Q1 2024 Canaan Inc Earnings Call

Participants

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

James Cheng; Chief Financial Officer; Canaan Inc

Kevin Dede; Analyst; H.C. Wainwright

Shuang Sun; Analyst; Guosheng Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc's first quarter of 2024 earnings conference call. (Operator Instructions) Please note that this event is being recorded.
The company's financial and operating results 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 and the webcast page for the first quarter 2024 earnings call on the company's IR website.
Joining us today, Canaan Inc's Chairman and CEO, Mr. Nangeng Zhang; and CFO, Jin Cheng James. In addition, Mr. Leo Wang, Head of Capital Markets; 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 harbour statement in our earnings press released. 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.
And with that, I will turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead, sir.

Nangeng Zhang

Hello, everyone. This is NG, 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. The first quarter of 2024 was the last quarter before Bitcoins fourth halving. During the Q4 of 2023 earnings call, I forecasted this to be a Super Wait-and-See Period. Based on the past experience in the last quarter before halving in Bitcoin systems, miners typically waits for the halving to actually occur and the market dynamics become stable before adjusting their investments and mining purchasing plans.
They also tried to maintain the stable operation of the existing computing power to maximize the remaining value of their equipment. Therefore, transactions during this period are generally very flat. The only variable was a rapid fluctuation in bitcoin price during this quarter, reaching a historical high of USD33,000. We seized this opportunity to make maximum efforts in sales activities, selling a total computing power of 3.4 million tera hash per second, and achieving a total revenue of USD35 million, surpassing previous expectations.
At the same time, participating our market recovery will continue to proactively prepare ROS expects in including the mass production of new products and R&D integration of next-generation products. Striving to improve mining operations and a complete power deployment, we maintain the close cooperation with our foundry partners on the supply side. Playing out compacity, the ones for the bull market, our efforts have yielded positive results.
Now let me share with you one-by-one. In terms of research and development, we are delighted to announce that we officially launched our company's new generation of mining machine. So A15 series, as Bitcoin Asia 2024 in Hong Kong on May 9. So A15 series adopt more advanced designs and process nodes, achieving significant improvements in both computer and power and energy efficiency compared to the previous generation.
At the event, we showcased the A1566 engineering prototyping machine with actual computing power exceeding 185 tera hash per second and energy efficiency better than 18.5 joules per tera hash. The machine operated very stably, demonstrating excellent performance. We believe that A15 series, will become more competitive product to choice in the post halving computing power market.
Meanwhile, this quarter, our A14 products have entered mass production and delivery. Through close collaboration with Florida partners, we have completed compacity ramp-ups and yielded with improvements this quarter. As we entered the second quarter, A14 serious products have become concentrated delivery and will transition to support sales in the third quarter. We will continue to monitor the pace of compacity, locking US capital into mass production and amidst order delivery needs.
Additionally, the R&D of our next-generation product the A16 series is proceeding as planned. This quarter, we once again introduced products to the consumer market. So Avalon Nano 3 mining heater, this product with its portable and light weight design under various colours, received active contract orders from consumer market since its launch.
We continue to provide the customers with more diverse and customized products in the comprehensive mining solutions, such as integrated mining container products. We have received positive feedback from customers regarding products performance, durability and the service quality. In terms of mining machine sales, this quarter we heated 3.4 million tera hash per second of computing power, reflecting the wait and see attitude towards purchasing sports mining machine before the halving.
Additionally, as we transition through product integrations, we have completed the first batch delivery of our A14 per sale orders in the first quarter and are now accelerating mass production deliveries. Since the presale on-shelf A14 product in late 2023, [days] has continued to be popular, by the end of the first quarter. Customer advances primarily driven by A14 products amounted to about USD39 million, nearly double to USD19.6 million at the end of 2023.
After the successful completion of halving in the second quarter, we have seen a significant increase in purchasing inquiries and expect to receive more customer advances. Our A15 series products made their official debut at Bitcoin Asia, 2024 in Hong Kong on May 9. And within three days after the summit on May 12th, we signed MOUs and received earliest deposits from 26 customers, which we are currently following up on forming contract sales.
Over the past few years, the company has established presales coverage in markets with energy cost advantages. After the halving, customers in this market continue to show active interest in our traditional models. Based on the current situation, we are optimistic about the sales pace of A13 spot inventory and expect to complete the transaction of mainstream products for sales in the third quarter of this year.
Additionally, in North America, where institutional miners are concentrated, we are working to enhance brand and product recognition. Besides various cooperation with public traded companies such as Cipher and Stronghold, this quarter we also signed an agreement with Marathon Digital for the first time, at the Bitcoin industry conference in Dubai and Hong Kong this year, we actively discussed cooperation opportunities within institutional and distributor customers.
In Southeast Asia, distributor customers generate sales revenue of USD5.7 million for the quarter, up by 27% sequentially, making a stable contribution to sales orders. Our online store, for overseas retail clients, continues to diligently serve each customer, especially after the launch of the consumer-oriented mining machine, Avalon Nano 3, which has attracted active orders from individual e-services and current orders of near 10,000 units. Occasionally selling out.
