Participants

Gwyn Lauber; Director, Investor Relations; Canaan Inc

Nangeng Zhang; Chairman of the Board, Chief Executive Officer; Canaan Inc

James Cheng; Chief Financial Officer; Canaan Inc

Nick Giles; Analyst; B. Riley Securities

Kevin Cassidy; Analyst; Rosenblatt Securities, Inc.

Kevin Dede; Analyst; H.C. Wainwright & Co., LLC

Joe Flynn; Analyst; Compass Point Research & Trading, LLC.

Bill Papanastasiou; Analyst; Keefe, Bruyette & Woods North America

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Canaan Inc.'s fourth-quarter and full-year of 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. Gwyn Lauber, Investor Relations Director of the company. Please go ahead, Gwyn.

Gwyn Lauber

Thank you, operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are our Chairman and CEO, Nangeng Zhang; and our CFO, Jin James Cheng; Lu Meng, Vice President of Capital Markets and Corporate Development; and Xi Zhang, Senior IR Manager, who 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 I 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 or 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 and webcast, 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 financial 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, CEO Nangeng Zhang. Please go ahead.

Nangeng Zhang

Hello, everyone. This is NG, CEO of Canaan. Thank you for joining our call. James, our CFO and I are pleased to speak with you from our headquarters in Singapore and share our updates for the fourth quarter and the recent developments.
In the first quarter of 2024, the trends of Bitcoin price and the total network cash rate were relatively favorable for miners. Bitcoin price steadily rose from $61,000 at the beginning of the quarter to $93,000 at the end. The total network hash rate also increased from 622 exa hash per second to 842 exa hash per second. That said, in Q4, Bitcoin price grow faster than the hash rate.
This is a typical electricity cost of $0.6 per kilowatt hour minus using our A15 machines, so their gross margin rise from about 40% at the start of the quarter to as high as 60% by the end. This created a more profitable environment for mining and boosted miners' confidence.
We fully leverage this positive market trend and push sales and the delivery of mining machines and to grow the energized hash rate for our mining operations. We achieved approximately $89 million in total revenues this quarter, well above our guidance of $80 million. For the full year, we achieved almost $270 million in revenue, up 27.4% year-over-year.
For mining machine sales, we focused on new product for sales. The high performance A15 series officially entered mass product delivery in Q4. We sold 9.1 million terahashes per second of computing power, up 66% year-over-year, and up 24.7% quarter-over-quarter, reaching a record high in our company's history. This contributed $73 million to mining machine revenue, up 64% year-over-year and making a two year quarterly high.
In this quarter, we fulfilled large orders from North American public mining companies like Cipher, CleanSpark, and HIVE, and received strong positive feedback. For the full year of 2024, North America became our largest regional market, accounting for approximately 40% of mining machine sales, showing the success of our expansion in the region during the past years.
The rising Bitcoin price also helps us clear generations inventory. In Q4, the period generation products remained popular in regions with energy advantages like Southeast Asia and Africa. To date, salable inventory of traditional models like A16 and A14 has been mostly cleared, and the A15 has become our main product. This completes the upgrade of our inventory portfolio.
Our first consumer product, the Nano stream mining heater, continue to be welcomed by individual users around the world. By year end, consumers from 80 countries around the global have ordered our products through our online shop.
Since their launch, we received a total of 24,000 Nano orders, with more than 50% coming from customers in Europe and North America. This also helps increase our brand recognition in these regions.
In 2025, we launched several new Avalon Home products, including the Nano 3S, Avalon Mini 3, and Avalon Q. These new products are available on our website for pre-order, with small batches being delivered in Q1.
As of now, total orders for these new consumer grade products have reached 12,000 units, with total amount of over $5 million. Some of these orders also come from distributor clients who have now established operation with us.
Considering that the Northern Hemisphere will soon enter summer and the indoor heating demand will gradually decline, this level of pre-sale performance has greatly exceeded our expectations. It also shows that many individuals customers are eager to try and participate in Bitcoin mining.
Our mining business also delivered a strong, performance this quarter. We mined 186 Bitcoins, up 84% year-over-year. With higher online cash rates and a stronger Bitcoin prices, our mining revenue reached $15.3 million, up 313% year-over-year. We continued to take advantages of low electricity costs in Africa and expanded local mining capacity.
By the end of 2024, our total installed mining hash rate reached 5.4 exa hash per second, with 4.8 exa hash per second, and our average owning power cost remained at $0.4 per kilowatt hour.
With Bitcoin price trending up in Q4, our mining growth margin increased to 42%, much higher than the 22% in Q3. Our efficient mining operations also help grow our Bitcoin holdings. By the end of 2024, our own Bitcoins balance sheet reached [1,293] a new high.
The rising price of Bitcoin at quarter end also resulted in fair value gain to this asset. This gain shows the preliminary benefits of our mining operations as a long-term strategy and our decision to hold Bitcoins. At our Mining business expense, we provide additional information to the capital market at the standard with the other public miners.
Starting in January 2025, we began releasing monthly Mining updates. By the end of February 2025, we announced that we had seven active joint mining projects worldwide with 6.28 exa hash installed and 5.73 exa hash energized. Our own Bitcoin holdings had reached [1,355] by the end of February.
As we previously announced, since Q1 2025, we have expanded to North American mining projects through upgraded partnerships. We are moving towards our mid-2025 goal of reaching 10 exa hash per second deployed in North America, and 15 exa hash per second globally. We expect our Mining business to achieve a new high revenue in the first quarter of 2025.
Today, we are also pleased to announce that we recently signed a new cooperation agreements with two partners to expand mining capacity sites in Pennsylvania and Texas. Once these two projects gradually go online in Q2 2025, we expect to increase our operated hash rate in North America to approximately 4.7 exa hash per second. We have already built a strong and experienced operations and a business development team in North America, and they are actively in discussions with several potential partners for drug mining.
Based on our current observations, the cryptocurrency site resources in North America markets still shows strong potential, which is in line with our earlier strategic assessment. The expansion of joint mining and the hosted mining in North America has been progressing very smoothly. As a manufacturer is miner research and development capabilities, we are increasingly welcomed by mining site owners for joint mining ventures.
The new US administration is expected to ease regulations, provide more energy resources to the industry, and the support Bitcoin mining at both the federal and state levels. Recently, our key competitors critical affiliate company has been added to the US' Entity List.
We believe we will benefit from the growing tension and the rising cost in the mining hardware supply chain. And that many mining sites owners will increasingly view Canaan as a preferred partner. We also hope the reinvest more of the funds rise in US capital markets back to local projects, and gradually build ourselves into a company with a strong mining footprint in the US states, in the United States.
