Canaan Inc. (CAN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc.'s Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Ms. [Indiscernible], Investor Relations Director of 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, Mr. Nangeng Zhang; and our CFO, Mr. Jin Cheng or James. In addition, Mr. Leo Wang, Head of Capital Markets; and Ms. Xi Zhang, IR Manager, will be available during the question-and-answer session. Mr. Zhang will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Cheng will then provide details on the company's operating and financial results for the period before we open up the call for your questions. Before we continue, I would like to refer you to our safe harbor in our earnings press release. Today's call will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations or the performance of the company. These statements speak only as of the date hereof, 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 regarding our most recent annual report on Form 20-F for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call and webcast, we will discuss 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 release, which is posted on the company's website. With that, I will now turn the call over to our Chairman and CEO, Mr. Zhang. Please go ahead, sir.

Okay. Hello, everyone. This is Nangeng, the CEO of Canaan. Thank you for joining our conference call. Our CFO, James and I are at the company's headquarters in Singapore to share our quarterly results with you. The major event in Q2 2024 was the fourth Bitcoin halving. The Bitcoin network runs mostly without any issue during this halving. Amid intense marketing fluctuations, the Bitcoin price varied between about USD 71,000 at the beginning of the quarter and a low of USD 56,000, eventually closing at USD 61,000 by the end of the quarter. The total network hash rate remains relatively stable, with growth slowing but not declining significantly. As I mentioned during the last earnings call, the quarter before the halving tends to be quiet, but the market quickly recovers upward. Our operations continued steadily, inventory reduction proceeded as planned. and A14 series products began large-scale deliveries on schedule. Our new product, the A1566 was launched with outstanding performance, and our global sales network continued to expand. Our mining operations were optimized and adjusted, successfully weathering the challenges of the halving. This quarter, our revenue saw significant sequential growth, exceeding our expectations. Let me now walk you through a few key areas. In R&D, we have continued to drive product innovation. The mass production ramp-up for our A14 series product has been successfully completed. Through close collaboration with our foundry partners, we have seen smooth improvements in the yield rates and production capacity for A14 Series. These improvements have enabled us to deliver more computing power than initially expected from the levers we had ordered. In May, at the Bitcoin Asia 2024 in Hong Kong, we launched our air-cooled A15 series miners, pushing energy efficiency to approximately 18 joules per terahash and around 200 terahash in single unit computing power. Later at end of June, during the Mining Disrupt Conference in Miami, we introduced the liquid-cooled model of A1566I, which achieved a computing power of 249 terahash per unit. The A15 series, which is on a different process nodes from A14 is currently undergoing a similar mass production ramp-up, yield improvement and the capacity increase. Based on the current progress, the A15 series is advancing more smoothly than the A14 did at the same stage. We are confident to complete the above process within the next few weeks, propelling the A15 series into mass production for large-scale delivery. In addition, we have been working closely with our customers to provide customized integrated mining solutions tailed to their specific needs. Starting this quarter, the Middle East has entered an extremely hot season. Its temperatures reached around 50 degrees sources. The liquid-cooled and air-cooled system will be deployed earlier have successfully withstood the harsh conditions. Regarding the next step after the A15 series as per our usual practice, we do not announce new products before obtaining actual test results from complete machines. What we can share at this stage is that the development of our A16 series is progressing smoothly. We are utilizing more advanced process nodes and through process advancements and close collaboration with our wafer fabrication partners, we aim to boost the critical power efficiency metric of the entire machine into the 10 plus joules per terahash range. When the milestone is achieved, the air-cooled machines will be poised to reach the 300 terahash threshold in computing power for single unit. Although Moore's law is that in this industry, innovation is still far from reaching its limit. In terms of sales, we achieved a total computing power sales of 6.2 million terahash per second this quarter, making a significant 84% sequential growth. This was driven by the large-scale delivery of our A14 series, which has become our main product and led to a 33% sequential increase in the average selling price of our computing power. At the same time, we further cleared our inventory of our traditional models, primarily A16 leading to an optimized inventory mix by the end of Q2. Our one-stop mining solutions have gradually gained market traction contributing USD 4.6 million in revenue. We also launched the protocol mining heater Avalon Nano 3 for individual inch heaters. Since its launch in Q1, the product has seen strong demand with over 11,000 units pre-ordered by the end of Q2. As of today, we have shipped over 10,000 units to 75 countries and regions worldwide, receiving highly positive market feedback. This quarter, we made big progress in several key region markets -- regional markets. In North America, we secured a large presale order of 6,600 units of our new AA1566 model for Cipher, a listed mining company. Additionally, we successfully completed deliveries on previous orders from several other listed mining companies and continue to collaborate with more. This led to a tenfold sequential increase in recognized revenue from the region. Our products performance, durability and the professionalism of our delivery progress were highly recognized by our customers, establishing a strong reputation that will support further business expansion in North America. In the Middle East, our mining machines and one-stop mining solutions are gradually gaining traction. Our machines with superior heat resistance and comprehensive solutions that enable quick deployments, which have been very well received by customers, resulting in fivefold sequential increase in revenue from the region in Q2. In South Asia, our channel partners continue to contribute stable orders. Our traditional models known for their cost effectiveness and resistance to heat and humidity remain very popular in this region. Our online store cut into individual customers overseas, so 