The company’s comprehensive mining solutions also received more orders this quarter. By the end of the first quarter, our mining business installed a computing power increased to 3.8 Exahash as per second, a nearly 100% growth quarter-over-quarter. The growth is primarily due to our continued partnership adjustments and the recovery efforts in Kazakhstan after obtaining the necessary licenses, as well as the progressive deployment of mining cooperation projects in other regions, further diversifying our mining operations.
During this quarter, the energization condition was favourable and with the combined impact of the rapid increase of Bitcoin price from January to March as well as the rise in transaction fee rewards, we achieved mining revenue exceeding USD10 million this quarter. By the end of Q1, the number of bitcoins held by the company increased by 148, surpassing 1,000 for the first time to reach 1,057 bitcoins, with a current market value of over USD65 million. We will continue to carefully balance policy stability and location advantages of energy costs and persist in cultivating our mining business.
Since the first quarter, the company has continued to improve as overall operational level by pushing forward and adopting flexible sales and sales strategies. We have made good progress in clearing out inventory, significantly reducing the inventory levels on the balance sheet, we’re also optimizing the inventory mix, coupled with gradual collection of accounts receivable. Sales -- cash inflows have continued to improve.
As the number and the value of bitcoin held by the company increased, this portion of currency assets will provide us with substantial, potential liquidity safeguard. While maintaining an overall robust balance sheet and keeping cash at a safe level, we endeavour to direct cash towards mass production. This is reflected in increased prepayments, primarily used for securing production capacity of advanced processing technologies. On the expense side, the organization's optimizations made previously showed further positive effects in the first quarter.
As part of overall market conditions this quarter, the Company continues to implement pricing strategies to drive sales, which has resulted in some inventory write-downs. However, the overall net loss of this quarter has. So the news is that it's narrow.
Since the first quarter, apart from the previously disclosed USD50 million settlements of preferred stock, the company has not engaged in any other financing activities, including ATM offerings. In line with routine practice for US listed companies, our new shelf registration statement was submitted to the SEC just before the expiration of the [last one] to maintain the validity of our financing eligibility.
Looking ahead of the second and third quarter of 2024, our A14 mining machines have successfully passed through the stages of transition to mass production, compacity ramp-up and yield rate improvement. Entering the phase of accelerated buck delivery. Regarding our mining operations, post halving, we are evaluating and adjusting our existing mining projects. Recently, especially after the official launch of new A1566 product, there has been a significant increase in inquiries for mining machine sales. And we have already received several earnest deposits.
Now we are swiftly advancing the shipment for [Proco] machines, aiming to convert these intentional orders into actual sales contracts as quickly as possible. Based on our -- my personal experience in the weeks following the halving, miners will gradually start their computing power purchases preparing for the new full year cycle. This process will also initially reflect in volumes and our supply and the dynamic shift, computing power prices expected to recover more quickly. However, we need to note that the Fed’s interest rate cut cycle has not yet begun, resulting in high financing costs for miners and there's uncertainty regarding the timing of bitcoin price increases, posting challenges to the industry.
Based on the comprehensive situation described above, we maintain a cautiously optimistic outlook for the second and third quarters of 2024. For the second quarter of 2024, the company expects total revenue to be approximately USD70 million. For third quarter of 2024, the company expects total revenue to be approximately USD70 million. This forecast is based on the current market and operational conditions of the company, and actual results may vary.
Overall, the period leading up to the 2024 bitcoin halving, including entire first quarter for the super wait-and-see season for the mining machine market. However, we also witnessed many positive changes within the industry and at the company’s level. At the beginning of 2024, the Bitcoin spot ETFs was approved for listing by the US SEC. And by the end of April, the Hong Kong Stock Exchange approved the listing of multiple currencies for ETFs. These milestone events will further encourage traditional finance to participate in bitcoin’s development. By the end of the first quarter, the price of bitcoin reached a new all-time high of USD73,000.
On April 20, the Bitcoin trading system, which has been operating smoothly for 15 years, completed its fourth halving schedule, starting a new four-year cycle. This series of events confirm that the Bitcoin trading system has formed a strong consensus and continuously expanding its user base, forming a closer connection with traditional finance, all of which indicates a broader potential of industry growth. Looking at the underlying operation of Bitcoin trading system, with the smooth completion of halving, we anticipate that on one hand, existing miner will face a new wave of equipment upgrades.
On the other hand, as the bitcoin price stabilizes and increase after halving, more miners are expected to join the mining activities, which will significantly boost the demand for computing power. However, due to the limited production compacity on bitcoin computing power supply side, the shift in supply and demand relationships may potentially drive the prices of computing power.
Company’s A14 products are being delivered successfully and the new A15 series products have debut and opened for pre-sales. And our one-stop comprehensive mining solutions and Avalon Nano 3 products are being brought to market, they are gradually gaining recognition for more customers.
On the product side, the company is addressing to the world’s needs of different customers with a richer and more efficient selection of products. At the same time, we continue to lock in production compacity on the supply side with advanced process and comprehensively reach customers at a sales level.
Recently, the company’s management, including myself, announced a proposed ownership expansion plan. We are very confident in seizing the market opportunities driven by the certain demand of hash rate, continuously supporting the bitcoin network with our computing power and creating long-term value for our shareholders.
This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO James. Thank you.

