Canaan (CAN) Q1 2026 Earnings Transcript

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DATE

Tuesday, May 19, 2026, at 8 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Nangeng Zhang
• Chief Financial Officer — James Jin Cheng
• Vice President of Capital Markets and Corporate Development — Leo Wang
• Senior Investor Relations Manager — Xi Zhang
• Investor Relations — Gwyn Lauber

TAKEAWAYS

• Total Revenue -- $63 million, matching prior guidance, and showing significant exposure to North American markets.
• Product Revenue -- $43 million, with 80%-plus from North American customers, up from 75% sequentially, while overall product revenue declined from Q4 due to a weaker market.
• Mining Business Revenue -- $19 million recognized, with 257 Bitcoins produced and mining operations remaining cash positive throughout a low pricing environment.
• Installed Hash Rate -- 11 exahash per second, up 11% quarter over quarter and 66% year over year, with North America reaching 53.6% share of total mining activity.
• Digital Asset Holdings -- 1,808 Bitcoins and 3,952 Ethereum held; Bitcoin reserve valued at $121 million as of March 31, 2026, increasing to nearly $140 million after quarter-end Bitcoin price recovery.
• ABC Project Acquisition -- 49% interest in three North American mining projects, plus 6,840 A15 Pro mining units and 100 megawatts of power infrastructure, secured via $25 million in share issuance with no cash outlay.
• Inventory Write-down -- $25 million non-cash charge, resulting in a reported gross loss of $23 million; adjusted gross profit excluding write-down was approximately $1 million (breakeven gross margin).
• Operating Expense Control -- Total operating expenses fell to $31 million, down 11% QOQ and 18% YOY; R&D costs declined 19%, selling expenses dropped 59%, and G&A fell 11% YOY.
• Liquidity and Cash Position -- Cash ended at $43 million, after $57 million spent to support manufacturing and operations, $6 million on wafer procurement, $2 million on share repurchases, and $42 million in post-quarter receivables collected in April.
• Revenue Outlook -- Management guided Q2 2026 revenues to $35 million-$45 million, citing continued market caution and external uncertainties.
• Strategic Shift -- Clear transition from mining machine sales to integrated energy and computing infrastructure, including ongoing R&D for next-generation AI and HPC-focused systems.
• Channel Expansion -- Avalon Home series entered new distribution platforms such as Amazon and Best Buy Canada online.
• Partnerships -- Completion of major North American customer order and active expansion with Tier for customized high-density products; open source software support and chip sales options highlighted as competitive strengths.

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RISKS

• Chief Financial Officer James Jin Cheng reported a gross loss of $23 million this quarter, which was entirely driven by a $25 million noncash inventory write-down.
• Management stated, “Bitcoin prices dropped sharply … and hash price fell to very low levels,” resulting in “many customers [delaying] purchases due to low hash price and high market uncertainty.”
• Policy changes in some important markets and restrictions on mining product sales, as noted by Nangeng Zhang, have impacted the Avalon Home Series, limiting growth prospects in certain countries.
• A $41 million fair value loss on digital asset holdings was recorded this quarter. This reflects significant bitcoin price fluctuation, which declined from approximately $87,000 by the end of 2025 to $67,000 by the end of the first quarter of 2026. Management emphasized that this is a mark-to-market accounting adjustment and does not represent realized cash loss, as the company continues to hold these assets on its balance sheet.

SUMMARY

Canaan (NASDAQ:CAN) reported results characterized by over 80% of product revenue originating from North America and significant mining expansion within that region. Management executed a capital-efficient acquisition of the ABC Project, securing 49% of multiple U.S. mining operations and power infrastructure exclusively via share issuance, while keeping liquidity intact. Despite market-wide pricing pressure, the company maintained positive cash flows in mining, substantially lowered operating expenses, and demonstrated conservative inventory management through a $25 million non-cash write-down. Looking ahead, guidance reflects a significant sequential revenue decline and ongoing market uncertainty, while the company advances a strategic pivot toward energy and computing infrastructure anchored in next-generation product R&D.

• The sequential decline in total revenue primarily reflects softened broader market demand and price volatility in Bitcoin mining hardware.
• While mining revenues remained positive, a notable fair value loss from revaluing digital asset holdings materially impacted reported profitability without realized cash loss.
• Treasury strength was bolstered by post-quarter recovery in Bitcoin prices, mitigating some balance sheet pressure illustrated at the reporting date.
• Cost control measures resulted in double-digit percentage expense reductions across research, selling, and administrative functions, supporting management’s stated objective of organizational efficiency.
• Management confirmed development of AI and HPC systems as a future strategic pillar, emphasizing capital-light expansion, and aiming for scalable compliance in key geographies.

