Canaan Inc
NASDAQ:CAN
Earnings Call Analysis
Q4-2023 Analysis
Canaan Inc
The first quarter of 2023 saw a remarkable surge in Bitcoin's value, climbing from around $27,000 to an annual high of approximately $44,000. This upward trajectory coupled with increased network hash rates—surpassing 500 exahashes per second—fostered a record rise in mining revenue. This lucrative environment escalated miners' appetite for computing power, propelling sales above expectations.
With total revenues hitting USD 49 million, far surpassing the expected USD 34 million, the company has recalibrated its strategies. Adjusting to market dynamics, there's been an enhanced focus on research and development, operational efficiencies, and international expansion. Strategic changes are anticipated to meet burgeoning market demands in what appears to be an up-and-coming bull market.
The A14 series miners, introduced in September 2023, are slated for mass production with initial shipments expected in the first half of 2024. Company-developed integrated cooling solutions are already in the market, supporting robust sales. Computing power sales soared to 5.47 million Terahash per second, roughly doubling year-over-year, and contract sales orders have topped 7.5 million Terahash per second, highlighting customer confidence and an increased advance payment base.
End-of-quarter procurement agreements with Cipher Mining Inc. and Stronghold Digital Mining reflect healthy B2B relations. Channel sales in Southeast Asia contributed stable orders, as the online retail store expanded to 46 regions, indicating global market penetration and increased accessibility for smaller miners.
Fourth-quarter mining revenues improved by 14% to USD 3.7 million. The strategy to hold Bitcoin assets saw company holdings swell to 909 Bitcoins, valued nearly USD 50 million, marking a historic peak. This accumulation underscores a strong belief in Bitcoin's future value.
Kazakhstan operations faced environmental and regulatory hurdles, yet resumed generating revenue. Moving forward, the company plans to optimize operational tactics with risk control and security of assets being paramount. Shifting from cash flow to growth orientation, it will leverage advanced mining machines to bolster market competitiveness.
The fourth quarter witnessed significant sales cash inflows bolstered by fundraising, leading to a cash balance increase from USD 41 million to USD 96 million. With new funding, supply chain and production capacity preparations were accelerated. In light of market conditions, a conservative revenue estimate of USD 33 million for Q1 2024 and USD 70 million for Q2 2024 is projected.
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Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc.'s Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. After the management's prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded. The company's financial and operating results were released by the Newswire services earlier today and are currently available online. The company has also prepared a presentation for today's call. You may view the presentation and navigate through the slides on the webcast page for the fourth quarter 2023 earnings call on the company's IR website. Joining us today are Canaan Inc.'s Chairman and CEO; Mr. Nangeng Zhang; and CFO, Mr. James Jin Cheng. In addition, Mr. Leo Wang, IR Senior Director; 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 the call up 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 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 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, sir.
Hello, everyone. This is NG, the CEO of Canaan. Thank you for joining our conference call. Our CFO, James and I are at the company's headquarters in Singapore to share our quarterly results with you. In the first quarter of 2023, especially in December, the price of Bitcoin in general kept showing an upward trend, starting at around $27,000 at the beginning of the quarter and reaching an annual high of about $44,000 by the last week of the quarter. At the same time, the total network hash rate continued to rise, exceeding 500xs per second. The rapid continuous rise in Bitcoin price and the increase in transaction fee rewards led to a record increase in mining revenue, promoting miners wiliness to purchase computing power. Furthermore, discussions about end of the interest rate hike cycle and upcoming approval of Bitcoin spots ETFs have made industry participate, including miners more optimistic about future. As a result, both production sales exceeded expectations in this quarter, especially in December other halving events approaches. Mining equipment providers are also stepping up destocking efforts with the theme of small profit for fast over remaining provident this quarter, keeping product ASPs low as effective. In such a rapidly changing market environment, we see there is favorable market window of this quarter, especially in December, achieving a total revenue of USD 49 million, including mining machine sales revenue of USD 44 million, much higher than the management's expectation of USD 34 million revenue in the third quarter's conference call. In the last quarter of 2023, we also adjusted the company's strategy and organizational structure according to changes in the market situation, improving R&D and operational efficiency, increasing investment in production capacity, diversified mining operations and exploring international markets such as North America, Southeast Asia and the Middle East. Completing financing in the capital market with sufficient funds enable us to deploy in advance and meet the explosive demand in the upcoming