Both our mining machine sales and the mining operations rely on continuous R&D efforts. In the fourth quarter, we successfully wrapped up mass production of A15 series. Working closely with our foundry partners, we carried out ongoing process improvements to boost product performance and the yield rate.
Looking ahead, we expect to deliver more computing power using the same number of waivers, including, more high-end A15 Pro models. In addition to our standard Air-cooled miners, we continue to provide customized mining solutions based on clients specific needs and their site conditions.
For example, in previous collaboration with the [public] CleanSpark, we delivered 3,800 units of our A1556I emerging code miners. These machines run stably on site, performed beyond the contract specifics, and received a very positive feedback from the client.
In 2024, although mining chips were generally not subject to US export control restrictions, at the time, we continue to proactively manage our supply chain to prepare for potential regulatory changes in the future. In January 2025, the US BIS issued new rules that suddenly imposed additional constraints on the global semiconductor supply chain.
Outsource assembly and testing vendors, were now effectively limited to those on an approved whitelist, drastically narrowing available options overnight. Thanks to our early planning, we were able to swiftly transition A15 chip packaging to OSAT partners within the white list, minimizing delays in the manufacturing process caused by the new regulations.
Subsequently, through continued collaboration with our founding partners to support the license applications, we were informed this month that all our in-production waivers have received the necessary license to be released even to the OSAT without approved white list status. As a result, our choices of OSAT is no longer restricted.
This put us in a strong position to scale up production and reduce costs more quickly in response to rising market demand. It is the result of our long-standing commitment to compliance.
We will continue to work to anticipate and mitigate the potential impacts of future policy changes. Additionally, we have completed R&D on our next generation A16 mining machines, and finished the takeout process.
Once again, we are pushing the limits of manufacturing technology due to the advanced chip design of our products, the production in very complex and time consuming. But we continue to work closely with our foundry partners to bring the ultra performance product to customers as soon as possible.
The standard Air-cooled A16 is expected to reach nearly 300 terahashes per second. As usual, we will release the new products and send simple machines to customers after we finish the full system testing and obtain real world data.
In our consumer production product line, during the first quarter of 2025, we successfully launched several new additions to the Avalon Home series. This includes the upgraded Nano 3S, Desktop Mining Heater, the Avalon Mini 3, quite home heater with integrated mining capabilities, and the Avalon Q, our first low-noise home mining device that supports 110 volts and is compatible with major global voltage standards.
Through this portable, silent, aesthetically-designed, and functionally home-oriented consumer products, we aim to make Bitcoin mining more accessible to everyday users. And the future, promote the concept of decentralization. We invite everyone to visit our official website to learn more about these products.
On the operation side, we achieved significant positive changes in the fourth quarter thanks to the large-scale delivery of our A15 products, strong growth in mining revenue, and continued cost of optimization. Our growth loss narrowed sharply by 70.5% quarter-over-quarter to $6.4 million.
At the same time, after excluding non-cash adjustments such as fair value changes and their prudent accounting treatment, we turned profitable at the EBITDA level in Q4, which achieved and adjusted EBITDA gain of $19.3 million. This marks our first EBITDA probability since the mining machines market downturn began two years ago.
Looking into 2025, we will continue to push forward with the sale and the mass delivery of our A15 series products. Thanks to their strong performance, the test bench of A15 products received a high recognition from customers and orders have been coming in actively. Our delivery schedule is now booked into May and June for this year.
Our key focus now is to work closely with our foundry partners to wrap up production capacity and steadily increase our delivery volume. We also aim to future improve computing power and yield rate through process optimization, which will enhance probability, product competitiveness, and customer satisfaction.
In addition, we are actively balancing the allocation of money machines between Customer Orders and our Money Operations. Based on real-time market demand dynamics, we are to achieve better synergy between the two business segments.
The first quarter is traditionally a slow season. We completed the first phase of our supply chain compliance adjustment mostly during the Lunar New Year holiday. So the impact on the chip production cycle was kept within a limited range.
However, starting in February, major changes in the global, political, and economic environment have caused a significant Bitcoin price volatility. This has negatively affected market sincement, future expectations, and especially, financing activities across the markets.
Given these combined factors, we are maintaining a very cautious outlook for the first quarter of 2025. We expected Q1 revenue to be approximately $75 million. We expected that in Q2, the production capacity ramps up and our mining project deployment more towards completion.
Our performance will see a big improvement compared to Q1. We currently estimate total revenue for Q2 of 2025 to be in the range of. $120 million to $150 million. We are maintaining our previously issued full-year 2025 guidance with total annual revenue expected to be in the range of $900 million to $1.1 billion. This outlook is based on the company's current market and the operational conditions.
However, given the recent market volatility and uncertainty about how long it may continue, actual results may differ. From Beijing to Singapore to Silicon Valley, from delivering the first ASIC miner to going public on Nasdaq, and launching home series mining machines, Canaan has been, flogging head on the path of decentralization.
Looking back at the past year, we remain firmly committed to R&D and to delivering high-quality, high performance, and the customized Bitcoin mining solutions. Our A15 series has been embraced by demanding customers but not American market.
Our Avalon Home series, which combines Bitcoin mining and home use functionality is designed to meet the needs of a diverse global customer base. We have continued to strengthen our global presence, we need orders from and building our strategic partners with leading publicly listed miners in North America, thus, rising our brand awareness and the market share in the region.
As a Nasdaq listed company, we are impressed by inspired by America -- empowered by America and dedicated to America. We have actively leveraged the strength of US capital markets to support our growth, and we are rapidly advancing heavy FX projects such as mining operations in the US, which is now beginning to take shape.
At the same time, we continue to push forward our global strategy. We are optimizing our strategy for R&D supply chain manufacturing and the logistics. We are exploring local production to adapt to the involving compliance environment.
We remain confident in the long-term potential of Bitcoin. We will stay focused on innovation, operational experience, and reinforcing our role as an important player in the Bitcoin ecosystem.
This concludes my prepared remarks. Thank you everyone. I will now send the call over to our CFO, James. Thank you.