INDUSTRY GLOSSARY

• Exahash (EH/s): A measure of Bitcoin mining computing power equal to one quintillion (1018) hashes per second.
• Hash Price: The daily revenue generated by one terahash of mining power, often referenced as a key metric of mining profitability.
• ASIC: Application-Specific Integrated Circuit; purpose-built hardware used in cryptocurrency mining for specialized computational efficiency.
• HPC: High-Performance Computing; advanced computational systems enabling workloads such as AI and scientific modeling.
• Fair Value Loss: An accounting adjustment that recognizes unrealized changes in the market value of held assets, such as digital currency holdings.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Canaan's Inc.'s First Quarter 2026 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 today, Gwyn Lauber, Investor Relations for 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, 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.

Nangeng Zhang: Thank you, Gwyn. Hello, everyone. This is NG, CEO of Canaan. Thank you for joining our earnings conference call today. James, our CFO, and I am here at our Singapore headquarters to share our financial results and recent business updates for the first quarter of 2026. Q1 2026 was a very challenging quarter. Bitcoin prices dropped sharply from the height at the beginning of the year. and half price fell to very low levels. As a result, finance around the world became much more cautious with their investments. After entering in the second quarter, the market saw some recovery, but the recovery has still been limited.

At the same time, uncertainties related to the Middle East situation, energy prices, global equity and the policies continue to keep the industry contract environment. For us, our company going through a transition period, this kind of environment created a lot of pressure. But today, I want to focus less on the gates we faced and more on what we did during the difficult times. I believe investors want to see whether we have strong execution, deplant operations and ability to navigate through market cycles. In the first quarter, we completed several concrete tasks.

First, we completed the final stage of production, delivery and revenue recognition for our large order from a leading North American customer while entering the market downturn with a relatively light inventory position. Second, we continued expanding our mining business, which still generates positive cash contribution even under extremely low hard price conditions, while further increasing our digital asset treasury. Third, we completed the acquisition of ABC projects through a share exchange transaction, obtaining a 49% equity interest in 3 energies and operating mine site with low power cost invest taxes. Fourth, we continue to advance in the R&D of 16 series and our next-generation products to prepare for the next mining equipment update cycle.

Fifth, we continue shifting the company's strategic focus from a pure mining machine business towards energy computing infrastructure. Taken together, these actions show that during a difficult market environment, we did not simply wait for the market to recover instead, we actively strengthened our survivability, improve our asset quality and expanding our long-term strategic options. In the quarter, we generated total revenues of USD 62.7 million, in line with our previous guidance range. As of the end of the quarter, we had 1,808 bitcoing and 30,952 Ethereum and our digital asset treasury reached another record high. In mining machine, industry demand was clearly under pressure in the first quarter.

We sold 4.1 exahash per second of computing power is an average selling price of about 10.5 per terahash, generating USD 42.9 million in revenue. Many customers delayed fortress due to low cash price and high market uncertainty and the market pricing also came under pressure. In this environment, we did not pursue short-term sale growth through aggressive inventory buildup or lower quality orders. Instead, we raised higher priority on inventory control, cash flow management and all quality. This also reflects the operating discipline. We have emphasized over the past several quarters. In Q4 of 2025, we captured the market window and secure the large North American order with all the deliveries completed.

In the first quarter of this year, we completed the final stage of execution through this -- the successful completion of this project. We further strengthened our brand reputation and customer base in the North American market. mining machine business may not be the hottest story in the capital market today, but it remains the formation of cane. As long as the is network continues to operate and low-cost power resources continue to exist around the world. Manas will continue to need machines that are more efficient, more reliable and easy to deploy. Our job is to run the mining machine business with stronger discipline and stay closer to the real needs of our customers.

In the fourth quarter, we continued advancing customized products and system-level solutions. Recently, we expanded our collaboration with Tier by providing customized high-density tax for models for its next-generation emerging mining and unfit systems. This type of partnership shows that leading customers are shifting from pursuing single sand miners to see interpretive systems that are modular metal, gradable and adaptable to different operating scenarios. For Ken, this is exactly where our long-term strength in ASIC demand system engineering, supply chain management and the global progress delivery can create value. In addition, as we announced earlier today, we sold approximately 8 megawatts of hydro crude equipment to Nordic citing service provider to produce high-grade hot water for the strip heating systems.

Projects like this show that mining machines are gradually expanding beyond pure mining use cases into broader energy utilization scenarios. The combination of computing power, heat recovery and the local energy infrastructure is also an area we will continue to explore going forward. In the consumer and SMB market, the main focus of having a home series in the first half year, has been channel expansion, customer reach and service system development. Since the beginning of this year, Aram products have entered platforms, including Best by Canada's online channel and Amazon. The consumer market is very different from the industrial mining machine market.