bull market. Now let me go into more detail. After announcing A14 series miners in September 25, 2023, we continue to work diligently over the following quarter to improve performance and reliability at the whole machine level and the transition to new generation products into mass production. The A14 series manner are expected to begin small-scale deliveries in Q1 2024 with large-scale deliveries expected to concentrate in Q2 to Q3. Meanwhile, the development of our next-generation products is also progressing rapidly. As customary, we will publicly declare the specific performance of new products after prototype testing is completed. In addition to mining machines, the company self-developed integrated air or liquid cooling mining solutions have been gradually delivered and generating revenue throughout the third and fourth quarters. These integrated solutions are highly integrated, allowing for rapid deployment and enabling our mining machines to operate in controlled environments, thereby atomizing performance and reducing maintenance costs. These benefits increased customer willingness to purchase our mining machines, putting us in a favorable position in service of sales. To better test our products, we choose to showcase the first in the hot Middle Eastern region, demonstrating our confidence in product performance. In terms of mining machine sales, we achieved approximately 5.47 million Terahash per second of computing power sale in the fourth quarter, a year-over-year increase of 192% and a quarter-over-quarter increase of 49%. Mining Machine revenue reached USD 44.1 million, representing a sequential increase of about 49%. Additionally, the contract sales for our A14 series mining machines received [indiscernible] booking from customers this quarter, with accumulated contract sales orders exceeding 7.5 million Terahash per second with customer prepayments. This encouraging growth in contract sales orders has elevated the company's level of customer advance as of the end of 2023. However, the gross margin of these presales orders is not high. The sudden efflux of contract orders, we will also test the company's delivery capability. We will better balance cash flow and inventory as well as manage its inventory allocation between contract sales, bondholders and mining business. At the end of the fourth quarter, we once again entered into procurement agreements with publicly listed companies such as Cipher Mining Inc. and Stronghold Digital Mining. This includes a contract sales order from Cipher for 16,700 units of A1466 mining machine and another order from Stronghold for 1,100 units of the A1346 mining machine. Additionally, earlier deliveries include 11,000 units of A1346 model to Cipher and 2,000 units to Stronghold, all of which have been delivered to their respective mining site and installed by fourth quarter operating smoothly. In the Southeast Asia region, where we focus on channel sales. We achieved sales of 900,000 Terahash per second of computing power in the fourth quarter, contributing to stable sales orders. Our online retail store policing overseas markets expanded their reach to 4 new regions include Norway, the Dominican Republic, Paraguay and Israel. Totaling 46 regions reached by this quarter, meeting the purchasing needs of the central lines individual mines worldwide, benefiting from factors thus increasing the Bitcoin price, transaction fee reverse and improved uptime. We achieved mining revenue of approximately $3.7 million in the fourth quarter, representing a growth of about 14% compared to about USD 3.3 million in the third quarter. In the fourth quarter, we mined a total of 111 Bitcoins. The company continues to maintain a holding strategy in its Bitcoin mining business. At the end of the fourth quarter, we held 909 Bitcoins belonging to the company, reaching a historical high. The current market value of our Bitcoin assets is almost USD 50 million. At the end of the fourth quarter of 2023, our total energy mining computing power was 1.1 Exahash per second. In Kazakhstan, following the acquisition of the necessary Type 2 license for mining, we have been collaborating with our local partners to resume mining operations despite challenges such as harsh cold weather and the need to reestablish cross-border accounts. We have made significant progress. We commenced renting our mining machines in the first quarter of 2024. And the majority of them have now been successfully reenacted. As a result, discrete reactivity mining machines have begun generating mining revenues. In 2024, while maintaining our mining strategy, we will continue to adjust and upgrade our specific operating tactics. First, when selecting project opportunities we will pay more attention to factors such as legal system and the regulatory stability in the projects located in region, enhancing risk control. We will expand our scale while ensuring the security of our company assets. Secondly, we will shift from cash flow oriented to growth-oriented strategies. Therefore, unlike in the past, we will use more advanced mining machine models for self-mining, prolonging investment spend, reducing operational risks and enhancing the market competitiveness of our mining business. Lastly, in addition to our proactive mining models, we will also consider fixed rate, hosting and other ways such as self-construction or acquisition to deeply participate in mining operations. As of today, the company has 11 active mining projects globally with a total of 2.8xs hedge per second of energized computing power. This energy computing power has increased by 46% compared to the end of fourth quarter of 2023, mainly due to the reenergization of some machines