Canaan Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Kannon Inc. 2nd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a question and answer session. Please note that this event is being recorded.

Operator

Now, I'd like to hand the conference over to your speaker host today, Ms. Gwen Lauber, Investor Relations Director of the company. Please go ahead, Gwen.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are our Chairman and CEO, Mr. Nanjing Zhang and our CFO, Mr. Jin Cheng or James.

Speaker 1

In addition, Mr. Leo Wang, Head of Capital Markets and Ms. Chi 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.

Speaker 1

Mr. Chang 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.

Speaker 1

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.

Speaker 1

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.

Speaker 2

Okay. Hello, everyone. This is Engie, the CEO of Canon. 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.

Speaker 2

The major event in Q2 2024 was the 4th Bitcoin targeting. The Bitcoin network runs mostly without any issue during this Harbin. And intense marketing fluctuations, the Bitcoin price varied between about US71000 dollars at the beginning of the quarter and the low of US66000 dollars eventually closing at US61000 dollars by the end of the quarter. The total network pass 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.

Speaker 2

Our operations continue to 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 continue to expand. Our mining operations were optimized and adjusted successfully measuring the challenges of the Hali. This quarter, our revenues saw significant sequential growth, exceeding our expectations. Let me now walk you through a few key areas.

Speaker 2

In R and D, we have continued to drive product innovation. The mass production ramp up for our A14 series products has been successfully completed. Through close collaboration with our foundry partners, we have seen smooth improvements in the EOD rates and production capacity for the 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 Airports A15 series miners, pushing energy efficiency to approximately 18 draws per terahertz and around 200 terahertz in single units computing power.

Speaker 2

Later, at the 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 node from A14, is currently undergoing a similar mass production ramp up, yield improvement and the capacity increase. Based on the current progress, the 18 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 printers into mass production ASP printers into mass production for large scale delivery. In addition, we have been working closely with our customers to provide customized integrated mining solutions tailored to their specific needs.

Speaker 2

Starting this quarter, the Middle East has entered an extremely hot season, with temperatures reached around 50 degree Celsius. The liquid cooled and the IR cooled system we deployed earlier have successfully reduced the harsh conditions. Regarding the next step after the A15 series, as per our euro 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 push the critical power efficiency metric of the entire machine into the 10 plus Jaws per terahertz range.

Speaker 2

When the milestone is achieved, the AirPods machines will be poised into to reach the 300 terahertz threshold in computing power for a single unit. Although somewhat says more slowest that in this industry, innovation is still far from reaching its limits. In terms of sales, we achieved a total computing power sales of 6 point 2,000,000 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.

Speaker 2

Our 1 stop mining solutions have gradually gained market traction, contributing US4.6 million dollars in revenue. We also launched the portable mining heater, Avalon Nano 3, for individual NCS. 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.

Speaker 2

In North America, we secured a large reseller of 6,600 units of our new A1566 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 10 fold sequential increase in recognized revenue from the region. Our products performance, durability and the professionalism of our DTVU 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 the 1 stop mining solutions are gradually gaining traction.

Speaker 2

Our machines with superior heat resistance and comprehensive solutions that enable quick deployments, which have been very well received by customers, resulting in 5 fold sequential increase in revenue from the region in Q2. In South Asia, our China 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 cutting into individual customers overseas, so 3 14% quarter over quarter increase in registered users and an explosive increase in orders since the launch of Aggielo Nano 3 on the platform in Q2. Demand has been especially strong in North America, where nearly 50% of orders originated.

Speaker 2

Further boosting our brand recognition in the region through our market size affected sales efforts and a more diverse product portfolio, customer advances increased significantly by 30% quarter over quarter to US51 $1,000,000 by the end of Q2, running 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 US9 $1,000,000 in mining revenue Despite the impact of the halving, the only represented an 11% decrease compared to the Q1. We continued to optimize our mining project metrics, 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 hedge rate has reached 4.5x hedge per second, exceeding our previous guidance of 4.3x hash per second mentioned in the last earnings call.

Speaker 2

Additionally, we successfully maintained an average electricity cost at a favorable level of RMB0.42 per kilowatt hour, allowing our mining gross margin to remain steady at 33%, similar to the Q1. In Q2, we mined 141 bitcoins, bringing our total bitcoin holdings, including pledged bitcoins to 11.14, an increase of 57 bitcoins from the previous quarter. We will continue to strike a balance between policy stability and energy cost advantages to strategically enhance our mining business. In our Q1 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 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.