Customers are not only about half rate, but also about noise level, stability product design, easy for installation and after-sales stories. We are currently working on the product upgrades for the -- for several or home models and hope to lock them in the second half of this year. We hope that better products, stronger sales channels and the year-end shopping season, together can help this business line contribute to higher core revenue. Now we move to our mining business. The mining environment in the first quarter was very challenging. In January, during the winter storm across North America.

We materially power down and hotel operations in the certain regions to prioritize electricity supply to local residents and the power grid. We want to be trusted and responsible partner with labor computing load for the grid rather than adding additional pressure during a period of great stress. More importantly, even under a low has price environment, our mining business continued to show strong competitiveness. During the quarter, we generated 257 bitcoins in total and recognized $19.12 million in mining revenue. From a cash operating perspective, this business continued to contribute positive liquidity inflow to the company. By the end of the quarter, our global installed part reached 15%, up 66% year-over-year and 11% quarter-over-quarter.

Our operating base continue to expand. While our power and hosting costs remained relatively competitive. In April, our non-JV installed hash rate remained around 11 hash per second with an average all-in power cost of about $0.044 per pear. At the same time, ABC JV program also add 4.82 ex hash per second installed cap rate, and 120 megawatts of installed power capacity. I believe these numbers show 1 important thing. The mining business still has value even during the low point of the cycle. It helped us to accumulate BDC and help us better understand the real operational needs and the pain points of minus. More importantly, it helped us to build real power consumption and operational capabilities.

We continue to advancing energy and computing infrastructure future. The most important development this quarter was the ABC project in late February, we acquired EBITDA interest in par and Simonton products in U.S., Texas from Cyber through a share exchange transaction together with 6,840 Avalon A15 pro mining machines. The biggest advantage of the ABC products is highly competitive power cost, which is below USD 0.03 per kilowatt hour. Because of this cost advantage, the products maintained a strong profitability and a high uptime, even during a period of Bitcoin price volatility, which significantly improved over time. We have also been working closely with our partner, with HQ to steadily upgrade the mining fleet at a site.

At the end of April, the projects installed hash rate increased from about 4.4 exhash per second to 4.82 exhash per second. In addition, the JV program has potential for future power load expansion, and we are currently evaluating related opportunities. Overall, the AT products operate and their hybrid mining -- power model, combining wind power and a electricity is total installed capacity of 120 megawatts and power cost below us and U.S. do per kilowatt hour. The projects currently have an in-store hash rate for approximately 4.82 per exhash second. We have maintained a strong long-term relationship with Cyber over the past years.

The commission of the ABC Project transaction also reflects our ability to take over high-quality assets released during the doing CIOs business transaction. based on our longstanding cooperation, we believe high-quality power resources and the infrastructure accountabilities will become increasingly important competitive advanced advantages in the industry over the long term. The completion of ABC projects only future strengthened our footprint in North America energy and infrastructure, but also response represent is an important step in advancing our long-term Energy+ computing infrastructure strategy. Following the transaction, Cyber also become -- became an important shareholder of Canaan, lining the foundation for deeper cooperation between the 2 parties in the future. This product has very important meaning for us.

First, these are low-cost power assets that are already energized already operating and already generating computing power in today's North American market assets with real operations are much more valuable than pipeline opportunities on paper. Second, program is concrete result of our energy strategy. In future, strengthens our access to low-cost power resources, mining operation experience, and the local partnership networks in the United States. Third, it also provides us with stronger infrastructure commodities and greater strategic flexibilities after we continue to explore future AI and ATC opportunities. Regarding our energy pipeline, we have indeed made some meaningful and encouraging progress.

However, as a responsible public company, we do not believe these developments have yet reached the closure milestones required for us to provide more specific details publicly. So at this stage, I cannot share too much additional information. but I can reaffirm our site view high-quality power resources will become one of the most important barriers in future computing infrastructure. Our goal is to secure power infrastructure that is controllable, developable and available in regions that are compliant close to major customer markets large-in-scale capable for long-term grid connection and expandable over time. The United States remains one of our most important markets. We hope that in the future, once project conditions become more mature and discoder requires are met.

We will be able to provide the market with more concrete and substantial updates. Now let me talk about our R&D and products. In the fourth quarter of last year, we officially launched the Avalon A16 XP. It delivers up to 300 terahash per second per machine with energy efficiency as well as 4.8 terahash per tons. During the first quarter, some customers received simple units and bigger testing. Based on the feedback we have received so far, the A16 series has performed well in castrate stability, energy efficiency, noise control and deployment capability. We have also seen growing attention from the mining community and the third-party reviewers towards the A16 Series, which has been very encouraging for our team.

