Canaan Inc. (CAN) Q4 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc. Fourth Quarter and Full Year 2022 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, Mr. Clark Soucy, Investor Relations Director of the company. Please go ahead, Clark.

Thank you. Hello, everyone, and welcome to our earnings conference call. The company's financial and operating results were released by our newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nangeng Zhang; and our CFO, Mr. Jin Cheng James. In addition, Mr. Xiaoming Lu, our SVP; Mr. Leo Wang, IR Senior Director; and Ms. Xi Zhang, IR Manager, will also be available during the question-and-answer session. Mr. Zhang will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Cheng will then provide details on the company's operating and financial results for the period before we open up the call for your questions. Before we continue, I would like to refer you to our safe harbor 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 results of operations or the performance of the company. These statements speak only as of the date hereof and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call or webcast, except as required by law. These statements do not guarantee future performance and are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors and documents we filed 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'll 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, Mr. Nangeng Zhang. Please go ahead.

Hello, everyone. This is Nangeng, CEO and Founder of Canaan. Our CFO James and I are delighted to share our quarterly results from the company's Singapore headquarters. The market environment in fourth quarter of 2022 become even tougher, and appropriately reached the target moment. The fast rise interest rates by 75 bps in November and the 60 bps in December to fight inflection. As such the recent - the macro environment has been quite difficult for the bitcoin mining industry. Also in November 2022, the crypto exchange FTX and the crypto lender BlockFi both filed for bankruptcy. These unfortunate events further hurt creditors and the investors' confidence in the whole cryptocurrency industry. Due to this series of adverse events, the bitcoin price decreased towards 52 week low of $16,500 at the end of the year. At the same time energy prices stayed high because of the regional conflicts. While bitcoin's total net network hash rate has increased by more than 20% from the last quarter as new mining firms began operations and new machines were online around the world. This has made mining more difficult with decreased mining work, and has even resulted in select mining farms to stop operating. In North America, where mining has been relatively concentrated since 2021 many miners and the hosts have high debt ratios and the financing costs. This burden [ph] have further impacted their cash flows. And some miners and hosts have gone bankrupt or had to reorganize their business. These problems have badly adversely affected miners operations, income and the demand from purchasing [ph] mining machines. We have mixed feelings about this industry downturn. During the fourth quarter of 2022 together with our management team, I visited the investors, clients and partners in North America, the Middle East and the Southeast Asia. I wanted to understand their business and financial positions. And [indiscernible] whether is how kind with them faced with the current industry challenges, and thanks to the active chain of our flexible sales strategy, as well as our mining business which we have been expanding for some time now. We generated a total revenues of RMB 392 million this quarter, exceeding our guidance of RMB 310 million. Today I want to take this opportunity to discuss three key topics. First, our continuous investment in R&D and the production capacity. Second, our ongoing development and the progress of our mining business. Finally, our understanding of - and thoughts on the downturn in the bitcoin price and the general total currency industry. First, we made substantial investments in R&D and continue to secure future production capacity in the fourth quarter. Our CFO will share more details on this later. I would like to address that during industry downturn it is a tough decision to maintain these investments. This decision showcased our long term competence in global bitcoin adoption. In late October of last year, we lost the new generation - we lost the new generation A13 mining machines after the tape out of on the advanced process note. A13 achieves new highlights in computing power and energy efficiency. After the release of our new generation mining machine, we have been strengthening our cooperation with foundry partners. This will help us to secure the limited surplus production capacity of wafers on the most advanced notes. Accordingly, we are moving on mass production and upgrading our products to the new generation with better computing power and energy efficiency. Second, our mining business is bearing fruit. Our mining operation with our computing power in Central Asia and North America increased slightly to 3.3 exahash per second in the fourth quarter from 3.2 exahash per second in Q3 of 2022. The power supply in Kazakhstan has been improving, but it is still unstable. Under these conditions we generated mining revenue of RMB 72.2 million in the fourth quarter, up 16.3% sequentially. Despite the bitcoin price decreasing during Q4 as 2022 year end we have 757 bitcoins in total. Going into the first quarter of 2023, the bitcoin price is showing an upward trend and we are making further strides in our mining business. As of the end of February, our total installed mining computing power reached 3.8 exahash per second. This additional hash rate