James Cheng

Thank you, NG and good day, everyone. This is James, CFO of Canaan. I'm very glad to share our Q4 financial results with you today. As NG stated at the start of the call in quarter four last year, the trends of Bitcoin price and total network hash rates were relatively favorable for miners. We fully leveraged this positive market trend, leading to increase the sales and the delivery of mining machines, and to the growth in energized the hash rates of our own mining operations.
Let me give a quick summary of our financial performance for the fourth quarter. First, the computing power sold to reached the 9.1 million terahashe per second, breaking our previous record. Total revenue reached approximately $89 million, beating our guidance of $80 million and then resulting in year-over-year growth of approximately 81%, as well as the highest quarterly revenue in the past two years.
Secondly, through the increased deployment in our mining operations, our mining revenue reached $15.3 million in this quarter and increased approximately 313% year-over-year, exceeding the pre-halving level in 2024. We mined 186 Bitcoins in this quarter, an increase of 84% year-over-year.
As we've reported in our monthly production updates, in quarter one, we continued the trajectory of accumulating more bitcoins. In the end of February, our total Bitcoin holding reached 1,355. We are steadily advancing towards our target of achieving 10 exa hash per second in North America and 15 exa hash per second globally by the middle of 2025.
As announced today, we further expanded our North American mining capacity by signing agreements with two new partners in Pennsylvania and Texas, which will add 4.7 exa hash per second to our North American mining capacity. This will bring our global deployed mining capacity to have potential to grow to 11 exa hash per second with 6 exa hash per second in North America.
Next, we completed the upgrade cycle of the product portfolio of our mining machines and the A15 series is now our main sellable product, leading to $73 million of machine sales revenue. More than 17,000 units of the A15 series were delivered in quarter four, of which over 80% came from the large orders of public mining companies, including Cipher, CleanSpark, and HIVE. These results demonstrate that our North American focus, which began just over two years ago, is having a positive impact on our business.
On the consumer front, our first home series consumer product, the Avalon Nano 3, continued to gain adoption by individual users globally. In 2024, the total orders for Avalon Nano 3 reached approximately 24,000 units and contributed $2.7 million to the full-year revenue. At the beginning of 2025, our Avalon Home series was further expanded, and to date, the orders for the new products reached more than 12,000 units valued at $5 million.
Finally, thanks to the significant narrowing of gross loss and the upward Bitcoin price, we achieved the gain of quarterly adjusted EBITDA of $19 million for the first time since the start of market downturn two years ago. Additionally, our cash flow from production and operations turned positive, contributing $17 million in this quarter, strengthening our cash balance and allowing us to end the year with $96 million.
Moving to our profit and the loss for the quarter. Total revenue was approximately $89 million. As I mentioned earlier, Mining revenue contributed to $15.3 million in Q4, an outstanding year over year increase of 313%.
We mined 186 bitcoins in the quarter, year-over-year increase of 84%. This increase was primarily driven by more computing power installed for our Mining business, which reached 5.4 exa hash at the end of this quarter, resulting in a historical high.
As announced today, we have recently expanded our North American mining footprint by 4.7 exa hash per second through two new projects in Pennsylvania and Texas. When fully operational, these additions will bring our worldwide mining capacity to have the potential to grow to around 11 exa hash per second with 6 exa hash per second in North America. We will continue to disclose the operational progress in our monthly Mining report.
Now, turning to product revenue. Revenue from machine sales was approximately $73 million an increase of approximately 64% year-over-year. We delivered a total computing power sold of 9.1 million terahashes per second, representing a year-over-year increase of 66% and marking a record-high quarterly sales volume.
The average selling price, or we say ASP remains stable at $8.1 per terahashes per second compared to $8.2 per terahashes per second in the same quarter of 2023. With the the stocking of our A13 and A14 series nearly completed, we expect the average selling price to return to a more reasonable level in the first quarter of 2025. More than 17,000 A15 mining rates were delivered in Q4, of which nearly 80% were delivered to the public mining companies in North America, including Cipher, CleanSpark, and HIVE.
Turning to the revenue from our Avalon Home series. By the end of 2024, we received the orders for approximately 24,000 units of our Nano products reaching customers in 80 countries and contributing revenue of approximately $2.7 million since their launch.
Our newly launched Avalon Mini and Avalon Q have also attracted significant attention to this consumer product line. To date, we have received orders for more than 12,000 units of this new Avalon Home products with the total amount of $5 million.
For our mining machine cost, we approved the $13.6 million for inventory write down in the quarter. With a successful clearance of previous generation, product inventory write down decreased the 76% year-over-year.
The non-cash write down is made on the US cash rules impacting on our gross profit but with no impact on our cash balance. Excluding the above write down, our mining machine sales would have break even for this quarter.
