BEIJING


,


Nov. 14, 2022


/PRNewswire/ — Canaan Inc. (NASDAQ: CAN) (“Canaan” or the “Company”), a leading high-performance computing solutions provider, today announced its unaudited financial results for the three months ended

September 30, 2022

.

Third Quarter 2022 Operating and Financial Highlights

Total computing power sold

was 3.5 million Thash/s, representing a decrease of 37.1% from 5.5 million Thash/s in the second quarter of 2022 and a decrease of 48.5% from 6.7 million Thash/s in the same period of 2021.

Revenues

were

RMB978.2 million

(

US$137.5 million

), representing a decrease of 40.8% from

RMB1,652.7 million

in the second quarter of 2022 and a decrease of 25.8% from

RMB1,317.6 million

in the same period of 2021.

Gross profit

was

RMB234.2 million

(

US$32.9 million

), representing a decrease of 74.8% from

RMB929.7 million

in the second quarter of 2022 and a decrease of 68.4% from

RMB741.7 million

in the same period of 2021.

Net income

was

RMB61.1 million

(

US$8.6 million

), representing a decrease of 90.0% from

RMB608.9 million

in the second quarter of 2022 and a decrease of 88.1% from

RMB512.5 million

in the same period of 2021.

Non-GAAP adjusted net income

was

RMB166.3 million

(

US$23.4 million

), representing a decrease of 75.8% from

RMB688.2 million

in the second quarter of 2022 and a decrease of 71.7% from

RMB587

.5 million in the same period of 2021.

Mr. Nangeng Zhang, Chairman and Chief Executive Officer of Canaan, commented, “The

bitcoin

mining market deteriorated during the third quarter, as the

bitcoin

price fluctuated and further dipped to around

sixteen thousand dollars

recently. The negative market dynamics have significantly hindered

bitcoin

miners’ revenues and cash flows. As miners are forced to cut their demand for computing power, we had to adjust down our selling price in response. As a result of contract sales that we secured from previous quarters and the delivery of these orders, our topline performance in the third quarter was within our expectations, with total computing power sold of 3.5 million Thash/s. In late October, we officially released our new mining machine series,

AvalonMade 13

. Powered by advanced ASIC technology on the next-generation process node, the new series product achieves prominently accelerated computing power and escalated power efficiency. The launch of the new generation product reaffirms our confidence in the fundamental value of the

bitcoin

ecosystem and reflects our constant efforts in the research and development of supercomputing technology. In fact, as part of our ongoing effort to strengthen our research and development capabilities, we are expanding our

Singapore

headquarters with promising local research and development talents to help support our business on a global scale. In addition, we have expanded our mining business by tapping into the U.S. to optimize the allocation of our mining machines. Amidst the bearish market, we continue to grow the scale of our mining operation. With increased computing power online for mining, we generated mining revenue of

RMB 62 million

for the quarter.”

“Looking forward, we face a very tough industry period as the

bitcoin

price is sinking to lows the market has not seen in two years. Our priority is to conserve our cash, minimize our expenses, and endure this market downturn. Without any interest-bearing debt, we will also remain prudent as we invest in key strategic areas such as research and development and wafer production capacity on advanced nodes. We believe these efforts will position us to expand our market share and capture the opportunities that are set to emerge when the market recovers,” Mr. Zhang concluded.

Mr.

James Jin Cheng

, Chief Financial Officer of Canaan, stated, “We experienced unprecedented pressure due to the weakened market demand in the third quarter, resulting in a decline in our topline performance. As miners became increasingly conservative with their computing power deployment and purchases, we had to realign the selling price of our mining machines. As a result, we incurred a considerable amount of inventory write-down in the third quarter, which, in conjunction with lowered selling price, further weighted on our gross margin. With

bitcoin

‘s downward trajectory, rising energy prices, and miners under increasing cash pressure, market conditions are expected to keep deteriorating in the following two quarters. In order to persist through the most challenging time of the industry and prepare for capturing more opportunities when the market recovers, we are tightening cash management to streamline our expenses and preserve cash for production capacity. These are difficult decisions to make but sustaining our cash inflows is imperative in the current environment. We have been through multiple market cycles and endured countless challenges in the past. Now, with our focus on securing our cash flow and preserving our cash position, we believe we will emerge from the recent headwinds too.”

Third Quarter 2022 Financial Results

Revenues

in the third quarter of 2022 were

RMB978.2 million

(

US$137.5 million

), representing a decrease of 40.8% from

RMB1,652.7 million

in the second quarter of 2022 and a decrease of 25.8% from

RMB1,317.6 million

in the same period of 2021.

Products revenue

in the third quarter of 2022 was

RMB916.0 million

(

US$128.8 million

), representing a decrease of 42.8% from

RMB1,600.4 million

in the second quarter of 2022 and a decrease of 30.2% from

RMB1,312.0 million

in the same period of 2021. The decrease compared to the second quarter of 2022 was mainly due to the decrease in total computing power sold and the lower selling price. The decrease compared to the third quarter of 2021 was mainly due to the decrease in total computing power sold. In the product revenue segment, AI revenue increased from

RMB1.6 million

in the second quarter of 2022 to

RMB2.4 million

(

US$0.3 million

) in the third quarter of 2022.

