Canaan Inc. (CAN) Earnings Call Transcript & Summary

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to Canaan Inc.'s Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now 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 Chairman and CEO, Nangeng Zhang, and our CFO, James Jin Cheng. Liang Wang, Vice President of Capital Markets and Corporate Development, and Shi 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 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. Angie, please go ahead.

Thank you, Gwen. Hello everyone, this is NG, CEO of Canaan Inc. 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, the Bitcoin price has recovered from approximately $62,000 to $82,000, before declining sharply and reaching a period low of about $58,000 at the end of the quarter. Hash price fluctuated between ¢2.8 and ¢3.9 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 continue to shift more attention toward AI and HPC localized armed conflicts in certain countries and regions, and the tightening mining related policies in China and elsewhere factors that affected miners' investment willingness and capacity. From the second half of the quarter onwards, 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 to $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 in the first half of the quarter. We did not fully expect a later decline in the demand and pricing. In the second half of the quarter, it comprises so quickly. Miners become more cautious about equipment purchases, and high industry inventory levels increase 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 finalization. At quarter end, the company held 1,915 BTC and 3,952 ETH, bringing our digital assets treasury to another record high. I'll start with our mining machine business. As mining economics weakened, many miners delayed equipment purchases, and the average selling prices remain under pressure. During the quarter, we generated approximately $14 million in product revenue. In response to softened demand, we adjusted pricing more flexibly. At the same time, we again emphasize production based on actual sales. We control 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 required. 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 times, at different sites. We allocated resources to projects with better economics. Revenue was approximately $18 million, accounting for more than 50% of the company's total revenue in Q2. And continue 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 the average all-in power cost in June was about 4.3 cents U.S. dollar per kilowatt hour. Overall power and hosting costs remained relatively competitive. Project ABC remains one of our key priorities. For Project ABC, we focused not only on current period profit, 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 continue the mining machine upgrade at Project ABC. The project generated positive cash flow and maintained efficiency. At the end of July, installed hash rate at Project ABC 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 resources. 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 compatibility of using hydro-cooled equipment for district heating. Our high temperature hydro-cooled equipment can supply the hot water needed for heating, which is particularly suitable for winter heating demand. These projects are still relatively small in scale, but using the heat generated from computing for comfort heating is a useful explanation of compute-to-heat closed-loop. Regarding R&D and the products, we continued advancing the A16 series in the second quarter focus on cost-effective air-cooled models and the high temperature hydro-cooled 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 solution to 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-advantaged, and expandable power resources projects in North America. On our first quarter 2025 earnings call, we mentioned our confidence in our ability to substantial load by year end 2026, potentially reaching the gigawatt scale. Based on the progress we have made so far, our confidence in securing gigawatt scale load by the end of 2026 remains intense. 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 the proceeds to repurchase the company's ADS. We believe that the current share price meaningfully undervalues the company while retaining the capital needed for operations and project investment. We chose 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 assets 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 the company's long-term development and the transformation underway, and we hope these purchases further align management interest with those of our shareholders. Data assets remain an important part of the company's asset allocation. We will continue to evaluate the risks and the rewards of holding data assets investing in mining and the power infrastructure, and then we're purchasing 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 have been granted an additional 180-day grace period to regain compliance with the minimum bid price requirement. With a deadline of January 11, we will continue to monitor the trading price of our ADRs 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 continuing to organize our mining fleet, advanced 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 industry inventories still need to be digested. Some competitors have adopted a more aggressive pricing strategy to speed up cash collection. And we expect miner sales and 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 industry demand. That concludes my remarks. Thank you. I will now turn the call over to our CFO, James.

Thank you, Angie. Hello everyone. This is James speaking to you from our Singapore headquarters. [cite: 3, 5, 9, 12, 13, 14, 17, 18, 22, 23, 28, 29, 30, 33, 35] 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 further pressure on pricing. This pressure 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 3 things. First, managing cash and maintaining sufficient liquidity. Second, actively allocating capital including repurchasing our shares when we believe they are significantly undervalued. And 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 $47 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 the 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 Ether. 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 use 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. In the United States, 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've 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 31, cumulative cash received had reached $8.4 million. We would like to thank our partner, WindHQ, for the top-tier management and the results 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. So 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 operations 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 assets prices during the quarter, but they did not result in an equivalent amount of cash outflow. So, when we're looking at the quarter, I think it is useful to separate 3 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 the 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 3 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. When we believe our shares are significantly undervalued, we are prepared to repurchase them to create value for long-term shareholders. 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 Inc. 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, Manish Mani.