in Kazakhstan and the energization of machines in other projects. As of today, we have 2.1 Exahash per second of expected computing power to be installed. This refers to the continuing power that Cannan has shipped to a targeted mining country but has not yet been put on the shelf. And we expect to gradually install power it up in the first and second quarters of this year. We defined the estimated total completion power deployed as a sum of computing power installed and expected computing power to be put on the shelf. Based on the estimated total like power deployed estimated total power demand of onlining farms is 177 megawatts, with a weighted average electricity cost of around $0.05 per kilowatt hour and a weighted average revenue share ratio of around 70.9%. In the fourth quarter, the market environment driven by the price of Bitcoin notably improved. Although the performance of the mining machine market lagged behind the Bitcoin price change, showing continued decrease in the mining machine price. On one hand, the company continued its prudent cost and expense control. On the other hand, following the organizational investments, we have a linear and more efficient team, which is well prepared for the full market. Our sales efforts resulted in a significant increase in sales cash inflows despite some noncash provisions and impairments associated with promotional interactive. This interactives enable us to generate crucial cash inflows. And our destocking efforts are near income completion. In general, our strong sales collection and fundraising contributed to a robust increase in the ending cash balance in Q4 2023. In the first quarter of 2023 through the issuance of preferred shares and ATM offering, the company has secured a net financing amount of about USD 86.2 million. In the first quarter of 2024, the company received another USD 50 million financing through the settlement of preferred shares. In the early status of last year's fourth quarter, we made a judgment that the bear market was bottoming out and boom market was approaching. However, based on this parade, market changes during the bar-to-boo transaction were very rapid, requiring early preparation of the supply chain and the product layout. In the past, we relied on internal funds and proceeds from customer advancement. Cash from these resources was slower to materialize and constrain our ability to expand during bullish period, resulting in suboptimal capital utilization. This inflection of funds from preferred shares and the ATM offerings has allowed us to advance our supply chain and the related production capacity preparations by at least 2 months. This enabled increased investments in research and development and accelerating product development programs. From a longer perspective, the benefits delivered may even exceed the 2 months' time frame, positioning us to capitalize on significant market alternatives in the bull market and expand our market share. Since the SEC officially approved the listing and the trading of Bitcoin spot ETFs, the price of Bitcoin has expanded a brief consolidation phase and recently broke through and stabilized above USD 50,000 with a combined effect of improved sales and success with financing settlements. Our cash and cash equivalents increased from USD 41 million at the end of the third quarter to USD 96 million at the end of the fourth quarter. However, we must also recognize that the [indiscernible] sale interest rate cut cycle has not yet truly begun.Financing costs remain high for miners and there is deal uncertainty about the pace of Bitcoins clients upward movement, posting ongoing challenges to the industry. The first quarter of 2024 is also the last complete quarter before halving event. And based on our past experience, this quarter is a super wet and tea period that offers every 4 years coupled with the multiple factors as halving the New Year, the Chinese Lunar New Year, the market in this quarter is expected to be very subdued, and the recovery is likely to occur in the second quarter. Based on the comprehensive situation of land above, we are providing cautious outlook for the first half of 2024. We anticipate revenue of approximately USD 33 million in the first quarter of 2024 and approximately USD 70 million in the second quarter. This broadcast is based on the company's current market and operating conditions and actual results may vary. 2023 was a challenging year for the entire industry is and maybe in phase, we overcome rise of our obstacles and successfully navigated through the market downturn as planned. Even during the times of this pair, we enhanced our corporate governance and made extensive preparations for the halving and the bull market. What doesn't kill me will only make me stronger. We have never been more confident in seeing the historic opportunities presented by the midpoint boom market. For the industry 2024, we will be [indiscernible] turning point. In the previous cycle, institutional investors represented by Wall Street, a large significant one market with 69,000 price per Bitcoin. I have always said that the next boom market can only and must be driven by wide spread public participation. As the New Year begins, the approval of the Bitcoin spot ETF is a milestone and can serve as a starting point for the next 4 market. We will continue to work diligently supporting the Bitcoin system with computing power and over the next 4 years, strip to spend the certification of computing power, promote industry development and enhanced social operational efficiency alongside industry-leading partners ultimately supporting the progress of society. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.