continues being useful. We expect our use of hash rate to reach 5 exahash per second to 5.5 exahash per second by the end of Q1 of 2023. Our nearly 10 year industry experience enable us to explore [Technical Difficulty] ways to accommodate with our partners and our world of business conditions. We are proud to have become international and [indiscernible] bitcoin miner in our mining business. We expect to deploy more mining projects in multiple regions in the future. Finally, [indiscernible] went through four major bitcoin bear markets. I want to share my view on the low point of this bitcoin cycle. The fourth quarter of 2022 in my view was the darkest time for bitcoin and the entire cryptocurrency industry during the past two years. When bitcoin price drops down to a bottom some unexpected events also happened in the industry. This fall seriously hurt the confidence of industry players, and the caught regulators attention, but I don't believe this should make us lose base. We should see this as an opportunity for the industry to separate good companies from cheaters [ph] This process will drive the industry to become more sustainable in the future. Probably a lot of negative headlines recently, but I want to point out the positive. Looking back as 14 years since the birth of bitcoin, we can see that today is quite different from the past. Even if we only look over the last two years there were great developments. Now the number of bitcoin miners and a total computing power of the network are at a much higher level compared to the low point of the 2020 crypto cycle. In addition bitcoin mining now happens all over the world. This situation form the highly decentralized trading network. We can see that many miners are seeking and adopting low cost, sustainable energy across the globe. These miners have monetized many power plants, strengthen capacity and have many undevelopment regions develop their new green power infrastructure. Bitcoin has a more - up either from traditional finance. It is now facing increasing regulatory forecasts in many places around the world. We should be aware that the trend will well show the growing user base of bitcoin and other cryptocurrencies have formed a strong consensus and have a significant influence that cannot be ignored. Bitcoin has gone from an ETF that a few people understood to having 10s of millions of euros. We can even say that it's become mainstream. A new industry that has been around for only 14 years will obviously go through cycles of [indiscernible] 1and this power to achieve progressive evolutions. During the industrial development we want illegal and unethical behaviors to be exposed. Industry players are learning, improving and matching. So companies we comply with - complies with regulations and the act this transparency will stand out. This takes us back to our original aspiration we founded the company 10 years ago. As a time, our goal was to create a compliance company that supports the landmark invention of bitcoin system with superior computing technology. To meet this goal and along with global decentralization of bitcoin we are continuing to globalize our company. By the end of 2022 we have already established an overseas supply chain that can quickly fulfil orders from international markets and expand our services capabilities with certain other sales service stations worldwide. We also developed a headquarters with a multifunctional team in Singapore, insisting on producing best of class products. We have continuously integrated our technology and the improved chip fabrication. By maximizing our product's computing power and energy efficiency, we aim to provide a superior experience of bitcoin miners and work with them to build a stronger bitcoin network. Since the second half of 2021 we have started to explore the mining business and have further evolved our business model with the growing aspirants of our team and carry out of our mining operations, we installed mining hash rates have shown emerging scale as of today. With that we successfully expanded our business to the industry downstream which helped us better understand our customers need and understand bitcoin itself. Overall we remain bullish on the future of bitcoin and the supercomputing technology behind it. Moving into the first quarter of 2023, this will comprise showing some improvement. We believe the most difficult part of bitcoin cycle is approaching end [ph]. Now we are looking forward to the market recovery. We have recently received the mining orders and purchase inquiries. At the same time we have also noticed that that many miners are not able to place orders due to financial problems. Generally computing power demand is gradually recovery, but recovery has just started. Therefore, we expect our total revenue in the first quarter of 2023 to be approximately RMB 450 million or USD 65 million. We can expect our total installed hash rate from mining to be 5 to 0.5 [ph] exahash per second by the end of the first quarter of 2023. It is our real strategy of building our proprietary mining machine in conjunction with our mining operations. We already have two reinforced business segments focusing on bitcoin. Going forward we will continue to iterate our products and provide great services to our mining clients as we support the growth of bitcoin ecosystem. Along with miners around the world, we will draw you and contribute to bitcoin's globalization. We will continue to adapt ourselves to researching and funding favorable mining stacks. With agile operation and the efficient execution we endeavor to explore and size [ph] opportunities during the age of discovery of global bitcoin mining. This concludes my prepared remarks. Thanks everyone. I will now turn the call over to our CFO, James.