A16 Series will become the core of our future industrial mining machine product line. It is not only a performance upgrade but also represents our overall mobilities in system airing some more design formware, reliability and the cost control. Advanced semiconductor process are becoming increasingly expected and simply pursuing the voice oer Terahash does not always deliver the best returns on investment for customers. We pay more attention to the products for life cycle economics for the -- for customers, including machine pricing, power costs. operational stability, maintenance costs, delivery certainty and risk deal value. because we have secured a part of our key product capacity early and have maintained the long-term cooperation with our foundry and supply chain partners.

We are still able to move forward with A16 series mass production and the future product introductions in a more stable and cost-controlled way. Even under the current environment where AI-related demand is competing for advanced semiconductor capacity. For our mining machine delivery, we leverage manufacturing capacity across Malaysia, the United States and Mainland China. This allow us to remain compliant while responding more flexibility to changes in the global trade environment and tariff policies. In -- particularly during the delivery of our large North American order, our manufacturing quality control and logistics teams worked closely together and successfully handled the pressure from concentrated shipments and tight delivery schedules demonstrating the resilience and execution capabilities of our supply chain team.

In addition, assembly capacity for our Avalon home series has also been expanded to our Malaysia facility. Beyond the current A16 series, the R&D of our next-generation products has also entered the final stage. And some projects have recently completed tape-out for technical validation. After we complete product testing and the real operation -- operating conditions, we will close more detailed technical specifications to the market. We are confident in the performance improvements of our next-generation products. And we will continue to follow our principle. Customers are not just buying subscriptions for systems that can operate stably by over the long term and generate stable and reliable returns.

Today, I also want to talk more systematically about our AI and HPC strategy. As AI computing demand continues to grow rapidly, power resources sale centers and the computing infrastructure are becoming increasingly important. The market is also paying close attention to mining companies moving into AI and HPC. We understand this interest many companies are talking about AI and HPC, but I hope investors will see can support -- we will be steadier and more practical. For AI HPC, our long-term strategy has 2 major pillars. The first pillar is energy. The compilation of the ABC product shows that we have already real progress in energy and infrastructure.

These are not conceptual pipeline projects, but assets that are already energized, already operating and already generating computing power and cash flow. At the same time, we are also advancing large scale and a more controllable power resource development. Our goal is to gradually build the power infrastructure abilities that are financeable, developable and available by the company in compliant regions that are close to key markets and have long-term expansion potential. Energy infrastructure products, orally take a long time. The process from permitting land acquisition and a great connection to construction and operational or request time. Therefore, we will not make over aggressive promises based on the short-term market segment.

But once these projects are completed step by step, we believe that will become one of the most important long-term mats for our future computing infrastructure strategy. The second pillar is our computing systems. Over the past decade, Canaan has been deeply involved in ASIC design, mining machine development, large-scale delivery and real-world mining operations. We are familiar with turning high-density computing equipment into products that are standardized, modernized mass productible remotely manageable and easy to deploy at scale. We believe broader AI and HPC infrastructure in the future will increasingly require these same capabilities.

Our thinking is how to gradually make AI computing systems, which may become the largest source of new computing demand in the future, more like mining machines with a scalable divestment, standardized operations and clear economic models. This growth process will not have overnight, but we believe the direction is becoming increasingly clear. I don't believe BTC mining and AI HPC are completely separate businesses. For Kena, blockchain computing is a proven workflow today that already generates cash contribution and help us validate power assets and operational capabilities. AI and HPC represents future computing demand with larger scale and higher into structure standards. The cost transformation is already fully underway internally.

Our power infrastructure planning is being designed for long-term and higher-density computing demand. while our chip and system abilities are also gradually expanding towards broader computing platforms. But at this stage, we performed to spend less time talking about concepts and more time building real asset products and engineering come abilities. What we want to do is gradually expect our existing strength in mining, energy, chip and system engineering into broader and the broad chain computing infrastructure. We believe the right approach is to first build a strong condition in power sources and operations and then gradually integrate new types of computing system when the timing is right.

In this way, the company can continue benefiting from the cash contribution and the flexible low value of BTC mining while also creating long-term opportunities in AI HPC and in variable and settlement enabled digital economic network in the future. This past fits well with the foundation we have built over the years. We believe we already know where the industry is heading. In the future, Scott resources will gradually shift from GPUs themselves to compliant low-cost power, this patch for loads to mass specific texture-based AI computing systems and long-term organizational mobilities.