We will now begin the question and answer session. [Operator Instructions] The first questions will come from the line of Logan Hennen from Northland. Please go ahead. Your line is open. [cite: 29, 34, 36, 39]

Can you provide some additional color to help us understand how we should be thinking about this 1 gigawatt pipeline? For instance, should we expect a dual deployment strategy balancing Bitcoin mining and HPC? And if your team does pursue HPC, should we expect Canaan Inc. to go the co-location or the GPU cloud rental route? Any color here would be great.

Thank you. I will take this one. Yes, we are currently advancing several power resources project internally. However, securing and developing power resources involve many steps, and it's become more and more complex. The market attention and the competition 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. So 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. So for the benefit for the company and our shareholders, we do not think this is appropriate at this stage to disclose the exact number and the location of the sites, the power capacity for each project or a specific stage of each project. What we can say is our view from the Q4 2024.5 earnings call earlier this year based on the progress we have made so far, our confidence in securing gigawatt scale power resources 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. Yes, and about the co-location or the GPU cloud rental. I think it's still too early to decide whether we will focus on co-location or GPU cloud rental. You know, there's many steps between, even between we secure the power resources and providing computing services. So 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 Inc. will participate in and what type of partnership we will use. We 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 and we will not make investments beyond our capabilities or capital capacity and just to build and end-to-end model. So at this stage, our main focus is still on advancing long-term cost, advanced power resources. Yes, as the projects become clear, we will evaluate the most suitable business model and level for participation. So for now, we do not think it's appropriate to make a firm choice between these two rules.

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

Yes, I think our advantage first comes from the practical experience we have built in Bitcoin mining over the past several years. Mining requires 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. So, 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 operations. This direction has based on the needs of our own business and the started before the market broader focus on AI and HPC. So 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 effective 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. So changing the markets also affect competition for power resources and the project economics. We will also adjust our evaluation and the execution approach as needed. We'll continue to focus on long-term costs and the investment returns. Thank you.

Great. Thank you, Angie. 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. [cite: 1, 2, 4, 7, 11]

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?

Oh, uh, I think you're asking about the mining efficiency, right? Yes. Yes, currently, I think the A15 machines, we are at like, I think it's 15.8 to like 17.8 draws per terahash and that next level is our A16. We have like a 12.8 draws per terahash to 16.8. It's already our cost effective models. So there are a huge amount advantage for the for the data kind of machines. Yes, for our mining fleet, we have plans to deploy at least is a part of the 16 machines to our many fleets next year. So currently our OEM power cost was about ¢4.3 per T-ROT hour and still we have a positive cash contribution. For the next year, if you have reviewed the total network hash rate, I think it's declining for a few quarters already. So it's quite easy to calculate the the income for mining projects. And we assume we will upgrade a significant percent of our machines from the old one to the more advanced and also cost-effective models next year. Yeah, I hope I answered your question. Thank you. Yeah, that's all.

Thank you. And 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. Thank you.

It's about that. I think, Kevin, we are actively, we always actively exploring and evaluating stranded power, trying to seek for opportunities. But of course, from different perspectives, it takes quite a long time to evaluate the opportunities. And it's not easy to find the partners like a cyber mining, cyber digital or you know, WindHQ, those partners in Project ABC, they supported us. They do good deals with us in a transparent way, in a fair way. It's not easy every time we can find this kind of good partners. So what we do is we mainly look at the long-term power cost stability, expansion potential, and agreed access, and the local policies and the regulatory conditions. We will 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. So, 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 to 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. I don't know if I answered your question.

No, that's very clear. Thank you.

Thank you.

One moment for our next question. The next questions will come from the line of Ben Somers from BTIG. Your line is open. Please go ahead. [cite: 29, 34, 38, 40, 42, 45]

Hey, thank you guys for taking my questions and appreciate the commentary on the current state of the product market. So 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 demand, yes. Yes, global demand, to be frank, from his region. Many 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 religions have affected customers' willingness and ability to. 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 node-based heating projects already have 2 megawatts of equipment in operation. And customer ordered another 6 megawatts in March this year. These projects combined with mining with real heat in demand, so the same energy input produce both computing power and the usable heat. We will continue to develop this kind of applications, but the market is still at an early age and then small scale. So this does not yet indicate that broader recovery demand outside the U.S. Thank you.