Thank you Mr. Nangeng, and good day everyone. This is James. I'm with our CEO in our Singapore office. Broadly speaking in the fourth quarter, as our CEO has already stated, the market situation was very tough for both Canaan and our customers, as well as the whole industry. At the same time we also faced our own challenges in executing all our products upgrade from the A12 series to the A13 series. As a result, we must make upfront payments for new waivers, while sales are impacted due to the low bitcoin price. However, we did make some good progress in developing the scale of our mining operations in quarter four, and it contributed more revenue than ever. Despite all the difficulties for total revenues, we achieved the RMB 392 million reaching our previous guidance by more than RMB 80 million. Regarding machine sales, in this challenging time, we endured the market conditions and continued to decisively execute on our strategy. Considering a very limited demand, we further lowered the selling price for our legacy A12 series models to spur our sales. As a result, we delivered 1.9 million terahash per second in the quarter, contributing to approximately RMB 318 million in mining machine sales, which is better than we expected. I would like to share a few points about our mining business. During the market downturn, we have been actively exploring and developing our mining business, because this mining resource assets are undervalued in the current bear market, we believe it is an ideal time for us to invest and deploy valuable assets for the long run. At the same time, it's also a method to allocate our machines in inventory to generate bitcoin. We further improved the power supply, our revenue from the mining business reached RMB 72 million, up 16.3% sequentially. The growth is impressive given the decreasing bitcoin prices during the quarter. This marks the first time our mining revenue made a USD 10 million milestone in a single quarter. Please note, revenue from mining is recorded according to the bitcoin price when a bitcoin is generated from mining. After paying a certain power fee using bitcoin, we had 757 bitcoins as of the end of 2022. This bitcoin balance was up 41% quarter-over-quarter compared with 535 in the third quarter, reaching a new historical high. By the end of 2022, we had installed a mining hash rate of 3.3 exahash per second, collectively in Central Asia and North America. By the end of February, we had a total installed hash rate of 3.8 exahash per second. With these positive developments in our mining collaborations recently, the company's total online mining machines are expected to reach a hash rate of 5 to 5.5 exahash per second by the end of the first quarter of 2023. Please note that the installment progress may be subject to unexpected issues and thus may influence the final installed hash rate by the end of the first quarter of 2023. The total energized hash rate is also subject to the local power supply. Let's talk more about the profit and loss. We incurred a gross loss of RMB 230.9 million for the fourth quarter of 2022 due to the lower top line revenue amongst an unfavorable market and higher costs. Specifically, for our mining machine sales, the gross loss of RMB 136.7 million for the quarter was mainly due to an inventory write-down of RMB 205.3 million. This write-down was a result of lower than cost average selling price for the previous generation machines, which suffered from the declining bitcoin price. The inventory write-down decreased by 7% sequentially as we strived to sell out our inventory to the market during the fourth quarter. If the inventory write-down were excluded, we would have a gross profit for our mining machine sales of RMB 68.7 million. The decreased ASP of selling machines also narrowed the profit compared to the third quarter of 2022. Regarding our mining business, we recorded a gross loss of RMB 77.0 million during the quarter. Our cost of energy and hosting amounted to RMB 74.2 million, which was mainly due to increased energy prices. In addition, we incurred depreciation costs of RMB 74.9 million in the fourth quarter from our growing number of deployed mining machines. Excluding depreciation, our mining profit or loss, defined as mining revenues deducting costs for energy and hosting was a loss of RMB 2.1 million for the fourth quarter. The loss was primarily due to the lower revenue per bitcoin mined, resulting from the decreased bitcoin prices during the fourth quarter. We recorded RMB 223.5 million for R&D expenses during the quarter. This includes about RMB 96 million for