Speaker 2

We would like to reaffirm these mining strategies. Additionally, when evaluating our mining operations and opportunities globally, we have concluded that North America holds strictly important. This region offers strong legal protections, valuable infrastructure and power supply and a 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 a strategic opportunity, we are announcing our plan to focus on this region.

Speaker 2

We expect to increase our mining hedge rate target in North America from current 0.65x hash per second to 10x hash per second by the first half of twenty twenty five. As a global provider of bitcoin mining solutions, we are uniquely positioned to seize mining opportunities in North America. First, we have the flexibility to allocate mining machine inventory worldwide, maximizing investments returns and diversifying risk. 2nd, with comprehensive industry insights ranging from mining machine manufacturing, supply chains to global mining markets, we can more effectively evaluate investment opportunities and quickly match mining machines with optimal sites for short term gain and long term success. 3rd, our standing and reputation in the industry further enhanced our ability to establish strategic partners partnerships with global mining community.

Speaker 2

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 Canon. 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 continue to improve our operations significantly reducing total expense due to optimized G and A expenses, which have narrowed our operating loss by 61% year over year and 32% quarter over quarter.

Speaker 2

Although the decline is comprised at the end of Q2 led to an almost US10 $1,000,000 reduction in gross 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 bulk delivery of April 14 products and the strong cash inflows from sales contributed to a 22% quarter over quarter increase in our cash position, bringing it to US67 $1,000,000 by the end of Q2. While mainstreaming a safe cash level, we also made strategic moves to secure advanced process capacity in our supply chain through prepayments. As we entered the Q3 of 2024, our A14 series mining machines are being back 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.

Speaker 2

So many R and D work for a 16 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 postharving 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 political and economic instability is increasing, leading to more volatility in Bitcoin prices, which continues to present challenges for the industry.

Speaker 2

Based on the overall situation described above, we maintain a cautiously optimistic outlook for the Q3 of 2024. We anticipate revenue for the Q3 to be approximately US73 million dollars 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 economic dynamics surrounding Bitcoin continue to unfold, bringing it to a wider audience. We while the price of Bitcoin may experience significant fluctuations and consolidation during the process, it also helps the public to better understand and extract Bitcoin. Our company navigated the having quarter with a stable sense, continue to invest heavily in both product development and the capacity expansion.

Speaker 2

We remain confident in the long term prospects of Bitcoin and the wide set 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.

Speaker 2

Thank you.

Speaker 3

Thank you, Angie, and good day, everyone. This is James speaking at our Singapore headquarters. As Angie started at the top of the call, quarter 2 of the year 2024 was the 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.

Speaker 3

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 our 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 $72,000,000 which beat our guidance by around $2,000,000 marking a sequential growth of around 100,005 percent. Secondly, A14 delivery enabled a higher average selling price, which contributed to a narrowed gross loss of around US19 $1,000,000 indicating a sequential improvement of around 49%. Thirdly, cash balance increased to around US67 $1,000,000 by around 22% sequentially.

Speaker 3

As of August 10, 2024, our self mining hash rate reached around 4.5x hash per second, which helped our owned bitcoin accumulate to a total of 1114 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 US51 $1,000,000 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 said, in quarter 2, our total revenue was around $72,000,000 Revenue from machine sales was around $57,000,000 We delivered a total computing power sold of 6,200,000 terahash per second, representing a quarter over quarter increase of around 84%.

Speaker 3

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 percent quarter over quarter. From the product side, our large scale delivery of A14 series contributed nearly 80% of machine sales revenue. From the sales side, our multi dimensional global sales system made positive growth progress in several key regional markets during the quarter. In quarter 2, our customers from North America and Middle East contributed 52% 17% of our machine sales revenue.

Speaker 3

Turning to the revenue of our integrated mining solutions and Avalon Nano 3 minuteer heater, which diversified our product revenue streams. In quarter 2, we recognized around $4,600,000 revenue from the delivery of integrated mining solutions, primarily contributed by the customers in Middle East and South Africa. We also recognized around $500,000 revenue from the delivery of Avalon 903. The accumulated orders for 903 achieved $1,300,000 by the end of Q2, primarily contributed by customers in North America and Europe. For our mining machine sales, we approved $17,300,000 for inventories write down, prepayment write down and the provision for inventory purchase commitments in the quarter, representing a quarter over quarter decrease of 64% and a year over year decrease of 62%.