314% quarter-over-quarter increase in registered users and an explosive increase in orders since the launch of Avalon Nano 3 on the platform in Q2. Demand has been especially strong in North America, where nearly 50% of orders originated. Further boosting our brand recognition in the region through our marketing, attractive sales efforts and a more diverse product portfolio, customer advances increased significantly by 30% quarter-over-quarter to USD 51 million by the end of Q2, providing a solid foundation for revenue growth in the second half of the year. This quarter, our mining operations performed steadily, successfully navigating the challenges brought by the Bitcoin halving, generating USD 9 million in mining revenue despite the impact of the halving, which only represented an 11% decrease compared to the first quarter. We continue to optimize our mining project matrix, advancing hash rate deployment in new pilot projects while closing existing projects that were negatively impacted by policy changes. We are also near the completion of our exit from operations in Kazakhstan and Paraguay. As of August 10, 2024, our self-mining operational hash rate has reached 4.5 exahash per second, exceeding our previous guidance of 4.3 exahash per second mentioned in the last earnings call. Additionally, we successfully maintained an average electricity cost at a variable level of $0.042 per kilowatt hour, allowing our mining gross margin to remain steady at 33% similar to the first quarter. In Q2, we mined 141 Bitcoins, bringing our total Bitcoin holdings, including pledged bitcoins to 1,114, an increase of 57 Bitcoins from the previous quarter. We will continue to strike a balance between policies, stability and energy cost advantages to strategically enhance our mining business. In our first quarter 2023 earnings call, we disclosed our plan to use more advanced mining machines models to mining -- for our mining-based operations. We also mentioned that in additional -- in addition to corporate mining models, we considering fixed rate hosting and other approaches, such as self-building or acquisitions to actively participate in mining operations and explore more collaborative opportunities. We would like to reaffirm these mining strategies. Additionally, when evaluating our mining operations and opportunities globally, we have concluded that North America holds strategic importance. This region offers strong legal protections, valuable infrastructure and power supply and rapid developing health Bitcoin mining ecosystem. According to our calculations from the end of 2022 to the end of Q2 2024, the total hash rate growth of publicly listed mining companies in North America was 237%, outpacing the global network hash rate growth of 114%. Given that we view North America as strategic opportunity, we are announcing our plan to focus on this region. We expect to increase our mining hash rate target in North America from current 0.65 exahash per second to 10 exahash per second by the first half of 2025. As a global provider of Bitcoin mining solutions, we are uniquely positioned to see mining opportunities in North America. First, we have the flexibility to allocate mining machines inventory worldwide, plus mining investments, returns and the diversifying risk. Second, with comprehensive industry insights, reaching from mining machine manufacturing supply chains to global mining markets, we can more effectively evaluate investment opportunities and quickly match mining machines with optimal heights for short-term gain and long-term success. Third, our standing and reputation in the industry further enhances our ability to establish strategic partners --- partnerships with global mining community. Lastly, our advanced design capabilities allow us to customize mining solutions tailored to different environmental and economic conditions, whether in regions with extreme weather or in scenarios requiring flexible power load management and response strategies. At the same time, we hope these projects will serve as a showcase for potential customers around the world to learn about Canaan. We are fully committed across multiple dimensions, including capital, construction, operations and efficiency to make these products outstanding. By accumulating valuable experience, we aim to better serve our clients. In Q2, we continued to improve our operations significantly reducing total expense due to optimized G&A expenses, which have narrowed our operation -- operating loss by 61% year-over-year and 32% quarter-on-quarter. Although the decline we comprised at end of Q2 led to almost USD 10 million reduction in currency fair value on the income statement. We still achieved a 62% year-over-year reduction in net loss. With revenue remaining stable on the balance sheet the successful box delivery of A14 products and strong cash inflows from sales contributed to a 22% quarter-over-quarter increase in our cash position, bringing it to USD 67 million by the end of Q2. While midstreaming a safe cash level, we also made strategic moves to secure advanced process capacity in our supply chain through prepayments. As we entered the third quarter of 2024, our A14 series mining machines are being box delivered on schedule and contributing to our revenue. Following the launch of A15 series, we expect to complete its mass production ramp up within this quarter. The main R&D work for A16 series will also be completed within -- by the end of this year. Beyond chip development, we are rapidly expanding our product line and solutions to meet the post-halving demand for equipment upgrades and mining site deployments from global miners. We believe the upcoming Bitcoin bull market will be driven by broader public adoption. In this regard, we are developing a consumer-focused product line to make mining a part of everyday life and bringing benefits to general public. At the same time, we recognize that global vertical and economic instability is increasing, leading to more volatility in the Bitcoin prices, which continues to present challenges for the industry. Based on the overall situation described above, we maintain a cautiously optimistic outlook for the third quarter of 2024. We anticipate revenue for the third quarter to be approximately USD 73 million. This forecast is based on the current market and the operational conditions for the company and the actual results may vary. Bitcoin force halving was now completed in Q2, but the global political and the economic dynamics surrounding Bitcoin continue to unfold, bringing it to a wider audience. While the price of Bitcoin may experience significant fluctuations and centralization during the process, it also helps the public to better understand and accept Bitcoin. Our company navigated the halving quarter with a stable sense, continue to invest heavily in both product development and the capacity expansion, we remain confident in the long-term prospects of Bitcoin and the [indiscernible] of this bull market and we are already back on the path to growth. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.