James Cheng

Thank you, NG, and good day, everyone. This is James speaking at our Singapore headquarters. As NG started at the top of the call, this quarter was a super wait-and-see period that occurs every four years, as the last complete quarter before the halving event of this point.
Despite the subdued market, we continue to execute our strategy. First, we were committed to wafer capacity investments and R&D activities of new generation machines. This allowed us to deliver A14 series since April, to upgrade our products achieving breakthroughs in A15 series and to enrich our product portfolio with Avalon Nano 3 and integrated mining solutions.
Secondly, we enhanced the flexible and multichannel sales strategy to enable us accelerate destocking of existing products and accumulate contract sales orders for A14 series. Thirdly, we adhered to our own mining strategy, continued to expand the mining deployment and strive for operation excellence.
Last but not least, we continued to manage cash in a prudent way and streamline our expenses to make sure strategical tickets be prioritized. Let’s start the introduction from profit and loss. Q1 total revenue was USD35 million, which beat our guidance by USD2 million or 6%.
Our revenue from machine sales was USD23 million, and our mining revenue was USD10 million. Regarding our machine sales, we delivered a total computing power sold of 3.4 million terahash per second, representing a year-over-year decrease of 20% and a quarter over quarter decrease of 38%.
And the average selling price decreased from $8.2 per terahash per second in quarter for to $6.9 per terahash per second in quarter one, coupled with the multiple factors, including before halving the New Year and the Lunar New Year, the market demand in this quarter was quite weak, and we could only sell current inventory of older generation products. These factors lead to the decreases of our computing power sold and average selling price.
From sales side, we were committed to execute a multichannel sales strategy. Our distribution channels in Southeast Asia performing in a good way, contributing USD5.7 million to our total quarter one revenue, representing a 27% sequential growth.
We continue to gain from Southeast Asia region after moving headquarters to Singapore and developing distribution channel in different countries like Thailand, Malaysia and Indonesia. I’d like to discuss the orders and the revenue of our integrated mining solutions, which diversified our product revenue streams.
In quarter one, we received the customer payments of USD4.9 million from purchase orders for our integrated mining solutions. These orders are gradually delivered, therefore USD0.2 million was recognized in quarter one revenue, the remaining USD4.7 million will be delivered in quarter two and it contributes to our quarter two revenue.
Specifically, for our mining machine sales, we accrued USD47.5 million for inventories write-down, prepayment write-down and a provision for inventory purchase commitments in this quarter. Representing a 14% decrease sequentially. The decrease was driven by accelerated de-stocking in this quarter.
Those non-cash write-downs and provisions are made under US 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 of USD0.1 million for mining machine sales.
Turning to our mining businesses. Our mining revenue increased 182% quarter over quarter. We mined 195 bitcoins in this quarter, an increase of 92% over the last quarter. The increases were not only driven by increases in bitcoin prices but also by increases in our energized hash rate. Our average revenue per bitcoin in quarter one increased 47% over the last quarter from almost USD37,000 to almost USD54,000.
Our energized computing power in Kazakhstan recovered to 1.1 exahash in quarter one. We also further expanded our mining business in Africa increasing our energized hash rate to 0.9 exahash. At the end of quarter one, our energized hash rate totalled 3.0 exahash per second, increasing 58% over the last quarter.