The hardest part is finding the right path from where we are today to the future. what now, including the ABC products, direct power pipeline development, chip demand, system engineering and organizational efficiency improves. This essentially building the foundation for that part. Finally, I want to talk about our organization and cost structure. Since the fourth quarter of last year, we have continued optimizing our organization in Q1 of 2020. The result of these efforts already started to appear in our operation -- operating expenses. Going forward, we will continue to focus on our resources on core products, key projects and areas that can build long-term competitive advantages.

At the same time, we are also introducing AI tools more deeply across the company, including R&D collaboration, coding and testing, supply chain planning, financial analysis customer support and operational management. My view on AI is very practical. AI is not only a market that we may serve in the future, but also a tool that helps us to improve our on organizational efficiency today. We want to achieve more go deeper and deliver higher-quality work with a leaner organization. Going forward, we will continue management expenses with stronger discipline while improving business responsiveness and futuring the efficiency. We believe these are critical probabilities for the company to successfully navigate industry cycles.

In March this year, James and I also purchased companies ADS in the open market using our personal funds. The amount itself is not a key point. What matters is that management stands on the same size as all shareholders. to this market environment is in deeply challenging, but we remain confident in the covenants long-term direction and our ability to execute. Looking ahead to the second quarter, we remain cautious. Although Bitcoin price and cash price have recovered somewhat from the lowest to the first quarter -- in the first quarter. miners globally are still taking a conservative approach to the investment.

In addition, energy prices and the geographic -- and the geopolitical uncertainties may continue to affect customer decisions. Therefore, we expect total revenues for the second quarter of 2026 to be between USD 35 million and USD 45 million. This outlook is based on the card market and operating conditions, and actual results may differ due to changes in the market conditions, policies, compliances and customer demand. In the short term, China is still going through a difficult transition period. We do not award this reality, but I also want to make it clear that the company is not standing still.

We are reducing inventory, controlling costs, advancing new products, expanding sales channels, strengthening money operations, securing low-cost power resources advancing our U.S. power infrastructure pipeline and exploring long-term opportunities in AI and the PC computing systems. The industry cycle will continue to fluctuate and market segment will continue to change. But we can control, but what we can control are our situation, this plan cost structure products asset quality and long-term direction. As long as we continue improving in these areas, we believe Ken will become stronger in the next cycle. My -- that conclusion is in my remarks. Thank you again for your continuous support.

I will now turn the call over to our CFO, James, to discuss our financial results in more detail. Go ahead, James.

James Cheng: Thank you, NG, and good day, everyone. This is James speaking in our sincere quarters. As NG highlighted, the first quarter of 2026 was defined by significant volatility global liquidity was tightening and the Middle East geopolitical conflicts were escalated during the quarter, together with energy prices and regulation bonds. . Bitcoin entered the year trading near $95,000 level in the middle of January before experiencing a quick decline and bottoming at approximately $66,000 in early March. This fluctuation of bitcoin price directly impacted industry-wide mining economics and harsh price, forcing a cautious wait-and-see posture across the institutional sector. Despite these headwinds, our operational performance demonstrates our resilience of going through industry cycles.

We successfully delivered the total revenue within our guided range we increased the revenue from our North American sales, and we strengthened our mining operations by securing a 49% membership interest in 3 high-quality mining projects. At the same time, we also derisked our inventory position through the accrued write-down, continuing to optimize our operational efficiency by continuous expense control. Collectively, these actions allow us to remain lean and agile, positioning us to navigate ongoing market volatility and prepare to capture future high-margin opportunities as the cycle eventually turns. Moving on to our financial performance. We delivered total revenue of $63 million in the first quarter, which was within our guided range.

Our product revenue contributed $43 million to the top line. This represents a sequential decline because of the market environment change from Q4 to Q1. North American customers contributed over 80% of total product sales, which increased from 75% in the last quarter. During the quarter, we sold 4.1 exahash per second of computing power at an average price of $10.50 per terahash per second. Within product revenue, our Avalon home service generated $2.7 million as we continue to invest in channel development for this segment. Our mining business generated $19 million in revenue. While this figure reflects the lower bitcoin prices during the quarter, the business continues to serve as a consistent engine for our asset accumulation.

By maintaining our mining activities throughout the market cycle, we are effectively strengthening our digital assets churn and building long-term value for our shareholders. Turning to our mining operations. We concluded the first quarter with a total installed hash rate of 11 exahash per second up 11% from Q4 last year, and this indicates a year-on-year growth of 66%. The growth is mainly driven by our development in North America. In Q1 we have expected our installed mining hash rate in North America 7.7x of Q1 '25. North America's occupation increased from 11.5% to 53.6% in our quarterly global cash rate. This is fully aligned with our set strategy of continuously investing in mining operations in North America.