an one-off expenditure for our new generation chips. The remaining RMB 127.5 million resulted from our ongoing research and development inputs, which grew steadily sequentially and year-over-year. As most of our sales contracts were denominated in U.S. dollars, we recorded a foreign exchange gain of RMB 26.6 million in the fourth quarter due to the depreciation of the RMB against the U.S. dollar. As the company continues to internationalize and drive global sales, we are considering adjusting our reporting currency, which may impact our foreign exchange gains going forward. As a result of higher depreciation, inventory write-downs and relatively higher expenses in R&D, we recorded a net loss of RMB 438.3 million. As our growing mining scale will continue to record higher depreciation and considering the modest selling price in the near term and the potential inventory write-downs as a result, we are not expecting substantial profits in the next one or two quarters. But from a longer-term perspective, the depreciation will not last longer than the useful life of the machines. And the selling price of the machines could be readjusted upward along with the multi demand once the bitcoin price increases. Despite these near-term headwinds, we are still optimistic about our capacity to generate substantial profits in the longer term. Turning to our balance sheet. First, let's discuss our cash status. As our CEO stated, we invested a lot during quarter four of 2022 to secure our supply capacity as well as R&D and our mining business. As of December 31, 2022, our cash and cash equivalents decreased to RMB 707 million. The decrease in cash amounted to RMB 1,295 million, mainly including RMB 848 million for prepayments to secure wafer supply and production, as well as RMB 205 million for payment of value-added tax and income tax expenses. Our operating expenditures used RMB 149 million in cash. We also paid up from deposits of RMB 21 million to secure mining pharma resources for expanding our mining business. Our investments in the supply front have prepared us with adequate production resources to manufacture our next-generation mining machine and allocate increased computing power for mining. We made such strategic investments during this bear market, preparing us with adequate inventory for sales and capitalizing on the coming bull [ph] market. When the bitcoin price increases, we have confidence that aforementioned investments will bring us notable returns. Also, cash is used to deliver value to our shareholders. During the fourth quarter of 2022, we used approximately RMB 72 million, which is equivalent to USD 10.5 million to repurchase 3.5 million ADSs under our current stock repurchase program approved in March 2022 with an average repurchase price of $3 per ADS. In late November, we filed a prospectus supplement on Form 424B5 to officially set up the ATM facility for future financing. We have not commented using the ATM as of today, and we'll continue to consider appropriate financing opportunities to fuel our future business growth. We continue to believe in the resilience of bitcoin in its most challenging time and have seen a silver civil [ph] lining as the bitcoin price moderately improved since the beginning of 2023, which was consistent with our outlook. I'm pleased to report that in February, we obtained more than 200 orders from customers. Although the average contract amount is not particularly sizable, we can thank the customers in a more positive mood compared to quarter four of 2022. In this recovery cycle, we will utilize our cash on the most critical aspects such as the wafer supply to seize market opportunities and deploy ahead of time so as to expand the scale when the market picks up. Now I would like to briefly walk you through our financial results for the quarter. Total revenues in the fourth quarter were RMB 391.9 million compared to RMB 2,184.6 million in the same period of 2021 and RMB 978.2 million in the third quarter of 2022. Gross loss was RMB 230.9 million. Total operating expenses in the fourth quarter of 2022 were RMB 393.5 million compared to RMB 273.7 million in the same period of 2021 and RMB 275 million in the third quarter of 2022. Loss from operations was RMB 624.4 million. Net loss attributable to ordinary shareholders was RMB 438.3 million. Non-GAAP adjusted net loss was RMB 341.8 million. Basic and diluted net loss per ADS for the quarter were RMB 2.61. As of December 31, 2022, the company had cash and cash equivalents of RMB 707.3 million. This concludes our prepared remarks. We are now open for questions.