Leveraging the rising Bitcoin price and our efficient management of mining operating cost, our direct mining margin improved to 42%. Please note that direct mining margin is calculated by subtracting our mining operation cost for energy and hosting from our mining revenues, but without the depreciation of deploying machines. Demonstrating our robust top line growth and our effective cost optimization measures, our growth loss for the fourth quarter was $6.4 million a substantial a substantial reduction of 88% year-over-year.
Turning to the expenses, our operating expenses totaled $49.3 million increasing $10.1 million year-over-year. This rise was primarily driven by our global business expansion and our risk mitigation activities, including staff costs, professional service fees, and R&D expenditures.
We recorded $9.3 million for one-off expenses in the quarter, including share-based compensation cancellation, one-time R&D expenditures, and consulting fees. If this one-off expenses were excluded, operating expenses will have been $39.8 million, remaining stable year over year.
As mentioned in quarter one 2024, we chose to adopt the SASB new accounting rules on cryptocurrency assets on January 1, 2024. These new rules allow cryptocurrencies to be carried at their fair market value.
In the fourth quarter, the price of Bitcoin increased to around $95,000 at the year end of 2024 versus around $63,500 on September 13, 2024, contributing to an aggregate gain on crypto assets of $39 million during this quarter. All things above considered, our adjusted the EBITDA was a gain of $19.3 million, mainly driven by the solid revenue growth and a significant narrow the gross loss, as well as the upward Bitcoin price. This is the first time we achieved the quarterly EBITDA profitability since quarter one, 2023,.
In quarter four, 2024, we recorded a valuation allowance against our deferred tax assets, as well as unrecognized tax benefits liability. This follows the conservatism principle in accounting and it resulted in a non-cash income tax expense of $85 million. When we generate profits in the future, this deferred tax assets can still be used to offset our income tax expenses.
In the quarter, we issued a 30,000 Series A1 preferred shares with the gross proceeds of $30 million. The third tranche of the Series A preferred shares issued in quarter three, 2024, was still recognized as a convertible liability at fair value as of the year end.
This financing incurred an excess of fair value over proceeds received and the fair value changes. This non-cash accounting treatments hit our Q4 bottom line for total $4.8 million. In order to represent our performance more accurately and more comparably, we excluded the impact of this accounting treatments from our non-GAAP measures.
Turning to our balance sheet and the cash flow, at the end of quarter four, we held a cash of $96 million on our balance sheet, an increase of around 34% compared to the end of Q3. During the quarter, our cash flow from production and operations turned positive, generating $17 million.
A cash outflow of $71 million for production and operation was offset by a cash inflow of $82 million from sales and $6 million from export VAT refunds. In quarter four, we received the $30 million from our preferred shares financing and we paid the $22 million to secure our waiver supply.
With stable cash flow and the forth having completed, we have leveraged strategic financing tools to secure product capacity through pre-payments. These activities will allow us to capitalize on the upcoming bull market, while preparing for long-term mining demand despite short-term volatility of Bitcoin price.
At the end of 2024, we entered into an ATM agreement. From the end of 2024 to February 19, 2025, we utilize the ATM for fundraising with net proceeds of $42.5 million at an average price of $2.08 per ATM. We did not utilize the ATM after February 19, 2025.
In early March, we closed the first tranche of new Series A1 preferred shares with net proceeds of $99.7 million. Total proceeds of approximately $145 million will be used to fund the expansion of our production scale and the manufacturing or investing in our Mining operation in North America.
At the end of the Q4, the aggregate balance of inventory and the pre-payments, and other current assets was $185.5 million a decline of $40.6 million compared to the end of Q3. This decline was driven by the clearance of previous generation product inventory and upgraded the inventory composition.
Now, turning to our Bitcoin assets, Bitcoin held as our own holding assets, increasing the quarter, reaching a record high of 1,293 Bitcoins as of December 31. This is 81 more than 1,212 at the end of last quarter. On December 31, 2024, the share market value of our own Bitcoins totaled around $123 million.
And our whole strategy again was approximately $66 million higher than the original value of the Bitcoins that we gained from Mining or other operations. As of February 28, our total Bitcoin holdings increased to 1,355, as already disclosed.
By the end of 2024, we pledged 600 bitcoins for secured loans with an aggregate carrying value of $24 million, which we believe is a reasonable interest level. The secured loans enable additional liquidity for our production expansion and operations.
We also transferred 100 bitcoins into a fixed-term product with a guaranteed minimum annual return. In the future, as part of our hold on strategy, we will explore more ways to increase capital liquidity through our own criminal assets. Please note that Bitcoin pledged or transferred into fixed-term products are recognized as cryptocurrency receivables in our balance sheet, and the classification between current and the non-current assets is consistent with the periods of corresponding secured loans or fixed-term products.
In the first quarter of 2025, as CEO mentioned, we anticipate the revenue of $75 million due to the seasonality of our business compounded by the uncertain economic environment, as well as the volatility of Bitcoin prices. Based on our current visibility on orders and the waiver capacity, we anticipate revenue of $120 million to 150 million for the second quarter of 2025.
This concludes our prepared remarks. We are now open for questions.