This has not even included another 4.4 exahash install hash rate in the JV Corporation acquired from Cyber Digital in February as we own 49% of the interest. As part of our old strategy, we ended the quarter with 1,808 Bitcoin and 3,952 Ethereum on our balance sheet. With the production of 257 Bitcoin points in this quarter, the total market value of our Bitcoin holdings stood at $121 million as of March 31, 2026. This growing reserve serves as a key pillar of our balance sheet strength. With the recent price recovery towards $77,000 level, the market value of Bitcoin holdings has increased to nearly $140 million.

I would like to address our gross loss of $23 million this quarter. which was entirely driven by a $25 million noncash inventory write-down entering product costs. Excluding this impact, our adjusted gross profit was approximately $1 million, representing a breakeven adjusted gross margin. This accounting treatment was due to continuous pricing pressure and aligned our inventory cost structure with the market environment. Moving to our financial efficiency. Total operating expenses for the first quarter were $31 million an 11% reduction from last quarter and an 18% reduction from $38 million in the same period last year. This improvement reflects our efforts to streamline our organization across all functions and our set discipline to control expenses.

Specifically, research and development expenses were $15 million, down 19% year-over-year. Selling expenses were lower to $1 million to 59% year-over-year, and the general and administrative expenses were reduced to $15 million, down 11% year-over-year. These expense reductions are the direct result of our ongoing commitment to eliminating nonessential spending and focusing our resources on core strategic priorities by all methods, we have built a leaner and more cycle-resilient organization. Now I would like to provide more details on the noncash items that impacted our bottom line results. This quarter, we recorded a $41 million fair value loss on our digital asset holdings.

This reflects the significant bitcoin price fluctuation, which declined from approximately $87,000 by the year end of 2025 to $67,000 by the end of the first quarter of 2026. I want to emphasize that this is a market-to-market accounting adjustment and does not represent realized cash loss as we continue to hold these assets on our balance sheet. Consistent with industry practice, these fair value changes are included in our adjusted EBITDA calculation. Consequently, our adjusted EBITDA loss for the quarter was $76 million, reflecting the combined impact of the operational environment and the period and revaluation of our digital assets. Regarding our liquidity, we ended the first quarter with a cash balance of $43 million.

On the cash outflow side, we allocated $57 million during the quarter for manufacturing and operations to support our global supply chain, $6 million in wafer procurement payments to secure future production capacity and $2 million for share repurchases. This strategic increase were partially offset by in total cash inflows, which mainly consists of sales collection, ADR relate and value-added tax refund. The sequential increase in our cash balance from $81 million last quarter was primarily driven by collection timing and our planned capital outlays. This position has already been changed as we have collected $42 million in cash receivables from minor sales in April.

This post quarter cash recovery demonstrates that our liquidity remains healthy and provides a solid foundation to navigate near-term market conditions while remaining prepared to capture future opportunities. I would also like to provide more details on the project ABC acquisition that closed in late February. This transaction was structured as a share for asset exchange, where we issued approximately 54 million ADS with a total fair value of $25 million. This consideration was allocated between 2 key assets, $14 million as equity investment for 49% of stake in the JV comprising Alberta and Chief Mountain, and $11 million for the 6,840 A15 Pro mining units now recognized as part of our PPE, property, plant and equipment.

By utilizing an entirely share-based structure, we secured 100 megawatts of high-quality North American power infrastructure with electricity costs below $0.03 per kilowatt hour without cash outlay. This approach allowed us to preserve our liquidity while onboarding cyber as a strategic shareholder. We view this project as a highly capital efficient deployment of our equity that significantly strengthens our North American footprint and cements our long-term partnership with Cyber. We remain anchored in long-term strategy that prioritizes structural resilience and asset quality over short-term market fluctuations, while we maintain a cautious and disciplined stance for the upcoming quarters.

The fundamental value of our linear cost structure and the risk the balance sheet will become increasingly evident as this industry cycle evolves. By securing critical infrastructure and optimizing our manufacturing operations, we have built a platform that is prepared to capture the next wave of institutional growth. Moving forward, we will continue to safeguard our liquidity and leverage our technological edge to drive sustainable value. Given the headwinds and uncertainties in Q2, we are taking a very prudent approach to provide our guidance. We estimate our revenue would be $35 million to $45 million. This concludes our prepared remarks. We will now open the floor for questions. Thank you.

Gwyn Lauber: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Logan Hannan from Northern Capital Markets.