Thank you. We will now begin the question and answer session. [Operator Instructions] Our first question comes from the line of Michael Donovan from H.C. Wainwright. Please go ahead, Michael.

[Foreign Language] Kevin is on the road right now traveling, so I'm filling in for him. And first question, what is machine demand like with the depressed pricing? And how is Canaan balancing between developing self-mining versus selling machines?

Well, thank you. For this question, on the positive side, this comprised high has started to increase slightly in the beginning of this year. So the overall demand of computing power has shown some recovery. We have received more purchase inquiries and small orders. For instance in the past months, we received over 200 new orders with a total amount of about USD 35 million because the situation has just started to improve, the total amount isn't that large. So far, demand from Asia has recovered most quickly. We haven't seen much recovery from North America yet. On the negative side, inventory in the market has still not been completely rejected because of this, the selling price of the machines didn't increase in line with the rise in the different price and the number of mining machine orders delivered. So our selling price is still limited by the state of the industry. And for quite a long time, we have been preparing for low bitcoin price and lower demand. Our current strategy is to grow our mining skills by enhancing partnerships with mining farms and reasonable power prices. This will allow us to utilize our mining machines inventories for mining reworks. I think by investing when bitcoin price is low, we will see good returns when the price recovers. We expected the contracts will not be continuously restricted in the next 1 or 2 years and we will probably experience increase. So we are willing to invest in RMB and lock in wafer production capacity. This will ensure we have enough machines with high performance - with higher performance for both sales and mining. Thank you.

Thank you, Nangeng . And for my second question, it's specifically about bitcoin price. So you've been quite good at predicting the price of bitcoin. From your perspective, how do you see bitcoin price correlation with risk on assets? And do you see there being a decoupling from risk on asset prices?

I think, yes, I think now the bitcoin price is mostly linked with high risk assets. Yes, this is my opinion. And so I think when the risk as that goes up, the bitcoin price will recover. This is my personal view.

Okay. Thank you so much.

Thank you. Our next question comes from the line of Jiaer Zhu from China Renaissance. Please ask your question, Jiaer.

Hi, Nangeng. My first question is about the pricing strategy and inventory digesting [ph] data. And how much computing power do you plan to allocate for self-mining business?

Thank you. Maybe I'll take this one. I think it's about pricing strategy. We think that the bitcoin price has only slightly recovered and the whole mining demand is gradually recovering. So it looks like there are still a lot of inventories of the machines in the market. The current conditions are not very favorable for a rapid increase in sales prices. In the extreme case that the bitcoin price falls again, we may have to lower the sales price again. So from our perspective, I think we will closely monitor the market demand and implement flexible price strategies to quickly sell inventory and collect the cash back, and we will also take the advantage of market opportunities when it arise - they arise. In terms of the inventory as of the end of February, we have sold most of the limited amount of A13 new models that were in stock, and we are currently producing a new batch. We also shipped many old generation models in the fourth quarter of 2022 and recently in quarter one, 2023. Currently, our overall inventory level is sufficient. In an environmental slow market recovery, I think we will actively explore mining projects and use more inventory for our mining business to generate bitcoin rewards, and we expect our installed computing power to be in the range of 5 to 5.5 exahash per second by the end of the first quarter of 2023. So we are also actively exploring market demand for mining machine sales and negotiating with large customers to see sales opportunities as the bitcoin price recovers. So overall speaking, we expect the bitcoin price will not continuously be restricted in the coming one to two years. So we've probably experienced an increase in the ongoing quarters. So leading to increased demand for computing power and mining equipment. Therefore, we have already locked in wafer production capacity in preparation for the upcoming possible for bull market. Thank you.

Thanks, James. And my second question is that do you have any stock incentive plan and dividend distribution plan?

Thank you for the question. Before the company went public, we established a program to incentivize our employees with our stock. This program has been operating smoothly since going public and is one of our key strategies to attract talented employees and research teams, especially research teams. We will keep discussing and planning together with our Board of Directors regarding the employee incentive plan. For dividend, currently, we do not have a plan to distribute dividends to shareholders. Instead, we aim to invest more in research and development, as well as production deployment in order to create a long-term shareholder value. As the company continues to grow and accumulate assets, we will keep focusing on research and development operations in order to expand our business. We will discuss the possibility of distributing dividends when the timing is more appropriate. Thank you.