Our mining profit was 121 bitcoins, which increased 250% compared to the last quarter. Gross profit doubled quarter-over-quarter to USD3.5 million for our mining business. Please note here that mining profit or loss is defined as money revenues in net of costs for energy and hosting, but without consideration of depreciation for the deployed machines.
Now turning to expenses. Our operating expenses totalled USD31 million, decreasing 19% year-over-year and 22% quarter-over-quarter, respectively. Staff costs including share-based compensation, decreased 27% year-over-year and 11% quarter-over-quarter, driven by organizational optimization performed in quarter four last year.
As the bitcoin price rose, no further impairment for our self-mining machine was accrued in this quarter, which reduced the operating expenses by USD6 million compared to the last quarter. I want to point out that we chose to early adopt the FASB new accounting rules on cryptocurrency assets since January 1, 2024, which allow crypto currencies to be carried at their fair market value.
According to this accounting rules, the cumulative effect of USD19 million was recorded to the opening balance of our retained earnings. As the bitcoin price increased from USD42,000 on January 1, 2024 to USD70,000 on March 31, 2024 again on fair value change of USD33 million was recognized in our quarter one profit and loss.
As the second tranche of preferred shares was issued in January, we recognized the remaining unconverted preferred shares as a liability and recorded a non-cash gain on fair value of USD2 million according to US accounting rules compared to a non-cash loss of USD10.9 million in quarter four.
Benefiting from the narrowed gross loss, the lower expenses and again from the fair value change of cryptocurrency and the financial instruments, quarter one net loss was USD39 million, narrowing 72% quarter-over-quarter and 53% year-over-year.
Turning to our balance sheet and cash flow. In quarter one, we generated USD48 million of cash inflows from sales, received USD50 million from preferred shares financing facilities and USD10 million from export VAT refunds. We paid USD88 million to secure our wafer supply and USD61 million for production and operation.
Our increasing investment in wafer supply is aimed at enabling the concentrated delivery and spot sales of our A14 series product in the following quarters. Consequently, at the end of quarter one, we held cash and cash equivalents of USD55 million on our balance sheet.
Now moving on to our contract liability. Our A14 series has continued to be popular since the presale beginning in late 2023. The balance of contract advances reached USD39 million as of this quarter end, nearly doubled from USD19.5 million at the end of the last quarter.
As of the end of quarter one, we recorded account receivable of USD1.6 million a decrease of 45% compared to the last year end. We will continuously evaluate market demand and adopt corresponding credit policies with caution.
Now turning our attention to our bitcoin assets. The bitcoins we held as our own holding assets kept growing in this quarter and reached a record high of 1,057 bitcoins as of March 31 which is 148 more than the 9,009 at the end of last year.
As previously mentioned, we adopted the FASB new rules effective January 1, 2024. On March 31, the fair value of our owned bitcoins totalled USD75 million. Combined our balance of cash and owned bitcoins demonstrated approximately USD130 million of liquidity.
Turning to our fund raising. In early January 2024, we closed the second tranche of our preferred share financing, raising total net proceeds of USD49.9 million. This has been reported in the previous quarterly release. After that, we have not done any fundraising.
We expect our quarter two revenues to be USD70 million and quarter three revenues to be USD70 million, respectively. We are glad to see that our A14 products are being successfully delivered. The new A15 series products have debuted and opened up for pre-sales and our one-stop comprehensive mining solutions and Avalon Nano 3 products are gaining recognition from more customers.
We will continue to address the diverse needs of our varied customers with a richer and more efficient selection of products. This concludes our prepared remarks. We are now open for questions.