Unknown Analyst: First, can you just help us educate us again on how Cana is strategically positioned to secure and develop power for HPC infrastructure and will you be making any upcoming hires or working with a development partner to make this transition.

Nangeng Zhang: Let me start with the resion because that is the most important part is we want to do this. We are building our resources in short term, I think mine is the best immediate load for the power. It is simple for us to deploy a flexible in the long term. these power sources and our partner network can become our entry point into AI HPC infrastructure. This is already underway. On the last earnings call, I said a was transformation. Only 3 months has passed, we already have future progress. We believe we will continue to show progress.

On the our chips, we have -- personally, I have long been looking for a way to turn large scale highly dedicated AI workloads into ASIC friendly workloads closer to the mining computation today. For the end state, I think that direction is almost certain. For many years, we were searching for the right path. Now the path is that can truly use our Assistant it became -- we came in much clear. So in summary, for our question, the summary is very simple. We want to build around energy, computing infrastructure and specialized ASIC design. Mining give us the starting load. AI HPC gives us the long-term opportunity. Yes.

And about the partners, yes, I think the specific sites we always have their own design. But the development and the corporate with other partners is an important model for us. The value is not only about putting money and AI HPC in the same place. The bigger value is time-based load management when AI HPC is powered or when total power is limited, mining can release load. When there is exist power, low pricing for AH PC demand is in a low use period, mining can ramp up and in some cases run at a higher performance. So the economic benefit is clear because mining machine is relatively low cost and the clean load.

So more importantly, it has social value grades like stable, controllable load, and this model can help power assets the grid and computing customers to work together more efficiently. Yes. I hope I answered your question.

Unknown Analyst: Yes, that was very helpful. Then one more. Is there any additional color you can provide into your pipeline maybe how many sites are in that gigawatt, what stage are these sites in? Are they under exclusivity, development, due diligence? Any color there and the current steps being made would be great.

Nangeng Zhang: I really want to say harm, but we sit down with our compliance advisers and agree that it's better to announce details after some important commercial and legal documents are formally signed with the greater and our partners. There is -- certainly, there is still uncertainty as always, with large power projects. But our target, what we're working on is very clear. We want sites that can support both mining and AI HPC, and also have scale, have low power cost and give us enough control to lead the project ourselves. So today, I will not disclose the site count, capacity by stage status, but I can say the work is moving fast, very quick, and our direction is unchanged.

Thank you.

Operator: We will take our next question. Your next question comes from the line of Ben Sommers from BTIG.

Benjamin Sommers: I appreciate all the color on the ABC acquisition. I was just kind of curious, talking about the power pipeline. If you could talk about maybe if there are potential opportunities out there similar to that one, maybe acquire, whether it's a stake or a full project from a previous miner or someone that was mining bitcoin there and just kind of what you're seeing in the market for potential opportunities similar to that one.

Nangeng Zhang: Yes, I think the ABC acquisition has been very good for us. it gives us direct exposure to high-quality, low-cost power, invest assets. The electricity cost is below 0.3 per kilowatt hour. So the product remains resilient even when the required cash price volatile operationally, MVC has been 1 of our strongest side with very high uptime. We also been upgrading our miners with HQ by the end of April. The hash rate had to 4.82 exahash per second Also, the Arbor side also added grid connection, which improves our time to have wind plus grade structure. This product provides our low-cost power and execution matter. We will keep looking for similar assets and another app team opportunities.

Benjamin Sommers: And then my next question, just kind of given the current market conditions and the outlook you guys provided, how do you think about the future growth for the Avalon Home Series? And just kind of curious on what you're seeing from the demand profile for those rigs?

Nangeng Zhang: Yes. I think for the -- currently, I think we are under some pressure. But I see -- yes. This year, over a home was hit by some policy changes in some important markets. For example, in a strengthened restricts on mining products later last year. and other countries also had policy changes. This made us more aware that compliant and a stable market must be our main better field. So this year, our focus has been channel building and product investment. In the second half, we have plans to launch several new products and several upgrade in these models upgrades. We are also building channels that match a more complete product line.

We hope that can support higher revenue in the second half. Also, the gross margin still go on our product quality. I poised you to look at the community and the KOL reviews on YouTube, I think home mining product line, we believe we are far ahead. And yes, and also about the expansion in home serious Yes, we have a...

Operator: The question comes from Mark Palmer from Benchmark, StoneX.

Mark Palmer: Yes. You mentioned that have seen a pickup in the price of Bitcoin during the second quarter and that, that had caused some recovery in the Bitcoin mining equipment market, but it has been limited. If you could just provide some perspective on this. In the past, when we've seen significant drawdowns in the price of bitcoin, and then a recovery. To what extent does Bitcoin need to recover and then stay at higher levels before you begin to see an increase in demand for your products? .