Thank you. Thank you, N.G., and good day, everyone. This is James speaking at our Singapore headquarters. As N.G. stated at the top of the call, quarter 2 of the year 2024 was a particular quarter when we experienced a Bitcoin halving event, which takes place about every 4 years. Bitcoin price fluctuated from $71,000 to $56,000 and eventually landed at $61,000 in the quarter end. Total network hash rate performed considerable swings but continued the growth trend. As we expected, customers were more active in quarter 2 to upgrade their mining machines compared to quarter 1, and we used A15, A14 and A13 series to satisfy a diverse demand from various customer groups. Let me give a quick summary of our financial performance in quarter 2. First, with considerable upside demand and successful large-scale deliveries of our new A14 series, we achieved a total revenue of around USD 72 million, which beat our guidance by around USD 2 million, marking a sequential growth of around 105%. Secondly, A14 delivery enabled a higher average selling price, which contributed to a narrowed gross loss of around USD 19 million, indicating a sequential improvement of around 49%. Thirdly, cash balance increased to around USD 67 million by around 22% sequentially. As of August 10, 2024, our self-mining hash rate reached around 4.5 exahash per second, which helped our owned Bitcoin accumulated to a total of 1,114 Bitcoins, which is a new high. Last but not least, with the A15 series announced, we collected orders and advanced payments from customers. The balance of customer advances increased to USD 51 million by 30% sequentially, indicating a solid second half year revenue foundation. Let's start to take a look at the profit and the loss. As I said, in quarter 2, our total revenue was around USD 72 million. Revenue from machine sales was around $57 million. We delivered a total computing power sold of 6.2 million terahash per second, representing a quarter-over-quarter increase of around 84%. The average selling price increased by around 33% from $6.9 per terahash per second in quarter 1 to $9.1 per terahash per second in quarter 2, driven by the increased computing power sold and average selling price, revenue from machine sales increased by around 146% quarter-over-quarter. From the product side, our large-scale delivery of A14 sales contributed nearly 80% of machine sales revenue. From the sales side, our multidimensional global sales system made a positive progress in several key regional markets during the quarter. In quarter 2, our customers from North America and the Middle East contributed 52% and 17% of our machine sales revenue. Turning to the revenue of our integrated mining solutions and Avalon Nano 3 mining heater, which diversified our product revenue streams. In quarter 2, we recognized around $4.6 million revenue from the delivery of integrated mining solutions, probably contributed by the customers in Middle East and South Africa. We also recognized around $0.5 million revenue from the delivery of Avalon Nano 3. The accumulated orders for Nano 3 achieved $1.3 million by the end of quarter 2, primarily contributed by customers in North America and Europe. For our mining machine sales, we accrued $17.3 million for inventories write-down, prepayments write-down and the provision for inventory purchase commitments in the quarter, representing a quarter-over-quarter increase of 64% and a year-over-year decrease of 62%. The decrease was driven by ongoing stock clearance in this quarter. Those non-cash write-downs and provisions are made on the U.S. GAAP rules, jeopardizing our gross profit but do not impact our cash status. If the above write-downs and provisions were excluded, we would have a gross profit of USD 0.7 million for mining machine sales. Mining revenue was $9 million in quarter 2, has decreased 11% quarter-over-quarter. We mined 141 Bitcoins in this quarter, a decrease of 28% over the last quarter. This decrease was primarily driven by the bitcoin halving event, which occurred in April and resulted in a significant increase in the Bitcoin mining difficulty. Our average revenue per Bitcoin in quarter 2 increased 23% over the last quarter from almost $54,000 to almost $66,000. We also further expanded our mining