Question and Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions)
Kevin Dede, H.C. Wainwright.

Kevin Dede

Hi James -- Yes, hi, NG and James, thank you very much for having me on the call. Can you hear me okay?

James Cheng

Yes.

Nangeng Zhang

Yeah.

Kevin Dede

Great. Okay. So NG right off the bat, I'm going to apologize because my first question is long and a little convoluted, but I think you'll understand where I'm going and I know you gave me a great answer. So I'm wondering how these all these factors combine together.
Number one, we have many Canaan new products coming to market. We have the A14 and we have A15 coming soon and the A16 in R&D. So I'm wondering how you balance product cycles against the fact that liquid cool machines tend to last longer and semiconductor improvements are incrementally less from process geometry change to process geometry change.

Nangeng Zhang

Yeah. Good morning, Kevin. I think in the terms of our major product series, we are still in the cycle of iterating generations roughly every three quarters. This pattern also applies to our next-generation product. I think this is beneficial for both customer choices and hash rate deployment planning, because you have a quite clear prediction of new product. And in terms of power efficiency, our mainstream products released last year, have entered the range of 20 to 25 joules per hash. And with the products on first, half of this year are in the 15 to 20 joules per terahash range.
And I believe the next target for the industry will be in the 10 to 15 joules per terahash later this year or next year. These R&D efforts are progressing systematically. Yeah. So also, I want to mention, apart from the chief developments, we are actually accelerating in the machines to mass production stages.
I have examples here, A15 batch hash as an example, we went from receiving the chips to have a stable running machine in less than 72 hours. And within less than 10 days multiple [proco] machines with excellent performance and the stable operations will showcase in public events like exhibitions.
And yeah, for today, we are in the process of sending fresh proto machines to customers for testing. Yeah, so we are continuing to improve our user experience. Yeah, we have comprehensive solutions from the machines to like ‎Avalon Box containers, even the consumer Avalon Nano 3 products. Yeah, so I think we will give you some guidance for the -- what will happen in the next like 18 months or two years.

Kevin Dede

Okay. Thanks, ND. You made it very clear, both James and you made it very clear that you're holding over 1,000 Bitcoin. And I'm wondering, I'm sure many people are wondering how you consider that are. Would you consider selling them at some point in order to raise capital, in order to fund your business and understand $88 million for a wafer run?
That's a lot of money. So just kind of I'm just kind of wondering how you're thinking about that.