Thank you, NG , and good day, everyone. This is James speaking at our Singapore headquarter. As NG stated at the top of the call, Bitcoin price grew significantly in quarter 4, especially stayed high in December, and the market demand on machines quickly recovered before total cash rate exceeding 500x per second. We see that the short time window of Bitcoin price increase maximized our machine sales through multiple channels, drove customer advanced payments on our new A14 series, promoted diversified deployment in mining, improved operational efficiency by organization optimization and received a series of fundraising from ATM and preferred shares. Our strong sales collection and fund raising contributed to a positive ending cash balance, which reached USD 96 million at the end of quarter 4, increased from USD 41 million at the end of quarter 3. Frankly speaking, those were a series of better results beyond our previous expectations in November. Let's start with profit and loss. Quarter 4 total revenue was USD 49.1 million, which beat our guidance of USD 34 million by 44% favorable variance and represented an increase of 47% quarter-over-quarter. Our revenue from machine sales was USD 44 million, and our mining revenue was USD 3.7 million. Regarding our machine sales, we delivered a total computing power sold of 5.5 million Terahash per second, representing a year-over-year growth of 192% and a quarter-over-quarter growth of 46%. As the average selling price increased from $7.9 per Terahash per second in quarter 3 to $8.2 per Terahash per second in quarter 4. The increases were mainly driven by our destocking efforts for A13 series and the improved customer demand. Meanwhile, distributors and the online retail store also contributed to the revenue of machine sales. Southeast Asia contributed $900,000 Terahash per second delivery in quarter 4, mainly from distributors. And our online store first time covers the Kingdom of Norway, Dominican Republic, Paraguay and Israel. Total country and areas with shipments reached 46% for the first time. Demand from more and more small-scale miners was satisfied. Considering both factors of power sold and ASP, our revenue from mining machine sales achieved USD 44 million, up 49% from USD 29.5 million in the last quarter. In addition to mining machines, our self-developed integrated AI or liquid-cooling mining solutions have been gradually delivered throughout the third and fourth quarters. Accumulated orders from customers was higher than USD 4 million, driven by customer recognition of our integrated cooling technology. The revenue from integrated mining solutions in quarter 4 was USD 0.6 million, up 133% from USD 0.2 million in quarter 3, driven by the increased delivered volume. Specifically, for our mining machine sales, we accrued USD 55.5 million for inventory write-down, prepayment write-down and provision for reserve for inventory purchase commitments in this quarter. The inventory write-down decreased sequentially by 16% to USD 45.1 million, which was driven by the accelerated destocking in this quarter. Those write-downs and provisions are made on the U.S. GAAP rules, jeopardizing our gross profit but do not impact our cash status. If the above write-downs and provisions were excluded, we would have a gross profit for our mining machine sales of USD 0.7 million and a gross margin of 1.6%. Turning to our mining business. Our mining revenue increased 14% quarter-over-quarter. We expanded our mining business in Africa, South America and the Middle East, which resulted in our total energized cash rate accumulated to 1.9 Exahash per second in the end of quarter 4. We mined 101 Bitcoins in this quarter and achieved 35 basis points for mining profit. Gross profit margin reached a record high 41% for our mining business in this quarter, which was mainly attributed to the average Bitcoin price increase from about USD 28,000 in the last quarter to over USD 36,000 in this quarter. Please note here that mining profit or loss is defined as a proportion of mining revenues deducting costs for energy and hosting in terms of mining revenues without consideration of depreciation for the deployed machines. Additionally, we and our local partners in Kazakhstan went through a bunch of challenges from harsh cold weather to resetting up cross-border bank accounts. 1.09 Exahash per second out of 2.0 Exahash per second in Kazakhstan have been successfully reenergized to normal in early January. That makes our total energized computing power to 2.8 Exahash in quarter 1, 2024, which has been deployed in 6 countries and areas. This enables us to expect a material mining revenue increase in quarter 1, 2024 compared to quarter 4. And we continue to expand our mining business with another 2.1 Exahash per second machines to be energized in quarter 1 and quarter 2 as CEO mentioned previously. Shifting to our AI business. AI revenue was USD 0.3 million in this quarter, up 59% quarter-over-quarter. This growth was primarily driven by the increased sales volume of our AI products. Now turning to the expenses. Our operating expenses totaled USD 39.2 million, decreasing 36% year-over-year and 10% quarter-over-quarter, respectively. Excluding the one-off expenditure