business in Africa, where our installed hash rates reached 2.7 exahash per second at the end of quarter 2. At the end of quarter 2, we deployed a hash rate total over 4 exahash rate. And as of August 10, 2024, our self mining hash rates reached around 4.5 exahash per second. Quarter 2 mining profit was 38 Bitcoins. Gross profit margin was 33%, remaining sequentially stable. Please note here that the mining profit or loss is defined as mining revenues net of cost for energy and hosting, but without consideration of depreciation for the deployed machines. Looking forward, as a continuous strategic focus, we expect to further grow our North American mining hash rate target to 10 exahash per second by the first half of 2025. Now turning to the expenses. Our operating expenses totaled $27 million, decreasing 44% year-over-year and 11% quarter-over-quarter, respectively. Staff costs, including share-based compensation decreased 36% year-over-year and 11% quarter-over-quarter, mainly driven by organizational optimization performed in quarter 4 last year. As mentioned in quarter 1, we chose to early adopt the FASB new accounting rules on cryptocurrency assets since January 1, 2024, which allow cryptocurrencies to be carried at their fair market value. The price of bitcoin decreased to around $62,000 on June 30 versus around $70,000 on March 31st, resulting in a loss on crypto assets of $10 million during the second quarter. I want to point out that if we combine our $34 million gain on crypto assets fair value change in the first quarter with our $10 million loss in the second quarter, we are still up almost $24 million gain year-to-date. Benefiting from the large-scale deliveries of A14 series, the narrowed gross loss and the ongoing expense control, our quarter 2 operating loss was $47 million, narrowing 61% year-over-year and 32% quarter-over-quarter. Despite a loss of $10 million on fair value of our crypto assets, our Q2 net loss narrowed by 62% year-over-year to $42 million, and adjusted EBITDA loss narrowed by 61% year-over-year to $31 million. Turning to our balance sheet and cash flow. In quarter 2, we generated $74 million of cash inflow from sales, received $19 million from secured loans and $7 million from export VAT refunds. We paid $40 million to secure our wafer supply and $48 million for production and operation, which is aimed at enabling the concentrated delivery and spot sales of our products in the following quarters Consequently, at the end of quarter 2, we held cash of $67 million on our balance sheet, indicating a 22% increase compared to quarter 1 end. Now moving to our contract liability. Our A14 series has continued to be popular and we also reached some presales orders for A15 series from listed mining companies. The balance of contract advances reached $51 million as of this quarter end, increasing 30% from $39 million at the last quarter end. As of the end of quarter 2, we recorded account receivable of $8 million, which mainly consisted of the installments from North America public listed customers. We will continuously evaluate market demand and adopt corresponding credit policies with caution. Now turning our attention to our Bitcoin assets. The Bitcoin we held at our own holding assets kept growing in this quarter and reached a record high of 1,114 Bitcoins as of June 30, which is 57 more than 1,057 at the end of last quarter. On June 30, the fair market value of our owned Bitcoin totaled around $70 million. In this quarter, we pledged the 530 Bitcoins for the long-term secured loans with an aggregate carrying value of $19 million at a reasonable interest level. The secured loans enable additional liquidity for our production expansion and operations. In the future, under the premise of adhering to [ hold-on ] strategy, we will explore more ways to increase capital liquidity through our owned crypto assets. We expect our Q3 revenues to be $73 million. We have successfully navigated the halving challenge and continued to enhance investments in both product development and supply capacity. We will continue to cater to the diverse needs of our customers with an even more comprehensive and efficient selection of products. This concludes our prepared remarks. We are now open for questions.

