impairment of property, plant, and equipment, and fair value losses on digital assets. These items reflect changes in the mining machine market and digital asset prices during the quarter, but they did not result in an equivalent amount of cash outflow. When we are looking at the quarter, I think it is useful to separate three things.

First, the real operating impact of weaker demand and lower pricing. Second, the accounting impact from inventory, fixed assets, digital assets, and investments, a significant portion of which was non-cash. And third, what we are particularly focused on today, cash flow, liquidity, capital allocation, efficiency, and the ability of our assets to generate cash returns. Finally, turning to the third quarter. As NG mentioned, although Bitcoin prices have recovered recently, miners remain cautious, industry inventory still needs to be absorbed, and mining machine pricing remains under pressure.

As a result, we remain cautious about the near-term market environment. Based on our current market and operating conditions, we expect total revenue for the third quarter of 2026 to be between $11 million and $15 million. This outlook reflects our current assessment of market and operating conditions. Actual results may vary depending on changes in the macroeconomic environment, policy developments, Bitcoin prices, and industry demand. Let me close with three words that summarize our financial priorities today: cash, value, and assets.

First, manage cash, maintain financial discipline and liquidity so that we can navigate through the cycle. Second, manage value continue to compare different capital allocation opportunities while we believe our shares are significantly undervalued, we are prepared to repurchase them to create value for long-term shareholders. Third, manage assets. Whether it is our digital assets or Project ABC or the mining and energy infrastructures we are developing, our goal is not simply to own assets. Our goal is to make those assets more efficient, generate cash, and create long-term returns. We will not build our strategy around predicting short-term movements in the price of Bitcoin.

What we can do is maintain financial discipline during the difficult markets, improve capital allocation, and continuously upgrade the quality of our assets. So when the next industry cycle comes, we want Canaan to have stronger balance sheets, higher quality assets, stronger operating capabilities, and greater strategic flexibility. Thank you. We will now open the call for questions.

Thank you, management. We will now begin the question and answer session. To ask a question, please press star one and one followed on your telephone and wait for your name to be announced. If you wish to cancel a request, please press star one and one again. Please hold while we compile the Q&A roster. First question. The first questions will come from the line of Logan Hennen from Northland. Please go ahead. Your line is open.

Hey. Morning, guys. Thanks for taking our question. First one from us. Can you provide some additional color to help us understand how we should be thinking about this 1 GW pipeline? For instance, should we expect a dual deployment strategy balancing Bitcoin mine and HPC? If your team does pursue HPC, should we expect Canaan to go the co-location or the GPU cloud rental route? Any color here would be great.

Thank you. I will take this one. We are currently advancing several power resources projects internally. However, securing and developing power resources involve many steps. It has become more and more complex. The market attention and the computation are both very high now. Even for the projects that are moving the fastest, currently there are still key matters that need to be completed. As a management team of a public company, we need to be very, very careful about when we disclose project details. If we disclose too early, it may affect project execution. It may also cause the market to view an ongoing process as a confirmed outcome.

For the benefits for the company and our shareholders, we do not think it is appropriate at this stage to disclose the exact number and the location of the sites, the power capacity for each project or specific stage of each project. What we can say is our view from the Q4 2025 earnings call earlier this year. Based on the progress we have made so far, our confidence in securing gigawatt scale power resources by the end of this year remains unchanged. We will continue to work with the relevant parties and provide updates to the market when we are able to share more specific information. About the co-location or the GPU cloud rental, I think it is still too early to decide whether we will focus on co-location or GPU cloud rental.

There are many steps even between we secure the power resources and providing computing services. For a project of meaningful scale, we normally need different parties to work together. Many different parties, including capital providers, engineering contractors, and other resources partners. Which parts Canaan will participate in and what type of partnership we will use will depend on the specific project. Our approach is to use the capabilities and resources we already have.

Participate where we can add value and work with partners that bring complementary strengths. We do not assume that we need to manage the entire chain from the power to computing services by ourselves. We will not make investments beyond our capabilities or capital capacity to adjust to build an end-to-end model. At this stage, our main focus is still on advancing long-term cost-advanced power resources. As the projects become clear, we will evaluate the most suitable business model and level for participation. For now, we do not think it is appropriate to make a firm choice between these two routes. Thank you.

Thank you. We appreciate the color there. Can you formally remind us, how is Canaan strategically positioned versus peers to secure and develop power for HPC? It seems like you guys will likely go more the development partner route, but should we expect any upcoming hires to build a DAS and development team internally? Thank you.