for our new generation chips incurred in quarter 2022, our operating expenses decreased 15% year-over-year, which was mainly due to the decrease in staff costs, share-based compensation and Bitcoin impairment. The sequential decrease was mainly due to the decreased Bitcoin impairment and the realized gain on Bitcoin and secondhand mining machines sold. Please note according to the accounting rules, when we sell the secondhand machines replaced from our mining business, the realized income will benefit our P&L by offsetting G&A expenses rather than contributing to the revenue. Besides, in this quarter, we incurred a one-off expenditure of USD 2.2 million for the organization optimization, which was offset by the decreased annual performance-based bonus. We believe the positive effects of operational efficiency improvements will begin to be reflected in our operating data from quarter 1 2024. The net result of the foregoing was a non-GAAP operating loss of USD 78.3 million for this quarter, narrowed 29% year-over-year and 20% quarter-over-quarter, respectively. Benefited from the noncash recognition for deferred tax assets, non-GAAP net loss was USD 53.9 million, narrowed 30% year-over-year and 17% quarter-over-quarter, respectively. Please note that according to U.S. GAAP accounting rules, we recognized the first closing of preferred share financing as convertible liability, the second closing of preferred shares as forward liability and the pre-delivery ADS is as on share lending equity, respectively. These financial instruments incurred in excess of fair value over proceeds received and a fair value change. These noncash accounting treatments hit our Q4 bottom line with total USD 70 million. In order to represent our performance more accurately and more comparably, we excluded this impact from our non-GAAP measures. In addition, although legally issued the pre-delivery ADSs were not considered outstanding that excluded from basic and diluted earnings per share. Turning to our balance sheet and cash flow. In quarter 4, we received USD 61.2 million from the ATM and $24.8 million from preferred share financing facilities, respectively. And we paid USD 35 million to secure our wafer supply by utilizing the fund raising proceeds. The other proceeds were also utilized for the wafer supply prepayment in January 2024. During this quarter, the cash outflow of USD 71 million for production was offset by cash inflow of USD 75 million from sales, which was mainly contributed by spot sales of A13 series and advanced payments for A14 Series. So our cash flow from production and operations turned positive with USD 4 million. Consequently, at the end of 2023, withheld cash and cash equivalents of USD 96 million on our balance sheet, which was USD 55 million higher than the ending balance of September 30? Now moving on to our contract liability. The improved market demand helped us to record contract advances of USD 19.6 million as of 2023 year-end. This balance increased to 28.6xs compared to USD 0.7 million at the last year-end and 2.5x compared to USD 5.6 million at the last quarter end. The majority of contract advances came from presales of A14. It included but not limited to those sales contributions from big clients. As previously announced, we secured a follow-on purchase orders from Cipher and Stronghold with over 17,000 mining machines. As of the end of quarter 4, we recorded account receivable of USD 3 million, declining 69% compared to the end of quarter 3 as A series payments have been made by customers during quarter 4. We will continuously evaluate market demand and adopt corresponding credit policies with caution. Now turning our attention to our Bitcoin assets. The Bitcoin we held as our own holding assets kept growing in this quarter and which reached 90009 Bitcoins as of December 31. And which is 49 more than 860 at the end of quarter 3. We also held 169 Bitcoins received as customer deposits, which declined 2009 Bitcoins compared to the balance of September 30. I want to share with you that we plan to early adopt the FASB new accounting rules on cryptocurrency assets since January 1, 2024, which allow cryptocurrencies to be carried at some fair market value. If adopted with the price at January 1, 2024, our cryptocurrency held by the end of 2023, we anticipate that the carrying value would increase approximately USD 18 million based on latest price difference between market price and the booking price. The current fair market value of those owned Bitcoins is almost USD 50 million. We believe this rule will enhance the transparency and the accuracy of our financial statements as well as provide better clarity to our investors and shareholders. Turning to our fund raising. From November 28, 2023, the date we reported our Q3 financial results to December 31, 2023, we utilized the ATM for fundraising with net proceeds of USD 61.2 million. In late 2023, we closed the first tranche of preferred share financing, raising total net proceeds of USD 24.8 million. In early January 2024, we closed the second tranche of preferred share financing, raising total net proceeds of USD 49.7 million. The total precedes of USD 136 million fund raising helped us carry out new product