Question and Answer Session

Operator

(Operator Instructions) Nick Giles, B. Riley Securities.

Nick Giles

My first question is can you give us an update on any site acquisition activity or how you're approaching procuring power infrastructure in the current environment? I'm curious if you've observed any changes or challenges here in 2025 as demand for power assets remains very strong. Thanks very much.

Nangeng Zhang

I think we have been actively looking for the sites in energy-rich regions across North America. Our corporation model is very flexible. We can do like fix the rate hosting, joint mining with profit sharing or even acquire and build our own sites.
Right now, the site resources, we have secured a high, actually more than enough to support our current deployment plan, which target is 10 exa hash in the first half of the year.
Since shift our focus to US from last year, we have seen more opportunities than we originally expected. And recently, due to some changes in US policy, it seems that new power generation capacity may become available in the near future, which would be benefits us even more.
We have also noticed that some institutional players in North America are thinking about allocating part of their power resources to AI or HPC hosting. We truly hope those efforts, succeed.
AI and HPC business can bring more predictable cash flow for our customers, which in turn could attract more institutional interests. And writes the overall valuation of their operations would have their broader their business, including having more power and capital available, then they can go to Bitcoin mining to consume the electricity.
So, well, Bitcoin mining has much lower [hash exa] needs for -- than AI or HPC. It consumes far more energy. On the other hand, AI and HPC offer very stable cash flows. That's why we believe, these two sectors are actually complementary in the mid- to long-term.
I hope we can see both Bitcoin mining and AI applications grow side by side going forward. Yeah, thank you.

Nick Giles

Thank you very much, NG. My next question is just on overall demand. Obviously, your 2Q guidance is a nice improvement from the 1Q guidance, and so, I was wondering if you could give us a sense for what the second half could look like?
Is demand still improving? Your annual guidance does imply a stronger second half so wondering if you could comment on how you're seeing demand today and, particularly on the pricing side and how that translates to your annual guidance.

Nangeng Zhang

Okay. I will say something and maybe, James will add some numbers to your question. I think look at our actual sales performance in Q4, it was quite good. We sold 9.1 million terahashes of computing power, since -- and it's already achieved our best, yeah, it's already share our best results, historical result. And it included the deliveries to North American visited companies like Cipher, CleanSpark, and HIVE.
Yeah, this is reflects the success we have had in expanding our presence in North American market. In fact, customer order volumes at the end of the year, it's driven by the rise in Bitcoin price starting in November.
So, yeah, and as a result, we clear our inventory, then we start to build our new inventory. Most of the waivers will come out start from Q2 to Q3. The machines will comes out majorly in Q2 and Q3. So we can foresee that from Q2, the number will be much larger than the Q1.
For the second half, I think that the key is maybe about the Bitcoin price or the economic environment, which is really hard for us to predict today. But what I can say is, if the different price like, we don't need another historic record high. Maybe only like 100,000 is very significant for us to achieve our annual target.

