Canaan Inc. American Depositary Shares 2026 Q2 Earnings Call

Please go ahead, Gwen. Thank you, operator.

Hello, everyone, and welcome to our earnings conference call. Joining us today are Chairman and CEO, Nangeng Zhang, and our CFO, James Jin Cheng. Leo Wang, Vice President of Capital Markets and Corporate Development, and Xi Zhang, Senior IR Manager, will also be available during the question and answer session. Our CEO will start the call by providing an overview of the company and performance highlights for the quarter. Our CFO will then provide details on the company's operating and financial results for the period before we open up the call for your questions. Before we begin, I would like to refer you to our safe harbor statement in our earnings press release. Today's call will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future operating results and the performance of the company.

These statements speak only as of today, and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call, or webcast, except as required by law. These statements do not guarantee future performance and are subject to risks, uncertainties, and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 20-F for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss both GAAP financial measures and certain non-GAAP financial measures, which we believe are useful as supplemental measures of the company's performance. These non-GAAP measures should be considered in addition to, and not as a substitute for or in isolation from, GAAP results.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release, which is posted on the company's website. With that, I will now turn the call over to our chairman and CEO, Nangeng Zhang. NG, please go ahead. Thank you, Gwen.

Hello, everyone. This is NG, CEO of Canaan. Thank you for joining our earnings conference call today. James, our CFO, and I are here at our Singapore headquarters to share our financial results and recent business updates for the second quarter of 2026. Q2 2026 remained a difficult environment for the Bitcoin mining industry. In the first half of the quarter, Bitcoin prices recovered from approximately $62,000 to $82,000, before declining sharply and reaching a period low of about $58,000 at the end of the quarter. During the quarter, hash price fluctuated between $0.028 and $0.039 per terahash per second per day and remained at low levels. At the same time, in the U.S., the capital markets and the traditional mining companies continued to shift more attention toward AI and HPC.

Localized armed conflicts in certain countries and regions, and the tighter mining-related policies in China and elsewhere are factors that affected miners' investment willingness and capacity. From the second half of the quarter onward, miner sales weakened noticeably and elevated industry inventory levels further intensified price competition. During the quarter, the company generated total revenues of approximately $32 million, below our previous guidance range of $35 million 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 conditions in the first half of the quarter. We did not fully expect the later decline in the demand and pricing. In the second half of the quarter, Bitcoin prices fell quickly.

Miners became more cautious about equipment purchases, and high industry inventory levels increased price competition. These were the main reasons revenues came in below expectations. In response to the revenue decline, we further tightened our spending, strengthened cash flow and liquidity management, and continued organizational optimization. As of quarter end, the company held 1,915 Bitcoins and 3,952 ETH, bringing our digital assets treasury to another record high. I will start with our mining machine business. As mining economics weakened, many miners delayed equipment purchases, and the average selling prices remained under pressure. During the quarter, we generated approximately $40 million in product revenue. In response to softened demand, we adjusted pricing, more flexibility. At the same time, we again emphasized production based on actual sales. We controlled new production according to real orders and put more focus on inventory management, cash flow, and order quality.

For existing machines, we will evaluate whether to sell them to customers or deploy them in our own mining operations based on cash collection, deployment conditions, and additional investment requirements. Now, let me turn to our mining operations. In Q2, we adjusted our deployed hash rate in a timely manner based on power prices, load management, and operating conditions at different sites. We allocated resources to projects with better economics. Mining revenues were approximately $80 million, accounting for more than 50% of the company's total revenue in Q2, and continued to cover direct operating costs such as power and hosting. As of the end of June, our installed hash rate in non-JV projects was approximately 10.05 exahash per second, and average all-in power cost in June was about $0.043 per kilowatt hour. Overall power and hosting costs remained relatively competitive.

Project ABC remains one of our key priorities. For Project ABC, we focus not only on current period profit, but more importantly on the cash it can generate and the long-term returns that can be created after optimization. This is consistent with the transformation the company is pursuing. Whether it is Project ABC or the longer-term power resources we are developing, our goal is to gradually build mining and energy infrastructure assets that have a cost advantage and can generate sustainable cash flow. In Q2, together with our partner, we continued the mining machine upgrade at Project ABC. The project generated a positive cash flow and maintained efficient operations. At the end of July, installed hashrate at Project ABC, which reached 4.85 exahash per second, up 10% from the end of March.

Through this project, while increasing hashrate and cash generation, we also gained experience in operations, power dispatch, fleet upgrades, and the management of low-cost power sources. Beyond traditional mining use cases, we continue to advance energy utilization partnerships such as compute-to-heat. Our earlier Nordic project has already validated the feasibility of using HydroCool equipment for district heating. Our high-temperature HydroCool equipment can supply the hot water needed for heating, which is particularly suitable for winter heating demands. These products are still relatively small in scale, but using the heat generated from computing for comfort heating is a useful explanation of our compute-to-heat closed loop. Regarding R&D and the products, we continued advancing the A16 series in the second quarter with a focus on cost-effective air-cooled models and high-temperature HydroCool models.

We pay close attention to products' full lifecycle economics, including purchase cost, power consumption, stability, maintenance, and deployment efficiency. On the consumer side, the second quarter was mainly devoted to R&D on new Avalon Home products, which we will prepare for mass production in the third quarter. These home series products are designed for home heating use cases, and we hope to capitalize on the winter heating season in the northern hemisphere and deliver a solid sales performance. Long-term power resources remain another key focus of the company's transformation. Over the past several quarters, we have been advancing long-term, stable, cost-advanced, and expandable power resources products in North America. On our first quarter 2025 earnings call, we mentioned our confidence in our ability to secure a substantial load by year end 2026, potentially reaching the gigawatt scale.

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

We deployed around $2 million in the first quarter and around $5.4 million in August to repurchase our ADS shares. in 2026, the company deployed $7.4 million and repurchased approximately 16.4 million ADSs so far. James will provide more details on the execution of digital asset monetization and the buyback. James and I also continue to purchase the company's ADS in the open market this quarter. We remain confident in company's long-term development and the transformation underway. We hope these purchases further align management interest with those of our shareholders. Digital assets remain an important part of the company's asset allocation. We will continue to evaluate the risks and the rewards of holding digital assets, investing in mining and the power infrastructure, and repurchasing the company's shares.