Yeah. I think our advantage first comes from the practical experience we have built in Bitcoin mining over the past several years. Mining require us to work with many types of power providers and to evaluate sites across different regions. The U.S. is a very large market, and our local team has spent years visiting mining sites and advancing projects. Through this work, we have developed a better understanding of how power infrastructure works, the power conditions in different regions, and how to work with our local partners.

We have also built relevant resources and relationships. Since late 2024, our strategy has gradually shifted from mainly adopting partnerships to increasing the amount of assets we own directly. We want to have more control over long-term power resources and the site's operations. This direction has based on the needs of our own business and started before the market's broader focus on AI and HPC. As the market attention has moved more towards AI and HPC, we see strong continuity with our existing direction of funding long-term, stable, cost-advanced, and scalable power resources.

Our past experience, resources, and local relationships can continue to support us and give us a good starting point that we expand into this area. Of course, HPC has higher infrastructure requirements, so each project still needs to be evaluated and developed based on its actual use cases. Changing the markets also affect competition for power resources and project economics. We will also adjust our evaluation and the execution approach as needed. We will continue to focus on long-term cost and investment returns. Thank you.

Great. Thank you, NG. That was very helpful. Good luck the rest of the third quarter.

Thank you for the question. One moment for our next question. The next questions will come from the line of Kevin Cassidy from Rosenblatt Securities. Your line is open. Thank you.

Yes, thank you for taking my question. With your internal mining fleet improving energy efficiency, can you tell us a percentage in efficiency increase you should see by next year?

I think you are asking about the mining machine efficiency, right?

Yes.

Yeah.

The current efficiency.

Yeah. Okay. Yeah. I think for the Avalon A15 older machines we are at 15.8 to 17.8 joules per terahash. The next level is our A16. We have 12.8 joules per terahash to 16.8 it is already our cost-effective models, so there are a huge advantage for these kind of machines. For our mining fleet, we have plans to deploy at least a part of the A16 machines to our mining fleets next year.

Currently, our OEM power cost was about $0.03 per kilowatt-hour, and still we have a positive cash contribution. For next year, if you have reviewed the total network hash rate, I think it is declining for a few quarters already. It is quite easy to calculate the income for mining projects. We assume we will upgrade 70% of our machines from the old one to the more advanced, and also cost-effective models next year. I hope I answer your question. Thank you.

Yeah, that helps a lot. Thank you. Then just on the power pipeline, are you still pursuing looking for stranded power around the world? I guess if you could talk more about that development.

Yes. It is about-

Yeah.

About power.

Kevin, we always actively exploring and evaluating stranded power, trying to seek for opportunities. From different perspective, it takes quite a long time to evaluate the opportunities. It is not easy to find the partners like Cipher Mining, Cipher Digital or WindHQ. Those partners in Project ABC, they supported us. They do good deals with us in a transparent way, in a fair way. It is not easy every time we can find this kind of good partners. What we do is, we mainly look at the long-term power cost, site stability, expansion potential, and grid access, and the local policies and the regulatory conditions.

We also try to evaluate the best use for each site, including mining and where it is suitable potential HPC applications together with the additional equipment and the investment required. Currently we stay open-minded while maintaining our capital discipline. No matter through acquisition, through JV or joint development, we will only move forward when the risk and the return are attractive and the project can improve the quality of our long-term assets and operating flexibility. I should say currently we haven't yet deal another one just like Project ABC.

But we do have some projects under discussion. We continue the strategy of expanding in North America, especially U.S. I think this strategy remains same. We will do more, but we do it cautiously, slowly with all kinds of evaluations done, but not immediately jump to many deals. I think, the capital allocation is also in a very cautious way. Kevin, I don't know if I answer your question. No, that's very clear. Thank you.

Thank you.

Thank you.

One moment for our next question. The next questions will come from the line of Ben Sommers from BTIG. Your line is open. Please go ahead.

Hey, yeah, thank you guys for taking my questions, and appreciate the commentary on the current state of the product market. With Bitcoin prices up around 20% over the past month, just curious if you've seen any positive implications for the global demand for mining machines?

Global demand. Global, yeah. Global demands, to be frankly speaking, mining rig demand outside the U.S. is also very, very weak at the moment. Weaker mining economics together with the policy developments and the geopolitical conditions in some regions have affected customers' willingness and ability to invest. We have not yet seen a meaningful improvement in overall demand. One specific area of progress we can share is ESG-related applications, particularly compute-to-heat.