Speaker 3

The decrease was driven by ongoing stock clearance in this quarter. Those non cash write downs and provisions are made under 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 US0.7 million dollars for mining machine sales.

Speaker 3

Mining revenue was US9 $1,000,000 in quarter 2 as a decrease 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 2.7xash per second at the end of quarter 2. At the end of quarter 2, we deployed a hash rate total over 4 exahash rates.

Speaker 3

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 costs for energy and hosting, but without consideration of depreciation for the deployed machine. Looking forward, as a continuous strategical focus, we expect to further grow our North America mining hash rate target to 10 exahush per second by the first half of twenty twenty five.

Speaker 3

Now turning to the expenses. Our operating expenses totaled at $27,000,000 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 Q1, 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 31, resulting in a loss on crypto assets of $10,000,000 during the Q2.

Speaker 3

I want to point out that if we combine our $34,000,000 gain on Cribil assets fair value change in the Q1 with our $10,000,000 loss in the Q2, we are still up almost $24,000,000 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 $47,000,000 narrowing 61% year over year and 32% quarter over quarter. Despite a loss of $10,000,000 on fair value of our crypto assets, our Q2 net loss narrowed by 62% year over year to $42,000,000 and adjusted EBITDA loss narrowed by 61% year over year to $31,000,000 Turning to our balance sheet and cash flow. In quarter 2, we generated $74,000,000 of cash inflow from sales, received $19,000,000 from secured loans and $7,000,000 from export VAT refunds. We paid $40,000,000 to secure our wafer supply and $48,000,000 for production and operation, which is aimed at enabling the concentrated delivery and the spot sales of our products in the following quarters.

Speaker 3

Consequently, at the end of quarter 2, we held cash of $67,000,000 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 $51,000,000 as of this quarter end, increasing 30% from $39,000,000 at the last quarter end. As of the end of quarter 2, we recorded account receivable of $8,000,000 which mainly consisted of installments from North America public listed customers.

Speaker 3

We will continuously evaluate market demand and adopt corresponding credit policies with caution. Now turning our attention to our Bitcoin assets. The bitcoins we held as our own holding assets kept growing in this quarter and reached a record high of 1114 bitcoins as of June 30, which is 57 more than 10.57 at the end of last quarter. On June 30, the fair market value of our owned bitcoins totaled around $70,000,000 In this quarter, we pledged the 5.30 bitcoin for the long term secured loans with an aggregate carrying value of $19,000,000 at a reasonable interest level. The secured loans enable additional liquidity for our production expansion and operation.

Speaker 3

In the future, under the premise of adhering to holders strategy, we will explore more ways to increase capital liquidity through our owned crypto assets. We expect our Q3 revenues to be $73,000,000 We have successfully navigated the hardening 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

We will now begin the question and answer session. Your first question today comes from the line of Kevin Dede with H. C. Wainwright. Please proceed.

Speaker 4

Good morning, Angie and James. Lots of afternoon over there. Thanks very much for having me on the call. I was wondering if you could give us your perspective on the I know Angie alluded to it a little bit, but just on the inventory situation throughout the industry.

Speaker 3

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 having actually boost out a lot of customers try to upgrade their mining machines. So we faced to the 1st wave of the demand. That means that the customers the existing customers, they would like to upgrade the machines.

Speaker 3

They placed orders for some 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 competitor are still holding a big amount of inventory. That's something we heard, but it's better than quarter 1 end.

Speaker 3

I think that's my answer. Kevin?

Speaker 4

Thank you, James. I saw that your price per share has 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?

Speaker 3

Yes. I think that's demand and the supply is always the most critical factor in our industry to decide the market prices. I think currently even we had one wave of demand of upgrading machines, but still the price is still in the bottom because no matter new products or old product, 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.

Speaker 3

If that's the case, the demand is 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. By the demand side, if the Bitcoin price quickly grow, 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 December 2020, in that particular year, the mining machine price jumped from single digit to like 20 something and 30 in the end of quarter 4.

Speaker 3

I cannot say history will repeat absolutely 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.

Speaker 3

That's something we believe will happen. I just would like to share my 2¢ to you like this, Kevin. Thank you.

Speaker 4

Yes. Thank you very much, James. I really appreciate the optimism. Congratulations, ENGIE and James, for a very nice quarter and the strong improvement and all the hard work.

Speaker 2

Thank you, Taylor.

Operator

Thank you. Our next question is from the line of Shuang Sun with Guoshang Securities. Please go ahead.