R&D and wafer capacity preparation to secure future mining machine supply after halving. In the first quarter of 2024, we anticipate revenue of USD 33 million, considering many of our customers are waiting for halving to generate more visibility about ROI on CapEx investments. While for quarter 2 2024, we anticipate a revenue of USD 70 million, considering A14 Series preorder volume and the potential demand upside after halving. Consequently, the selling price of computing power will remain under pressure. Policy changes regarding cryptocurrencies and mining in different countries will also add uncertainty to industry operations, we may force unforeseen obstacles. Based on the above comprehensive situation, we gave a cautious expectation for the first half of 2024. Now I would like to briefly walk you through our financial results for the quarter. Revenues in the fourth quarter of 2023 were USD 49.1 million as compared to $33.3 million in the third quarter of 2023 and USD 58.3 million in the same period of 2022. Gross loss in the fourth quarter of 2023 was USD 54.1 million compared to USD 69.1 million in the third quarter of 2023 and USD 64.1 million in the same period of 2022. Total operating expenses in the fourth quarter of 2023 were USD 39.2 million compared to USD 43.8 million in the third quarter of 2023 and USD 60.8 million in the same period of 2022. Non-GAAP loss from operations in the fourth quarter of 2023 was USD 78.3 million compared to USD 97.4 million in the third quarter of 2023 and USD 110 million in the same period of 2022. Non-GAAP net loss in the fourth quarter of 2023 was USD 53.9 million compared to $64.7 million in the third quarter of 2023 and USD 76.6 million in the same period of 2022. Non-GAAP basic and diluted net loss per ADS in the fourth quarter of 2023 were USD 0.30. As of December 31, 2023, the company had cash and cash equivalents of USD 96.2 million. This concludes our prepared remarks. We are now open for questions.
[Operator Instructions]. Our first question is from the line of Sun Shuang from Guosheng Securities.
[Foreign Language]. How was your recent customer order? Did you see increased sales in mining machines, [indiscernible] miners more aggressive stock, preparing for the halving?
In Q4 2023, we exceeded our expectations in both our sales and presales orders. Total computing power sales reached 5.5 million hash per second in this quarter, a year-over-year increase of 192% and sequential increased 46% from the previous quarter. And after the growth of the spot Bitcoin ETFs in January this year, Bitcoin price went through a consolidation phase and the market experienced a slightly slowdown in orders compared to Q4. This is a normal phenomenon because based on our past experience and observations, early 6 months before the halving miners, who have existing facilities may deploy mining machines quickly to maximize profits. However, about a quarter before halving miners tend to adopt a wait-and-see stance. Most of miners prefer to make plans for the procurement and the deployment of mining machines for the upcoming full year cycle when they see more certainty. Generally, a 1 month before the halving [Indiscernible] market indicators are mostly stabilized and market will begin to recover. We are also actively preparing for this, including securing production capacity for the new product mass production and constantly engaging in the R&D and tape-outs of our next ration products, taken.
[Foreign Language]. Has computing power selling price increased? How was spot sales compared to contract sales? How was the sales of mining machines with higher power efficiency in terms of sales volume and ASP?
Entering the Q1 of 2024, the approval of the spot ETF for listing at to a market correction following the initial search. Despite this, there has been an intensive action in mining machines, manufacturers' efforts to destock results and accompanying rise in the spot price of computing power. As of now, A13 series machines are being sold on the spot market. But in contrast, the A14 series mining machines are offered on a future basis where the presale price has seen a gradual increase over the past 4 months. It is anticipated that the majority of A14 series delivers will be concentrated in second and third quarters. In Q4 2023, spot sales reached computing power of 5.47 million Terahash per second. And with the pre-sellers surpassing 7.5 million Terahash per second. So the A14 series with this enhanced computing power and the energy efficiency has gathered market approval. However, due to its future sales nature, many miners is ready-to-use facilities still have shown a preferred of spot purchase. This we expect a needs among the markets.
The next question is from the line of Lucas Pipes from B. Riley.
So my question is a little bit higher level. Given the environment we're in with resurgent interest in Bitcoin and the network and obviously, the ETF approval, how aggressive do you want to be? Do you want to take on a lot of extra capacity to chips to really press forward in this environment if you want to be guarded and think about potential downside risks post halving. Just curious how you navigate between green and fear in this environment?