[Operator Instructions] Your first question today comes from the line of Kevin Dede with H.C. Wainwright.

I was wondering if you could give us your perspective on the -- I know N.G. alluded to it a little bit, but just on the inventory situation throughout the industry?

Thank you, Kevin. Maybe I take this one. I think the inventory level in quarter 2 actually compared to quarter 1 is a little bit eased, because the customer demand after halving actually boosted out, a lot of customers try to upgrade their mining machines. So we faced to the first wave of the demand. That means the customers -- the existing customers, they would like to upgrade the machines. They placed orders, some for contract sales in last year quarter 4 or quarter 1. Some of them placed orders in quarter 2 directly for the current sales. So I think that the inventory situation changed to a little bit more optimistic situation, but still our competitors are still holding a big amount of inventory. That's something we heard, but it's better than quarter 1 end. I think that's my answer, Kevin.

I saw that your price per terahash stepped up very nicely from the March quarter, which I would expect was because you were selling more A14 series. But I was just wondering, if you could talk a little bit about the overall pricing trends and how you see that affecting demand?

Yes. I think that -- demand and the supply is always the most critical factor in our industry to decide the market prices. I think currently even we had the one wave of demand of upgrading machines, but still the price is still in the bottom, because no matter new products or older generation products, the selling price is still relatively low. I would expect if in the coming months Bitcoin price has some rapid growth, if that's the case, then it will drive the demand goes up, because there will be newcomers from energy industry to our industry to participate in the mining activity. If that's the case, the demand will be huge and it will be far beyond our supply capacity, because we have to lock the wafer supply 6 months before shipment. That means the supply side, we are linear and limited. But the demand side, if the Bitcoin price quickly grows, then we will see a big upside. If that's the case, the market price will come back in a significant way. Just like what happened in year 2020, we still remember in that November and December 2020, in that particular year, the mining machine price jumped from single digits to like 20 something and 30 in the end of quarter 4. I cannot say history will repeat absolutely the same way, but I do think if Bitcoin has a big potential to grow faster in quarter 4 or in late quarter 3, then we will see the demand coming back in a significant growing way. And at that time, our mining machine price will increase accordingly in also a significant way. So that's something we predict will naturally happen. If not in this year, it will in early next year. That's something we believe will happen. I just would like to share my true sense to you like this, Kevin. Thank you.

James, I really appreciate the optimism. Congratulations, N.G. and James, for a very nice quarter and the strong improvement and all the hard work.

Our next question is from the line of Sun Shuang with Guosheng Securities.

[Foreign Language] Is the company considering shifting the power use for self-mining to provide electricity for AI service providers?

This is N.G. I think at present we have no plans to shift to the electricity use in our mining operations to AI service providers. I think now primary focus remain on optimizing our mining business. Our mining companies feel relatively small and the returns from Bitcoin mining are more predictable and manageable for us, so making it worthwhile investment. However, I think we will continue to evaluate all potential opportunities and the strategies, always try our best to the company. Yes, thank you.

[Foreign Language] on August 8, the NASDAQ stock exchange released a statement on its official website showing that it is proposing to modify its rules regarding penny stocks to establish faster and stricter delisting procedures for companies with stock price below $1 per share. Does the company believe that this potential policy change has any impact on the company?

Thank you, Sun Shuang. I think we saw the proposed regulation, and I think it relates to a lot of discussion and a kind of lengthy process from proposal to final approvals. We will continue to closely monitor the dynamics of this kind of proposals. I think even if the proposal is eventually passed, we believe it has little impact on our company. Because the proposed amendments include, I think 2 key points. The first is, if the company's stock price remains below $1 for 360 consecutive trading days, the stock will be suspended from trading on NASDAQ and moved to OTC market. Even the companies during the process of appealing to a hearing panel, I think that that's the first one. The second one is that, if a company raises its stock price through a reverse stock split but the price falls below $1 within a year, NASDAQ will immediately issue a delisting notice, although the company can still appeal and continue trading for 180 days. I think even if these amendments are approved, at least the company stock can still stay below $1 for up to 360 trading days or fall below $1 after a reverse split before facing delisting. I think it's quite a long time. I think 2 weeks ago, our stock price was above $1. So from a company's perspective, I think the recent stock price is mainly impacted by the overall decline in the U.S. capital market in early August, I think which is -- it is mainly due to the chain reaction caused by certain lower than expected economic indicators. And also I think Japan's interest rate hike also caused certain leverages broken. So from our perspective, I think we will focus on our operation and try to make our financials better and better. I think in quarter 2, I think the trend of operation is returning to growth. The revenue is doubling in quarter 1 and I think the operating loss is narrowed down significantly. So I believe the current stock price is in the range of undervaluation and I feel confident our stock price will be repaired with our continuous stable increasing performance. I think that's my answer, Shuang. Thank you.