Our Nordic heating projects already have 2 MW of equipment in operation, and customer ordered another 6 MW in March this year. These projects combined with mining is a real heating demand. The same energy input produce both computing power and the useful heat. We will continue to develop these kind of applications. But the market is still at an early age, and small scale. This does not yet indicate that broader recovery in demand outside the U.S. Thank you.

Super helpful. I just wanted to touch a little bit on the Avalon Home series. It seems like you guys are making some positive developments here, but can you just talk a little bit more about what you are seeing for those machines? I think you guys mentioned some product developments there that could help potential winter seasonality. If you could just talk a little bit more about that.

Yeah. Avalon Home is a consumer product line that we have committed to developing. In Q2, it generated approximately $1 million in revenue. It is still relatively small. I think the long-term value lies on serving household users by combining computing and heating, which can broaden our customer base and revenue resources over time. After the heating season ended, sales of our home products came down.

At first I was a little disappointed, but then we realized that this may actually show that consumers are really using this product as other heating devices. After all, it's not very easy to sell heaters in summer. It reminds us that we need to understand the use cases and the seasonality of this kind of business as a true consumer product business. We began preparing new products for this year. Heating season in Q2 and in Q3.

Currently, we are working on preparations for mass production. We plan to launch new products and updates during the Christmas shopping season. Most of our key product line will receive updates and we may also introduce additional products. At the same time, we will focus on sales channels, after sales service, and user community. Continue to improve the noise levels. Yeah, easy for use and many different kind of stuff related to the consumer product. Yeah.

We hope Avalon Home will grow its revenue and the contribution to the company and become a consumer business with lasting value. Yeah. I think it is still too early to give a specific revenue mix target. Its shares of total revenue will also depend on heating seasonality and changes in our other business. For now, the priority to get the product experience and the business fundamentals right. Growth is supported by real household demand. I hope I answered your question. Thank you.

Super helpful. Thank you for taking my questions.

Thank you for the questions. As a reminder to ask a question, please press star one and one and wait for your name to be announced. Our next question comes from the line of Nick Giles of B. Riley Securities. Your line is open. Please go ahead.

Thank you for taking my questions. This is Bill Chen for Nick Giles. First, I want to congratulate on the maintaining positive cash contribution from mining in this pressured pricing environment. I guess on the share repurchase program, with approximately $7.4 million deployed against the, I think the total of $30 million authorization. What is your expectation for the pace of repurchases between now and the program's expiration in mid-December? And I guess any color on how you are balancing the capital allocation strategy against liquidity preservation would be appreciated. Thank you.

Thank you, Bill. I think you asked a very forward-looking question about the future stock repurchase. Currently, I think it's difficult to answer because in September we will see a lot of activities in U.S., especially on September 15, the senator will start to vote for CLARITY Act. We don't know if passed then what will happen to our industry. That could make Bitcoin price jump very high. Our share price could fluctuate together with the Bitcoin price. So it's depending on what kind of share price we will trade in the market and it depends on how we consider it's better to do some allocation to do stock repurchase. So it's difficult to predict the pace.

To be very honest, as the CEO and I myself, we have already purchased to get more shares of the company. We do have strong confidence that in the second half, our share price should come back again with some good trajectory. Even we are currently under the restriction of NASDAQ compliance requirement, so we better to regain compliance very soon. That's why we consider stock repurchase is something we need to put a lot of efforts trying to make sure we do and we allocate funds to do.

That's why we discussed with our board, and we got the authorization from them and say management can start to sell the digital assets to generate cash and to repurchase. I think our board understands the shareholder value quite well. They support us to do this. We are together with our shareholders and we are the shareholders. So we will do everything we can to do, but not within September, the particular month, but through the whole second half year or even future. So I think that's our commitment. That's my answer. Thank you, Bill.

Yeah. Thanks so much for the answer. I guess maybe one more, if I could. Specifically on the Project ABC, we'd love to see all the progress and given now it has reached on 4.85 exahash, what's the next milestone or target for the project? If there's a rough timeline you can provide. Thanks so much.

Yeah. I think we have been actively exploring and evaluating this type of opportunity. If the power cost stability, scalability, and the grid access are suitable, we can use mining as a flexible load to push the resources to work relatively quickly. If the site conditions allow, we have the flexibility for other competing load in the future. So, yeah, our approach is stay open-minded while maintaining capital discipline.