Okay, got it. Thank you.

Thank you. Our next question comes from the line of Mike Legg from The Benchmark Company. Please ask your question, Mike.

Thank you, good morning. You mentioned that you have 200 new orders, roughly USD 35 million on the books now. Can you talk with bitcoin moving up to 22,000 currently, what you're seeing for the demand, how it's changed from the fourth quarter to current and the related margin pressure on that? And then mention whether the new entrants inquiring about the machines or just the traditional players increasing upgrading their fleets? Thanks.

I will take this one. I think regarding the sales part, we have collected a number of small amounts [ph] recently. But overall, demand has just started to recover. And the total volume is not that significant yet. Some traditional miners are unable to place orders due to their financial constraints. And the high industry inventory levels have also limited our sales volume and prices. I think recently, we are prioritizing some of our efforts on dispensing our inventory of old models and parts to quickly collect cash back. If the fluctuations in bitcoin price lead to slower sales of automotive inventory, we may need to further adjust prices to make concessions. If under such conditions, our gross profit will probably be underlined. Regarding our mining business, we expect our mining revenue in the first quarter to further grow, assuming we increased the number of mining machines installed and online quarter-over-quarter, while the bitcoin price rebound during the first quarter. However, as energy prices remain high, we expect the gross profit of our mining business to improve only slightly in the first quarter. Additionally, as we deploy more computing power, mining machine depreciation will also increase in line with the deployment program. So this will also have an impact on the gross profit. Thank you.

Thanks. And then just one more question. Can you talk a little bit how the operating environment in China is right now and then also discuss the build-out in Singapore and U.S., please? Thanks.

Okay. Thank you. At end of 2022, China adjusted its COVID control process. Currently, it seems that control measures in transportation and logistics have largely returned to the level before the pandemic. Our employees are now able to work more efficiently in areas such as operations, finance and R&D to a form of online and in-person collaboration. At the same time, we can grow global business. So we can - in-person meeting with our overseas customers. The size of our teams in our headquarters in Singapore, including R&D operations and finance has been steadily increasing and is playing an increasingly important role in our overall operations. We have also formed the teams in North America for mining operations, sales, warehousing, logistics and after-sale services [ph] providing more support for local market development and after-sale services. Additionally, we have set up 13 other sales service centers worldwide enabling us to provide fast and convenient operational and maintenance service for our overseas customers. Thank you.

Thank you.

Thank you. Our next question comes from the line of Shuang Sun from Guosheng Securities. Please ask your question, Shuang.

My first question is that will you have additional inventory write-down in the next quarter?

Thank you for this question. In response to the continuous decrease in bitcoin price in the fourth quarter, we lowered the selling price of some old models, which led to the expected cash inflow from selling these models below cost. As a result, we have recorded a provision for inventory write-down of over RMB 200 million which is recognized as a cost for this quarter. In addition, the depreciation cost of combining machine has increased due to the increase in our equipment deployed for mining. These factors have led to a negative gross profit of this quarter. In 2023, the bitcoin price has only moderately rebounded and recently declined. If we further adjust down the price for the higher hash rate A12 model, then we would incur additional inventory write-down in the fourth quarter of 2023. However, if we are able to sell this inventory at a price higher than the cost, the provision for inventory write-down that we have recorded can be used to offset the sales cost, thereby increasing our gross profit margin. I think I have tried to answer your question.

So the next question what's recent development in audit risk?