Our next question comes from the line of Bill Papanastasiou with Stifel.

Congrats on the sequential growth this quarter. For my first question, I was just hoping you could provide an overview of the manufacturing landscape today, where market share currently sits. And just a quick overview of how Canaan looks to gain market share in the near to medium term relative to some of your peers?

Okay. I think the key to increase the market share remains our products. So we continue to invest in R&D to deliver better products. I think you can see compared to a year ago, our product portfolio is now more diverse. Our A14 series is in the progress of spot delivery during the second and third quarters of this year. And in May, we launched the new A1566 mining machine. It offers an average computing power of over 185 terahash per second with the power efficiency of 18.5 joules per terahash. And its performance is on par with competing products on the market. And in June, we introduced the liquid-cooled model, the A1566I, and achieves a computing power of 249 joules per terahash. And also, I just mentioned we have constantly shared our R&D road map transparency with our customers and partners. Our 10 plus joules per terahash level products are on track. And we expected to complete the design and the tape outs by the end of this year. And you know then, it's the mass production preparations. And maybe we will complete it in the first half of next year. So we also meet our customers' needs for one-stop customized mining solutions through comprehensive product offerings. And also we launched Avalon Nano 3. We entered the consumer market. So I think the second important factor is building a comprehensive sales system to reach and cover various types of customers through a multi-channel approach, while placing greater emphasis on the marketing and promotion. For large clients, we have already partnered with several North American listed mining companies and are in discussion with more. And for the retail market where the computing power demand is high, but the customers are more scattered, we have seen good results by combining our own e-commerce platform with distributors clients to reach these customers. Additionally, we have established mining demonstration products in regions like the hot Middle East, serving as showcase to attract potential local customers who can see our machines performance and operations in real world conditions. However, I think we already recognize that our coverage of mid-sized customer groups is still lacking. So this represents one of our key growth areas moving forward. Finally, we adhere to our core value of integrity, believe strongly in the power of reputation. We are committed to do the right thing, even when it's difficult. We believe that as long as we continue to offer value propositions to the market and our customers, we will ultimately receive the market's recognition and the rewards. Thank you.

I appreciate the clarity and overview with the question there. For my second and last question, we're just hoping to get some insight into the recent announcement by the Russian government to legalize cryptocurrency mining in the country. Could we expect to see a similar move by China? And what are your generic thoughts on this move by the government in Russia? Just given your experience of mining in the region, just curious to hear your thoughts on the news?

Yes. I think as a U.S. listed company, we do not conduct business in Russia and have no plans to do so. So this is in the consideration of compliance and reputation. In our mining operations, we employed diversified deployment strategy, continuously to access the economic returns of various mining collaborations and adjusting the project layouts accordingly. So we deployed -- we will deploy the -- in the regions with energy advantages. And when selecting project opportunities, we also place -- today we also place a greater emphasis on the legal framework and the policy stability of the region to ensuring the robust risk management to protect our company's assets. Yes, thank you.

[Operator Instructions] Thank you. As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks. I'm sorry. It looks like we do have a question from Kevin Dede with the H.C. Wainwright.

James, N.G., since we had a couple of more minutes, maybe you could talk a little bit more about your plan to expand to 10 exahash in the U.S? Is that site acquisition or partnership? How do you plan on building that?

Yes, I think we have some on negotiation corporate partners in the U.S. and a few of them. So I think we will announce the details when we start the conference.

Yes, it's too early to discuss about the details, Kevin.

Yes, but probably we will have some progress, yes.

Understood. I just thought I'd throw that out there, because it seems like an impressive goal. So again, congratulations on the results.

Thank you. As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to reach out to us through the contact information provided on our website.

Thank you. That does conclude today's call. Thank you, everyone, for attending. You may now disconnect.