James Cheng

Yeah, I will add some color, Nick. I think, from our guidance on Q1, it has already showed in 2025, quarter one, the revenue is more than double of last year, same quarter. So, the demand was strong.
But as we both know, our orders and the revenue are highly correlated with Bitcoin prices. So recently, the turbulence in Bitcoin prices definitely have an impact on the speed of accumulating more contract orders and also the trajectory of the price increases. But it looks like our customer orders are still quite strong from the market and we also have our North American mining sites building up on target.
That's why, I think that we are still confident to work on towards the full year target. And, I think, we are working on that and NG just shared the capacity perspective. But demand perspective in quarter three or quarter four, we definitely need the macroenvironment turns to be more positive and the Bitcoin price climbs to new high.
And then at that time, the demand could be strong and the price trajectory could be favorable to us. And then we will try to maximize our revenue for the full year. But, currently, I think we are still stick to the annual target and we are working towards this target. Thank you, Nick.

Nick Giles

NG, James, thank you so much for all the comments and keep up the good work.

Operator

Kevin Cassidy, Rosenblatt Securities.

Kevin Cassidy

Just as we're talking about the full year revenue, can you say what the -- your ASIC orders are with your foundry partner that may not be accounted for by customer orders just yet? How far out are your orders with the foundry versus what's your backlog? Thank you.

Nangeng Zhang

I think, we are just comes from bare markets. We typically, when in bare market, we typically produce based on sales orders, which helps the company control the risks about the product inventory. Currently, we are just out of the bare market and at the early stage of full market for mining machines.
And maybe, this month we are in the turbulence of the full market. Yeah. So, we are gradually increasing our production, but we are not place orders at like maximum capacity. When all the waivers, we must consider many factors, include but not limited to like our cost, how tight the supply chain is, and what is the minus expected probability about hash price, and the competitive landscape in the market for the next 6 to 12 months.
So for the commercial, confidential reasons, we are not disclosing the exact number for how many waivers we already ordered at this time. But it appears that the machine production will continue through Q3.
If the market demand, doesn't increase significantly, it should be sufficient to meet both ourselves and our own mining operations. If demand increases, we still have time, so we have room to place additional orders to up, like some, a few teens of percentage of the our capacity to fulfill the additional orders.
And if the demand weakens, we can increase our -- we can increase, allocate to the number to our own mining operations. So, I think, for the current -- in the capacity in the production line, it shouldn't be a major issue for the inventory. Yeah, thank you.

Kevin Cassidy

Great, thanks. And you announced the A16 AI is 300 tera has per second. That's a great improvement. Is there anything more than besides the, going to the better or lower process node, any architectural changes that you're making to the ASIC that's giving you this improvement?

James Cheng

Yeah, I think that, I think the A 16, indeed is using the, very cutting edge technology like, the GA technology and even smaller, transistor sizes, compared to a 15, but it's not simply simply a straightforward, part of our previous generation.
I think if.
You look back in, looking back into.
History, every generation of our.
Our products has often achieved.
Much more, significant performance improvements, and many, different generations of.
Our many machines.
Is in, one.
One node process.
Or even, one node process upgrades or even using the same process. .
These.
Performance gains are far greater than the percentage improvements indicated.
By manufacturers during, each.
Process of the iteration.
This because, our, Designers, is, doing their innovations and.
Many.
Technical, advancements, ongoing.
And also come to this stage, besides process and the design, we are.
Already.
At.
The.
.
The DTCO, the design technology core optization, stage to even increase the the performance even more. Perhaps you can notice that, each generation of our products shows about 20 to 30% of the improvements, but, what I must say is there's, there isn't a magic number there to give us, such a big improvements.
.
It's more likely that we.
Have like 50, 80 individual.
Technical improvements. Every contributes like less than.
0.5% to lead to the then they, collectively together to lead the, to the, overall result. So.
As we move to advanced nodes.
Each new.
Generation of technologies, also needs a second time to improve, and, I think the performance of AI and the GPUs on the same, new, process may also vary, significantly.
As a design company, we need to spend a lot of time in the early stages now to reduce these uncertainties and minimize the risks to the tips. So maybe your question is maybe why there's many newcomers, even When they TRY to hire key technical talents from the industry, but still struggle to produce competitive products. Yeah, sorry for that.
Thank you.
Okay, thank you for the details and just 11 other is the 300 teraher per second is.
For traditional air cooled, do you have an estimate of what it would be for immersion or just liquid cooled?
.
Yes. I think for, today, the emergent version of the, machines, is, more, common, in the, in the market, not.
Those constrained to US market, many different, markets we see, we already, observed.
This.
So, Yeah, I think maybe the reason is, many machines, is now.
Filled with a much higher energy density.
And.
Need.
Need.
Better energy efficiency.
This will bring more strict environment control needs. So liquid cooling can help to manage the heat, more fi effectively. So, and another reason may be, the many hardware now, must stay in use, longer than, old days. So this makes it worth, while to invest more in the site, set up to improve the, stability and up time.
Yeah.
Okay, thank you.