I think there's many uncertainties before the halving. And for us, we believe that our own goal is to have -- there's only 3 significant players in this field. And we need to make targeted adjustments and customized for our product designs with the best power efficiency and competitive pricing. Also, right now AI is booming. So we need to secure the refers climate especially for the second half of this year. We already signed some agreements with our suppliers. And I think to myself, I think we are changing our strategy for self-mining. Our target is for the cash flow. But from this year, we will we change our strategy to the growth. So that means we will start to invest on the facilities and use our best products to do self-mining. Especially, we will put our majority target at well-regulated and developed the country. I think for the last few months, we have sufficient funds for us to do production and R&D. But at least for the market, we make the judgment that the timing comes, we will use the capital to do the expansion more aggressively than before. So I think for us, the best products and more important sales mining strategy and plus the capital will make us make a better score by this bull market cycles. I think on James can make some add-on on this.
I think it's always difficult or challenging to balance between aggressive and conservative. We do fund raising to support our R&D and support our capacity of wafer for future bull market. I think always we made a decision together and Nangeng has a lot of experience going through the pass-through cycles. So we always predict the bull market and bare market for future. And then we decide together about how big the investment we are going to spend in the new machine design. And a lot of past experience helped, but we always face new challenges just like mining, just like in different generation of machines, we have to solve a lot of challenges in the R&D phase. So I think it's not easy to describe all the operations, but we always carry the courage to face to the uncertainties. And we do go through a balance between very aggressive and very conservative. And then we try to maximize the performance of machine sales and mining revenue together. So I think strategically, NG leaded the company to do all this, but we do have a management team in different areas, trying to contribute our best to the decision-making. I think that's my 2 cents.
Your next question is from the line of Kevin Dede from H.C. Wainright.
First question, just around the self-mining and tangential to Lucas' question about strategic objectives. Understand you're at about 4.9 Exahash installed and running total. I'm wondering if you think all of that will be running by the end of the March quarter. And maybe more specifically, what you think your self-mining hashrate will grow through the balance of the year?
What I want to mention again is we started our self-mining business in the second half of 2021. And we have been deploying many projects. And I think in both experience and licenses. So we have deployed more than 5 Exahash percent that's computing power and energized over 28 Exahash per second through the like Southeast Asia, Africa, South America, Middle East and so on. But in 2024, while maintaining our mining strategy, this year, we will adjust and upgrade our specific operating tactics. Firstly, we pay more attention for factors such as legal system and regulatory stability, enhanced the risk growth. So that means we will change our major regions for our mining operations, even though it's maybe a little bit costly or we will take a slightly longer deployment time. And also, we will expand our scale and we will shift from cash flow oriented to growth oriented. What is the meaning? I think in the past, when we have inventories, we will put the inventories to do self-mining. This makes the interest to generate cash flow for the company. And from now on, our target is to grow the self-mining business, not only the cash flow generation. So that means we will use our best model to do the sale. If you are using the better machines, it will prolong your investor spend and reducing the operational risks such as the mining revenue cannot reach the power cost or something. So number your last time of your entire investments. And also in the past, we used corporate with hosting companies. We have no sales hold facilities, and we are not doing any like sales construction or something. But today, after over 3 years, I think so, we learned that the value of the stable facilities, the power result is really very important for this industry. So we will go deeper to participate with mining operations and exporting more corporations.
Kevin, one thing to mention here is the whole deployed cash rate is 5 Exahash. And the energized Exahash rate now is about 2.8 Exahash. So we still have 2.1 Exahash to be implemented in quarter 1 and quarter 2. We are waiting for the progress update from our partners. So it's not yet happening, and we believe it will happen in quarter 1 or quarter 2. So just to make sure we understand the same as us.
NG, you mentioned your next-generation machine. I'm going to assume it's going to be the A15. I'm wondering if some of the costs you incurred include the full tape out on that chip. And if you could give us an idea on the process geometry, are we down to maybe 3 nanometers now? And when do you think that machine may be available for sale?