Nangeng Zhang: Yes, I think we -- first, we're talking a little bit about the bitcoin price. Yes, I think two new highs last year have partly related to a weak U.S. dollar last year. It's not a very typical breakout cycle. So this year, from a technical perspective, on has shown some patents of falling to rate higher other than pulling back. Yes. And I think currently, the -- in Q1, our is ASP is about $10.5 per terahhas currently because the demand supply imbalance and high price decrease. The ASP is really under pressure. But in my experience, if there are some index can -- I can help you to observe the recovery of the machines market.

I think it's about the hash price. Currently, I think the hash price is about 30-some dollar per hash per day. So it's quite low. When the hash price growth to like $40 to $45, then you will observe a significant market recovery for the money machines. And the market will want crazy when the hashhit the $55, And you can check the number on life side in real time. Yes. So I think in the month to month, hash price is climbing slowly, but steadily to close to $40, but it's dropped back in the last few weeks. So I think that the market still needs some more time to have a real recovery.

Operator: We will next question. And the question comes from Michael Donovan from Compass Point.

Michael Donovan: NG and James, can you discuss how much 815 series inventory remains in terms of Xs? How should we think about the time line for ramping A16 production.

Unknown Executive: Like the end of 2022 or early '23 at that time, our inventory was higher than this cycle. -- just because in Q4, we locked the giant order and we deliver in Q4 and early quarter 1. So actually, our inventory is not high. But for certain older generation machines, we still have some inventory, and we lowered down the price we try to clear that entry within quarter 2. I think that's the plan. It seems like the semiconductor sector is in fierce competition with AI-related applications.

They are occupying more and more wafer capacity, that's why for the second half, we still need to prepare for the wafers for our supply and make sure the demand can be covered. And we don't believe the market will continue to be very quiet, like the quarter 1 and quarter 2. And with all this all this news like clarity be approved by the banking committee, and we will see clarity go to the senator. And eventually, we will see second half the bitcoin price has the possibility of going up. At that time, the machine demand could recover. So we're better prepared for that. So even currently, our inventory structure is not bad, it's quite light.

And the cash flow is good, but still, we would like to prepare for second half.

Nangeng Zhang: Yes, I will add some thoughts on this. Our production preparation for A16 is ready. The tests are public, you can check it on YouTube, I mentioned. Also, the product performance is real and strong. So -- yes. And we -- another information is so for -- so even currently, we have low inventory. But whether -- if the market improves, we are in a good position to respond.

Michael Donovan: Appreciate that. What are you seeing in minor demand outside the U.S., which international markets are showing strongest today.

Nangeng Zhang: I think after U.S., we have some customers from Europe like we have corporate with hot water prime for their homes. I think we just announced about 8 megawatts orders from our European customers. And also, we have same likely customers from other countries that I want to mention. So -- but I think today, other regions still have opportunities. But near term, the U.S. is still the main focus because this is where we see that most important they have power mining fleets and AI HPC infrastructure. Yes, they remain the most important part for minerals.

Operator: Next question comes from Nick Giles from B. Riley Securities.

Nick Giles: Yes. Thanks, operator. James. I was wondering if you could think to I was wondering if you could speak to the Teva relationship and just touch on maybe just a little bit more on the economics of that deal. And how could this expand? I believe that the agreement includes an option for additional volume, but just wanted to get a better sense for the overall revenue opportunity in this partnership.

Nangeng Zhang: Yes. I think we already cooperated with the technical line and their R&D departments -- for some really long time. So -- yes. I think the customized development service, like Titaro just mentioned, just need more than a standard machines. So we build do core R&D and build specialized customized modules using the different both to our mass production model. And also, we provide software and hardware system level solutions program and also they take the development by themselves for very significant part. Yes. So by this, I think we are quite close to have some mass production contracts. Yes. So it is what we are here today. I hope we can do some announcements after the last one. Yes.

So the other thing is we are doing open source -- we have already released the code, and we will continue to improve the quality of our open source work. So Tiger is a pioneer customer, but sure in the of the last for the third-party solutions, I think Ken is clearly 1 of the brands manufacturer. We provide open source code for software. And we also can sell chips. So we want to -- we provide the most easy way for our partners to build their own system. And I think it will be more and more friendly in the future.

Nick Giles: Thank you so much, NG. I really appreciate the update this morning.

Operator: Thank you. As there are no further questions now, we would like to close the call. Thank you once again for joining today. If you have further questions, please feel free to reach the company through the contact information provided on its IR website.

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