Operator

Kevin Dede, HCW.

Kevin Dede

IMG hi James. Thanks very much for having me on the call. I think firstly I'd just like to congratulate you on managing your supply line.
And deliveries to the US in light of the regulatory changes. I just, thought that was very savvy of you gentlemen.
I'm the team first, I was hoping you could offer a little more detail on how customer service has changed over the years. So I, I've been following you for a long time and I.
I just like to understand what you think you're doing better now in the US in winning customers.

James Cheng

Hi.
.
Yeah, I think in in recent.
Years.
The Bitcoin mining has, become more global. The company has to providing maintenance and support service in a way that's closer to our customers.
In addition to our standard, one year warranty for money reorders, we have now, 26 service stations or, spare warehouses worldwide. This.
Helps shorten.
The.
Parts delivery cycle time and allow us to.
Provide, more time, maintenance and the parts, services for our customers. We also, adjust the.
Location.
Of our, service.
Points based.
On, customer.
Distribution.
For, to, future improve service efficiency.
.
Additionally, we, based on.
Customer feedback, our products have shown.
Strong operational, stability.
.
That particularly in very high temperature and.
Human, environments.
Where they continue to run, effectively and very reliable.
And also the return of the repair is, actually very low now, especially for the A15 models.
.
We also offer, onsite.
Customized.
Mining solutions, based.
On.
Customers.
Specific needs.
Such as, emerging.
Liquid cooling.
And, code.
Development for.
Some systems.
It is.
Ensure that our products and services can.
Closely aligned.
And, adaptable to our customers, diverse needs, receiving, we are receiving positive feedback.
Thank you for, recommending our success, but we're still, striving for improvement. We believe we can do even better, and.
We aim to outperform two of our, Chinese competitors in the following areas. .
First, we want to keep the failure rate of our products below the industry average. Which comes from better design and high quality control during the production process.
This, approach, particularly, benefits for the high labor cost, regions like the US.
Second, we aim to ensure our North American team and measurements in Singapore, work as one cohesive unit.
Myself, along with our CFO and R&D, and the supply chain leaders are all committed to ensure high, customer satisfaction.
Finally, from the very beginning, we have been a company driven by the value of decentralization.
Therefore, we remain open to all.
Customer requests.
Evaluating them.
Only based on whether they make business sense and benefit the industry development.
We don't want to limit, customers, options, proactivity.
Yeah, thank you sir.

Kevin Dede

And and she, can you talk a little bit about your North American customer pipeline and what the sales funnel looks like? The press release alluded to a new customer for the A15 XP. Can you talk about that a little bit and maybe give us a little more comfort regarding where or how you see the second half coming together?

James Cheng

.
I think last year we, actively expanded in, into North American market and secured several major clients, like Cypher, Hive, and Clean Spark.
North American customers orders now represent about 40% of our product sales revenue in full year 2024.
In Q4.
With the large.
Scale.
Delivery of ACT orders to North America, sales from the region reached historical high.
I think in our.
Yeah, and also, We are in the second half of this year, our sales, system, now is increasing their global market coverage, near, we, last year we nearly 200 professional offline customers, and, following we launched the Avalon Home series, we attracted a large number of retail customers.
Resulting in, ex, explanation, growth in customer numbers and in 2024, the total number of customers who have placed orders, reached about 2000.
Now, the company continue to go, globalized. We have, established.
Special teams in.
Regions such as North America and South Asia, giving, multi-layer and comprehensive sales team that reaches, customers worldwide. Currently the, number of new customers is substantial and they generally have strong competit and high purchasing intention.
.
However, I think, large orders from new.
Customers, typically take some time to settle down.
.
If the global political and the economic situation along with the price, influenced by these factors.
Continue to rise, steadily. I think this process will certainly, accelerate.
So, because in Q2 and Q3, our inventory, we, I think we our capacity, I mean the machines will come out, majorly in 22 and 23. I think the capacity issue, happens, especially in 11, will be, much, satisfied.
Yeah, so, we are, I think my.
Personally we are.
I mean, I, I'm quite, optimistic, in Q2 and 23.
Yeah.

Kevin Dede

Last question from me, and you mentioned that the A16 is now taped out. I'm wondering when, you start placing orders for wafers for.

Nangeng Zhang

Those machines.
We start.

James Cheng

To place orders.
Back to, I think our first, big batch, is in October to November last year, and we have a second batch photos, in December.
So the the vas will, continue to come out from Q1 this year, and we are in the wrap up stage.
The major part will come out in Q2 and.
Q3.

Nangeng Zhang

Okay, thank.

Kevin Dede

Thank you very much, gentlemen.
I, sorry, I think that your question is about 8:16.
Yes, 815, right, sorry, yeah, no, okay, yeah, I was just wondering about the tape out and orders.

Nangeng Zhang

Okay. Basically.

James Cheng

We will send the machine, single machines to our customer in.
I think it's in Q3, so, we will follow the risk run and our first, mass production batch, at that time, yeah.
This is our schedule.