We will publish that details when we have the test machine, finished the testing. But I think the machine is -- we just deploy the machines. So we're not selling the chips to our customers. So it's very important to know that the performance of mining machines is not determined by the process of the chips or the manufacturer of the wafers. So from a long time to avoid the confusion among our customers, we do not emphasize the specific public partners. There's many other reasons, but this is the main reason. So that's focusing instead on the actual performance metrics of the product. Our plan is to about 20% performance improvement every generation. Less than 20%, I think it's not very valuable to upgrade a new generation. So 20% is our target. And also, in the past, I think there's 9 to 12 months between each generations. And today, we work very hard in the period. So that means our profit is to have at least one generation this year or also maybe everything is going 100% right, we will have another generation in the maybe towards next year or something. Then every generation we have like 20% of the improvements. So I think another target is for the finance side. Yes, we want the new generation have some revenues this year. This is our growth target. That means we need to put the next-generation in mass production this year. This is maybe is what I can say now. There's no variety numbers, and we will have the debt numbers as soon as possible. Yes, we will publish it.
Last question for me, probably best for James. Inventory was down about 34% Q-to-Q. Understand that the A13 is now completely out of inventory. I was wondering if maybe you could give us a little insight on the inventory that you are carrying. Maybe how much is the air-cooled versus liquid-cooled and what your expectations are for that mix in the A14 series?
Kevin, I think we are in the transition between A13 series to A14 series. I cannot say we have already completed the inventory clearance of A13, but luckily, A13 can also generate profit for miners after halving in our calculation. So it looks like the demand is still there, and we can still get a lot of A13 spots cell orders even in quarter 1. So it looks like the A13 inventory clearance will last in quarter 1 and quarter 2. So it looks to me, A13 has not been completely cleared yet. And A14, I think we will ship small batches in quarter 1, like in March and the mass production and mass shipments will happen in quarter 2. So we have already got a lot of contract sales orders, like NG mentioned, the 7.5 million Terahash. And this number is still being updated every day. It looks like customers are still placing orders to get day A14. So it looks like the transition is better than what I have planned in November. At that time, I was thinking A13 series will be very difficult to clear. But it looks like the progress is better than what I have expected. The operating cash flow tends to be positive in quarter 4. And that's a very good look to me.
Congratulations on the hard work to you gentlemen and your entire team.
We will now take our next question from the line of Michael Legg from The Benchmark Company.
I wanted to talk a little bit about the share count. We ended the quarter with $222 million ADS out there. We closed the second tranche for another $49.7 million. Can we get some guidance on the shares outstanding that you expect for the first quarter and second quarter along your revenues? It looks like with the ATM and the tranches, it's moving up pretty high. Can you just talk about that?
Michael, I think at the end of last November, we announced we signed a preferred stock sales agreement with the U.S. institutional investor for USD 125 million. As of today, we have successfully completed the settlement of $75 million of the financing. Due to the terms of preferred stock financing agreement, the closing of the third tranche of preferred shares will be contingent upon mutual agreement between both parties. That means that currently, we are not going to immediately execute the third tranche. That means 75 million is the total what we have completed, and we are not going to immediately do another tranche. And it's a little bit complicated to say how big the common shares increased, but you can already see, we have increased the common shares, and that's already the common shares converted. I don't think we will increase this number in quarter 1, but let's see how it goes. The second tranche we have already delivered to the investor. Let's see how they are going to convert the preferred shares to common shares, but currently not yet to update it to us.
And then the $40 million convert long-term liability. Can you just explain the terms of that and how that works?
From accounting rules, we recognize the fair value of both the first and second tranches of preferred stock based on the evaluation from an independent third party. Through our auditor, they found an independent third party to evaluate the preferred stocks. Then we also recognize the pre-delivery shares associated with the preferred stock as an ADS lending equity on a fair value basis. So the accounting treatment of these 3 segments of preferred share financing had a certain impact on our bottom line of quarter 4, 2023 of about $70 million. This total including the first tranche and the second tranche and also the lending preferred shares, so lending equity. So putting all this together is about $70 million impact on our P&L.
And then do you know the average price you did the $61.2 million of your ATM. What was the average price sold?
We haven't known the average price in the preferred shares, but we do know the preferred ATM average price we have already put there is $1.99 if my memory is correct.
I have one thing to add on is. For me and for the company side, after the USD 50 million preferred shares settled in January for the next at least next 3 months, we have enough funds for our operation and expansion. This is what I will also say.
As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks.
I think thank you once again for joining us today. If you have any further questions, please feel free to reach us through the contact information provided on our website.
That concludes the call today. Thank you, everyone, for attending. You may now disconnect.