Whether through acquisition, JD, or joint development, we will only forward when the risk and the returns are attractive and the project can improve the quality of our long-term assets and operating flexibility. We do have a very good machine, even maybe still at the wafer level, but we can manufacture machines in a relatively short time and deploy them into new sites if we find somewhere it can fulfill our requirements.

But currently, I think it is still at some stage of a bear market. Yeah. It is not a bull market, right? So investment is very. We will have very high cautious in investment and consume our cash flow to do this kind of project. So currently we are still evaluating the resources and wait for the best timing to get the scale up of our mining fleets, include upgrade the machines. Thank you. I hope I answered your question.

Yeah. Thanks for the detailed answer and continue. Best of luck.

Thank you for the question. We will now take the last questions. One moment, please. Our next question comes from Michael Donovan of Compass Point. Your line is open. Please go ahead.

Hello, this is Ian Generous dialing in for Michael Donovan. Thank you for taking our questions. Firstly, on potential JV partners, what type of companies are you engaging with today? Are prospective AI customers already involved in these sites? Additionally, what requirements are they emphasizing, and would you expect to secure customer commitment before making a significant development investment?

Yeah.

We are open to using JVs or investment partners. From securing power resources to building infrastructure, and finally, providing computing services. Different stages require different capabilities and capital. For each project, we will choose a structure that allow all parties to contribute their strengths. Canaan has always valued working with partners. Our past joint mining projects, as well as Project ABC with WindHQ, have given us useful experience.

At Project ABC, we combine our mining machine and the technology capabilities with our partner's site operations and the power management experience. Together, we are upgrading the fleets and improve the project's cash returns. This experience can also support future partnerships. I think since late 2024, we have gradually increased the amount of assets we own directly, but this does not mean that we need to do everything by ourselves.

We want to have more control over our core assets and the long-term resources whilst we are working with partners that can bring complementary capabilities and the resources. For future projects, we will not limit ourselves to a JD, joint development, or any other structures as such. We will focus on how investment and the responsibilities are shared. Whether the risk Canaan takes, it matches by the return we can earn. Our final decision will always be based on the long-term shareholders' interest and the value per share. But currently, we do not have any specific partnership agreements that we can disclose. Thank you.

That's great color. Thank you. Lastly, if I may, more strategically, how should we think about the allocation of capital and management resources between pursuing the AI power land opportunity and the core Bitcoin mining business?

Let me think. I think for currently, we have already invested in the Bitcoin mining machines, core parts that deliver us. We already have them in our inventory or our partner's inventory. When we have the clear opportunities to deploy the mining machines to have good cash returns in the future, then we will do it. For the data center, I just mentioned, we are very open to do any kind of partnerships with third parties, with any kind of companies can contribute their benefits to the projects.

To be clear, we are not going to do the end-to-end projects by ourselves. Because I think to develop a meaningful scale of AI HPC data center needs a lot of capitals, which may be out of our capital capabilities. I think overall, our first priority is to please the interests of our shareholders. What kind of benefits we can get for every share is the most important part. Thank you.

I would like to add some color in this. As NG mentioned, we do have the inventory of mining machines now. So, when we do some new mining corporations, this can be injected to the projects as a kind of CapEx investment and without spending any cash. For the new HPC data center or this kind of power infrastructure things, sometimes we have to use some cash as a deposit to secure some opportunities.

That's something we do. We spend some of the money, we allocate some of the money as deposit to secure some of the opportunities. That's what we are doing now. I think from long-term perspective, we will continue to balance between the different business, and we will utilize our technology in the mining machine side and do mining operations.

In the other side, I think, step by step, we start from initial capital in a kind of a smaller scale. But in future, with pipelines, with different projects on air, we will see step by step, we accumulate more and more assets. With these assets, we can use these assets as collateral to leverage, to get more funds to sponsor the business in the data center part. I think that's something, in future, step by step, we will reach there.

But first of all, we should try to secure gigawatts level power. With this on hand, then we can start to talk about the next step. As NG mentioned, we do have the long-term ambition, but in short-term, we will not just immediately try to do everything in the ecosystem. We will do step by step and gradually grow ourselves. Thank you.

Thank you for the insight and for taking my questions, and congrats on the quarter.

Thank you.

Thank you for your question.

I'll now like to turn the call back over to the company for any closing remarks.

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

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.

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.