Kevin Dede

Okay.
Okay, thank, thanks, AG.

Nangeng Zhang

Thank you. Have a nice day.

Operator

Joe Flynn, Compass Point Research and Trading.

Joe Flynn

I, thanks for the question. I was hoping if you could just touch on the ramp of a 15 in a little more detail.
I was curious how much of the initial capacity was ultimately covered by, North Americans upfront deposits.
And is there any balance on on those going forward and then ultimately how do you, what's ultimately the strategy of managing the liquidity risk given the 6 month lead times.
And what approaches are you ultimately going to continue pursuing from that end.
I think our 15 orders, we will, I think we can deliver most of them, in May, in May.

James Cheng

Yes.
Yes, they are, pre-order, I'm.

Joe Flynn

Sorry, I was talking about the upfront deposits from the North American customers as it relates to, the security fact capacity.
I think the, mostly is, comes from, North America, yes.
And, most of them is, prepaid for, about 50%.
Down payment. So then what's what's ultimately kind of the approach to, funding the additional, that capacity 6 months out as they start to roll off.
Given the kind of the recording risk of the lead times.

James Cheng

I think the.
Production for the, machines, is, about, I think today is about 5.
Months, but usually our customers cannot.
Wait, for like, 5 months from the first, payment to receive the machines. So, usually we will, keep our, pipeline in about like, 3 to 4 months.
That means, our customers, will pay the first, down payment like 44 5.
50%.
And then, pay, the other 50%, before we ship the machines or they receive the machines, in 3 or 4 months, yes.

Joe Flynn

Thanks. That's helpful. And most of my questions were asked, but maybe go in different directions. Just just curious if there was any portion of the RD still dedicated to the risks 586 because, there's a lot of reports out there that just expected to see huge increased demand in China, and I was wondering if there's anything came about of the, partnership with Alibaba a few years ago and if you guys ultimately have, the opportunities.
To compete in that market at all.

James Cheng

.
Yeah, I think it's a very, sensitive question.
I think given the tightening regulations environment, we observed recently, especially from.
Middle January.
What I can say is, we are staying very, cautious, about, develop anything related to AI now.
So, yes, so that side, we are actively prepared for the future, over the next two years. Our plan is to, invest more in, building out our infrastructure, in US, what I already mentioned, tonight.
This is our, I mean, personally.
I think this is our way to hedging against the risk of.
.
Missing out.
The AI phase in the next maybe 22 or 3.
Years.
If one.
Day AI and HPC become, becomes the mainstream, computing.
Use.
Case, replacing mining, we.
Want to be the, we want to be ready.
With with the power and the size and all infrastructures and technologies there, we already in place, we would be a very strong, in a very strong position.
To, people, quickly into the new direction. Now, this is what I can say today. Yeah, thank you.

Gwyn Lauber

Great thank you.

Operator

Bill Papanastasiou, KBW.

Bill Papanastasiou

Good morning and thank you for taking my questions. NG, may you share some color on your progress of reaching self mining hash rate growth targets and and how this may impact external sales of hardware.
Can internal production of mining equipment sustain self-mining growth targets while also ramping your ex your external sales to grow market share?
Thank you.
Hi, hello.
Yeah, in the end of, February this.

James Cheng

Year, our company.
Operations, 7, we have a 7 active, mining, partnership projects.
Globally with a total deploy hash rate of more than 6 X has and the power is close to 6 X per second.
And, in Q1, we further expanded to, exiting, existing, North American mining projects, through upgrades to increase their capacity.
So we are keeping our, target, 10 hash in North American, in the first half of this year.
In the first quarter, I think our, North American self money business will very close to 5 per second.
Yeah, because, I think for currently the, company's operation is very smoothly, and, we will, build, our, that money, follow our, cash flow, and keep our cash flow remain healthy. I think the US government, is, implementing a series of, politics, supporting the, cryptocurrency industry. The trend, to a Bitcoin bull market remains, intact, people, despite short term price, fluctuations.
Since the advanced, process capacity required, by our industry must be deployed in advance. We have chosen using, financing tools to funding to fund for.
Fundraising to lock, production capacity.
.
And fulfill.
Our, machine sales and that money, for the, for how.
To expand.
Our.
Market share.
.
We are, not that listed Singapore company.
.
Alongside these two private.
.
Chinese companies.
Our market share is still small.
Compared.
To our major.
Main actors.
So.
For.
Us, it's, we have opportunities and we must focus on how to gain, market share, then we can, we can have much higher revenue.
Historically.
I think our major competitors, have, the industry leading, products and early advantages in, North America.
They expand their influence with, global, Chinese.

Operator

Participants, please do stand by while the speaker reconnects.

Bill Papanastasiou

Hi, this is Liu Wang, Vice President of Capital Markets and Corporate Development. I think, NG is offline because of technical, difficulties. We are, more than happy to take your, questions, after this.
I suggest we conclude this session.

Operator

Thank you.
In that case, I would turn the call back over to the company for any closing remarks.
If there were no further closing remarks, then we can conclude the call today.
Thank you everyone for attending, and you may now disconnect.