Speaker 5

Is company considering shifting the power used for self mining to provide electricity for AI service providers?

Speaker 2

Hello, this is F. G. I think at present, we have no plans to shift the electricity use in our mining operations to AI service providers. I think we now we primarily focus remaining on optimizing our mining business. Our mining family is still relatively small and the returns from Bitcoin mining are more predictable and manageable for us.

Speaker 2

So we can't worthwhile investment. However, I think we will continue to evaluate all potential opportunities and strategies, always try our best to the company. Yes. Thank you.

Speaker 5

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 stock to establish faster and stricter de listing 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?

Speaker 3

Thank you, Sun Zhong. 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 that even the proposal is eventually passed, we believe it has little impact on our company because the proposed amendments include, I think, 2 key points.

Speaker 3

The first is, if the company's stock price remains below $1 for 3.60 consecutive trading days, the stock will be suspended from trading on NASDAQ and moved to OTC market. Even the company is still in the process of appealing to a hearing panel. I think that's the first one. The second one is if a company raises its stock price through 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, a listed company stock can still stay below $1 for up to 3.60 trading days or 4 below $1 after a reverse split before facing delisting.

Speaker 3

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 churn reaction caused by certain lower than expected economic indicators. And also, I think Japan's interest rate hike also caused certain leverage is broken.

Speaker 3

So from our perspective, I think we will focus on our operation and try to make our financials better and better. I think we in quarter 2, I think the trend of operation is returning to growth. The revenue is doubling the 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, Sean.

Speaker 3

Thank you.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Bill Papinostacio with Stifel. Please go ahead.

Speaker 6

Good morning, gentlemen. Thank you for taking my questions and 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 Kainon looks to gain market share in the near to medium term relative to some of your peers? Thank you.

Speaker 2

Okay. Yes, I think for the key to increase the market share remains our products. So we continue to invest in R and 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 are in the progress of Spark delivery during the 2nd and 3rd quarters of this year.

Speaker 2

And in May, we launched the new A1566 vending machine offers an average computing power of over 185 terahash per second with the power efficiency of 18.5 jars per terahash. And this performance is on par with competing products on the market. And in June, we introduced the liquid cooled model, the A156060i and achieved computing power of 249 dollars per tera hash. And also, we I just mentioned, we have constantly shared our R and D roadmap transparency with our customers and partners. Our 10 plus drawers for TeraHash level products are on track.

Speaker 2

And we expect it to complete the design of 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 1 stop customized mining solutions through comprehensive product offerings. And also, we launched Aggro 903. We entered the consumer market.

Speaker 2

So I think the second important factor is building a comprehensive sales system to reach and cover various types of customers through a multichannel approach, while placing greater accesses on their marketing and the promotion. For large clients, we have already parted with several North American mid state mining companies and are in discussion with more. And for the retail market, where the computer 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 projects 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.

Speaker 2

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.

Speaker 2

Thank you.

Speaker 6

Thank you. I appreciate the clarity and overview with the question there. For my second and last question, I was 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?

Speaker 6

Just curious to hear your thoughts on the news. Thank you.

Speaker 2

Yes. I think as a U. S.-based company, we do not conduct business in Russia and have no plans to do so. So this is in the consideration of compliance and rotation. In our mining operations, we employ diversified deployment strategy continuously to access the economic returns of our last mining collaborations and adjusting the products project layouts accordingly.

Speaker 2

Yes, so we deploy the we will deploy the region within 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.

Speaker 6

Okay. I appreciate the color and look forward to another quarter of strong growth in Q3. Thank you.

Operator

Thank you. 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 H. C.

Operator

Wainwright. Please go ahead.

Speaker 4

Thank you. Hi, James. Hi, Angie. Since we had a couple more minutes, maybe you could talk a little bit more about your plan to expand to 10 ex DeHash in the U. S.

Speaker 4

Is that site acquisition

Speaker 2

or partnership?

Speaker 4

How do you plan on building that?

Speaker 2

Yes. I think we have some on negotiation corporate partners in U. S. And a few of them. So I think we can we will announce the details when we sign the contract.

Speaker 2

Yes.

Speaker 3

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

Speaker 2

Yes. But hopefully, we will already have some progress. Yes.

Speaker 4

Understood. Thank you, gentlemen. I just thought I'd throw that out there because it seems like an impressive goal. So again, thank you very much and congratulations on the results.

Speaker 3

Thank you, Kevin. Thank you.

Operator

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

Speaker 1

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.

Operator

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

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