Nangeng Zhang

I think for the Bitcoin final holding, today, our company’s policy is only use the bitcoin to pay the mining electricity bill. And all of other bitcoins we will hold. And also when we receive some bitcoins from our small sales, we will hold most of them.
I mean we will close most of the profit from the sale. Yes, and currently, we have no plans to sell the bitcoins. But I think we are considering to make the -- maybe do some like financing operations to let the bitcoins generate more bitcoins. I think maybe James can have some idea on this.

James Cheng

Yeah. Currently we are starting on different approaches as using Bitcoins as collateral and also can generate a new financing interest either in Bitcoin or in other crypto currencies like the USDP. So we are talking to different vendors to see the possibility and the potential to generate more cash flows and the profit for our shareholders. I think we are still in the starting phase. And once we get some solutions, we will let our investors know that. Thank you for the question.

Kevin Dede

Okay. Last question for me. Just curious about your perspective on the competitive environment. You know, obviously Jihan Wu is back in the market a bit here. The Aerodyne machines are expected to come out this year. I appreciate your perspective on Canaan's revenue. You obviously have a pretty bright outlook. I'm just wondering how you see that competitive environment shaking out.

Nangeng Zhang

Thank you, Kevin. Yes, we have also noticed some new entries in the market recently. Some have announced that their designs are in the tape out space, where others have shared results from like chip testing. However, I think the results expectation, we have not seen [pack] machine deliveries in the open market yet. So once machines are actually delivered to the market, we will conduct research.
However, we cannot comment on products that have not been delivered. I think the entry of new players indicate that the bull market for mining machines is approaching. It’s mainly seeing the industry prospects and choosing to invest and enter the market.
At the same time, this phenomenal also suggests that the industry, including ourself, eventually have errors that not fully satisfy our market partners or our customers in terms of like product's pricing, customer service, customization and sales coverage. I think this led us to accelerate products and improvement. And the entry of these new players clearly brings more vitality to the industry.
But of course, the barrier to enter the mining machine business is extremely high now, and I think developing an excellent mining chip is already very challenging at this stage. However, this is like just at the back journey of hardships towards growing into an excellent brand and road ahead is indeed a lot.
It has been 11 years since ideally we're the world’s first AC bitcoin mining machines to customers. And although we have accumulated a lot of experience over time. My respect for this industry has only grown. So in preparation of this cycle, we have made a lot of preparations, including not only a road map for new products, but also production compacity deployment.
I think additionally, as mining machine providers, we must continuously serve our customers, especially during industry downturns, which is not easy. I think I have endured several past cycles, only a few including us have persisted, and we are the only one among with publicly listed company. Sorry, for being a little bit long. Thank you.
Thank you very much, gentlemen. I appreciate you taking the time to answer my questions and thanks for having me on the call.

James Cheng

Thank you, Kevin.

Nangeng Zhang

Thank you.

Operator

Sharon Flynn, caution securities.

Shuang Sun

Hello. Hello, (foreign language) Please share more colour on A1566 product.

Nangeng Zhang

The you mean the performance or --

Shuang Sun

Yeah.

Nangeng Zhang

Okay, I think we have already demonstrated our A15 series. The model is A1566, in the Hong Kong event. And with an average computing power of 185 terahash per second and power efficiency of better than 18.5 joules per hash. I think this performance is on par with competing products currently on the market.
Yeah. So I think at this stage, we are preparing the proto machines to our customers to demonstrate the machines on the field. So everything is going very smooth. We hope we can push it to mass production as soon as possible. Yeah, but there is really a long production period due to the cutting-edge technology. So it’s still some months away.

Shuang Sun

(foreign language) Please share your review of the continuity of company's operations.