I think you are talking about the previous PCLB issue. Regarding the audit issue, faced by the Chinese stocks and the consequence risk of delisting, I think we have happily noticed that China and the U.S. are working towards a solution. And there has been positive progress recently on December 15, 2022, the PCLB announced that it was able to fully inspect -- investigate PCLB registered public accounting firms headquartered in Mainland China and Hong Kong. So given the solid progress so far, the market is more optimistic towards reaching a solution for the audit issues. And from a company perspective, we have been actively exploring possible solutions since the emergence of the delisting risk caused by auditing issues. Our goal is to protect the interest of stakeholders, especially our shareholders and maintain data and compliance advantages as a listed company and to develop the longer term of payment. In the process of our globalization, we have also expanded our operations and supply chain overseas. As a listed company, our majority of revenues are generated overseas. So we will continue to maintain and strengthen our government's capabilities for compliance and legal operations in different countries and different regions and maintain active communications with the capital market. I think that's my answer.

Thank you.

Thank you. Our next question comes from the line of Chris Brendler from D. A. Davidson. Please ask your question, Chris.

Hi, thanks. Good morning and thanks for taking my questions. My first question is just given all the excitement around ChatGPT and AI. Can you give us an update on your AI business? Thanks.

Thank you for your question. Our current lineup of our AI chips primarily focused on CV for like analyzing the processing regions like SaaS [ph] to the machine region and machine hearing. I think it's different from the currently ChatGPT has launched models. But we are amazed and excited by the progress of technology. The remarkable advancements in AI technology have given us hope in addressing some of the programs that have popped in the industry such as like I mentioned before for user experience and underwriting intelligence levels. We believe that this is the direction we should go. So of course, these new AI technologies have completely different hardware requirements compared to the past. And we need some time to explore and research in these areas. So I think in the short term to midterm, we will continue to work in the area of AI chips that we are familiar with, and we are -- we have -- and continuously iterate and improve our products. These products are still valuable and can provide users with better experience. But I think we have benefits because we have access to the high-end technology. So I hope in the long term, we will evolve this kind of AI chips.

Okay. Great. And then a different question, maybe this is more for James. Just help me think about the share buyback, and then I'll fill in the ATM. Is the ATM more for growth initiatives where the share buyback is more near term use in excess cash, how will you balance those two?

Yes. I think just now, we have mentioned we did execute based on our share repurchase program in quarter 4, and we have not commenced using our ATM facility yet. In late November, we filed this 424B5 and completed the setup of this ATM facility. I think that this will enable us to quickly execute financing activities when the timing is appropriate in the future. We will consider our own performance and wait for the market conditions to improve. I think currently, the valuation needs to recover to a certain extent. After fully considering the interest of our shareholders, I think we will flexibly and prudently carry out financing activities. So due to the specific financial needs of our industry, it is necessary for us to have a long-term plan in the capital market. I think this will help us mitigate potential operational risks and see fleeting business opportunities.

Our next question comes from the line of Andrew Bond from Rosenblatt Securities. Please question, Andrew.

Could you guys discuss your growing focus and plans for business growth in the U.S. and how that market is progressing?

Thank you. We highly value the North American market because it has a large concentration of miners. So we have established multifunctional team in the local area that handles warehousing logistics, sales and aftersales services. We also set up several maintenance service centers or spare part warehouses to provide more convenient after-sales support for our customers in North and even South America. I think even so even through the current inventory level in U.S. is especially for used machines -- mining machines remains high as inventories remain high. We believe that buying our new machines is valuable for customers. They can enjoy 1 year free warranty services and which are very valuable for miners and can provide them with a better mining experience. This is that use mining machines cannot consider this besides the natural environment and the resources in North America mining side varies a lot. These types are often located in different geographical areas such as deserts, coasts or high latitude regions with extreme core temporary or extremely high temperatures. So this environment condition is very challenging. We work with our customers to provide customized cooling and mining solutions based on the conditions of their mine site. At the same time, our mining business in North America keeps expanding. As of now, we already have multiple projects under contract or already in operation. We expect our mining scale in North America to be over 40% of our total computing power in stock at the end of the first quarter of 2023.

Thank you. There are no further questions. Now I'd like to turn the call back to the company for any closing remarks.

Hi, everyone. We really appreciate you all taking the time to join the call with us today. If you have any further questions, please feel free to reach out to our team through the contact information on our website, and we look forward to further discussion with you next time. Thank you.

Thank you. That concludes the call today. Thank you for attending everyone. You may now disconnect.