James Cheng

Thank you, Sun. So I will take this question. I think first of all, we should take a look at our balance sheet. In the end of March 31, we have $55 million cash on hand and also we have another 1,057 Bitcoins. You know, as of today, it is equals like USD65 million, putting this together, we have the liquidity total liquidity like $120 million together. And you know, in quarter one, our expense together is about $31 million, which including like a one-third of the expense is non-cash expense.
So actually, the cash expense for routine business is like a $20 million per quarter, so $120 million compared to the $20 million spending. So that means another six quarters to go if we don't do anything. But of course, we are doing it, preparing patients for bull market, we will have to be very careful about the, you know, cash management.
I think currently we have already seen a lot of the improvements from cash inflows as the A14 series has already been delivered on schedule, and we have already collected cash gradually from our customers. Step-by-step, we will collect more cash in quarter two and quarter three as we predicted that the revenue will be higher.
And also most of the credit customers has already completed payments for their orders and our account receivables have decreased sequentially, the sales cash in early inflows I think has already been show that in the customer advances doubled the previous customer advances.
And so I think from the inflows, a lot of good news. On the other hand, we have to control the capacity of pace and unlocking proportion of it cash into mass production. That's something we have to do. That's why in Q1 our cash payment to lock the wafer is about $88 million. So it's a lot.
So putting this together, while we maintain this level of cash reserves, while we have the more than 1,000 coins, we have a substantial potential liquidity safeguard on hand.
Looking to me it's quite safe. Overall speaking, the company is able to maintain continuous operations with overall risks being relatively controllable but of course, and we have to look very carefully in a prudent way to manage that cash.
Thank you for the questions, Sun.

Shuang Sun

(foreign language) Please share your view on the timing of return to profitability this year.

James Cheng

Yeah. I think profitability is always the question from investors. People would like to see the bear market end and to see our profit coming back as the bull market. I think the most interesting thing in our industry is the average selling price. I think that we can see our past three years average selling price could be below $7 per terahash or above $70 per terahash.
So I think the main factor driving profitability is still the increase in computing power prices. I think this fundamental reason behind the rise in computing power prices is still the shift in supply and demand dynamics. As the price of bitcoin increases, attracting more miners into the market, there could be a surge in demand for computing power.
With this kind of condition, under such cases, given the limited supply capacity of the advanced process using in our mining machines. I think the price of computing power could potentially rapidly increase. So therefore, it is anticipated that after halving as our bitcoin price is still fluctuating. But after it is stabilized and raised, the total network computing power decreases, the expanded profitability of mining could potentially attract a large number of new miners coming in. So as miners begin to purchase computing power, sales volume will initially kind of react.
And as the supply-demand relationship changes, computing power prices will quickly recover. So currently, computing power prices have already been recovering from the market low. Our current assessment is that loss could continue through the first two or three quarters of 2024.
But there is a big potential opportunity for gross margin to turn positive or even significantly improve in the third and fourth quarter, especially the fourth quarter. So for the full year, we will try our best to see if there is any possibility to get breakeven. But it looks to me, the trajectory will be from the loss to earnings in the coming one year time. Step by step, we will be there. Thank you, Shuang.

Shuang Sun

(foreign language) Do you still have financing plan going forward?

James Cheng

And I think after A14 series shipment, we have already seeing more active purchasing inquiries and a stronger sales cash inflows after halving an after A14 series shipment. So it looks like a cash flow operations and the balance sheet are also improving.
So I think -- as just to mention, we have already did the financing in four and quarter one of 2024 with a total cash like $136 million. We do not have any urgent equity financing plans in the near term. So I think that's a clear answer. We do not have urgent equity financing plans in the near term. Thank you, Shuang.

Shuang Sun

(foreign language)

Operator

Thank you, Shuang. Thank you.
As there are no further questions. Now I'd like to turn the call back to the company before any closing remarks.

Nangeng Zhang

Thank you once again for joining us today. If you have any further question, please feel free to reach us through the contact information provided on our website.

Operator

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