Mining revenue

in the third quarter of 2022 was

RMB62.0 million

(

US$8.7 million

), representing an increase of 19.0% from

RMB52.1 million

in the second quarter of 2022 and an increase of 1,002.7% from

RMB5.6 million

in the same period of 2021. The increases in mining revenue over the second quarter of 2022 and the third quarter of 2021 were mainly attributable to the increased computing power deployed for mining and improved electricity supply of mining machines.

Cost of revenues

in the third quarter of 2022 was

RMB744.0 million

(

US$104.6 million

), representing an increase of 2.9% from

RMB722.9 million

in the second quarter of 2022 and an increase of 29.2% from

RMB575.9 million

in the same period of 2021. The sequential and year-over-year increases in cost of revenues were mainly due to

RMB221.1 million

of inventories write-down recorded in the third quarter of 2022.

Gross profit

in the third quarter of 2022 was

RMB234

.2 million (

US$32

.9 million), representing a decrease of 74.8% from

RMB929.7 million

in the second quarter of 2022 and a decrease of 68.4% from

RMB741.7 million

in the same period of 2021.

Total operating expenses

in the third quarter of 2022 were

RMB275

.0 million (

US$38

.7 million), representing an increase of 1.7% from

RMB270

.5 million in the second quarter of 2022 and a decrease of 1.2% from

RMB278.4 million

in the same period of 2021.

Research and development expenses in the third quarter of 2022 were

RMB118

.1 million (

US$16

.6 million), representing an increase of 13.6% from

RMB103

.9 million in the second quarter of 2022 and an increase of 27.3% from

RMB92

.8 million in the same period of 2021. The sequential and year-over-year increases were primarily attributable to increased staff costs in technology-related departments, partially offset by decreased share-based expenses. Research and development expenses in the third quarter of 2022 also included share-based compensation expenses of

RMB14.5 million

(

US$2.0 million

).

Sales and marketing expenses in the third quarter of 2022 were

RMB14

.2 million (

US$2

.0 million), representing a decrease of 32.5% from

RMB21

.1 million in the second quarter of 2022 and a decrease of 62.1% from

RMB37

.6 million in the same period of 2021. The sequential and the year-over-year decreases were mainly due to decreased staff costs, partially offset by increased share-based expenses. Sales and marketing expenses in the third quarter of 2022 also included share-based compensation expenses of

RMB5.4 million

(

US$0.8 million

).

General and administrative expenses in the third quarter of 2022 were

RMB142

.7 million (

US$20

.1 million), representing a decrease of 1.9% from

RMB145

.4 million in the second quarter of 2022 and a decrease of 3.6% from

RMB148

.1 million in the same period of 2021. The sequential decrease was mainly due to the decrease in professional service fees. The year-over-year decrease was mainly due to decreased share-based compensation expenses. General and administrative expenses in the third quarter of 2022 also included share-based compensation expenses of

RMB84.9 million

(

US$11.9 million

).

Loss from operations

in the third quarter of 2022 was

RMB40

.8 million (

US$5

.7 million), compared to an income from operations of

RMB659

.3 million in the second quarter of 2022 and an income from operations of

RMB463

.3 million in the same period of 2021.

Non-GAAP income from operations

in the third quarter of 2022 was

RMB64.4 million

(

US$9.1 million

), representing a decrease of 91.6% from

RMB763.5 million

in the second quarter of 2022 and a decrease of 89.0% from

RMB583.6 million

in the same period of 2021. Non-GAAP adjusted income from operations excludes share-based compensation expenses. For further information, please refer to “Use of Non-GAAP Financial Measures” in this press release.

Impairment on

cryptocurrency


in the third quarter of 2022 was

RMB11

.3 million (

US$1

.6 million), compared to

RMB30.0 million

in the second quarter of 2022 and nil in the same period of 2021. The sequential decrease was mainly due to the relatively flat

Bitcoin

price during the third quarter of 2022, while the year-over-year increase was mainly due to the decreased

Bitcoin

price at the end of the third quarter of 2022 compared to the end of the third quarter of 2021.

Foreign exchange gains, net

in the third quarter of 2022 was

RMB101.2 million

(

US$14.2 million

), compared with a gain of

RMB114.3 million

in the second quarter of 2022 and a gain of

RMB1.2 million

in the same period of 2021, respectively. The foreign exchange gains were due to the US dollar appreciation against the Renminbi during the third quarter of 2022.

Net income attributable to ordinary shareholders

in the third quarter of 2022 was

RMB61

.1 million (

US$8

.6 million), representing a decrease of 90.0% from

RMB608

.9 million in the second quarter of 2022 and a decrease of 88.1% from

RMB512

.5 million in the same period of 2021.

Non-GAAP adjusted net income

in the third quarter of 2022 was

RMB166

.3 million (

US$23.4 million

), representing a decrease of 75.8% from

RMB688

.2 million in the second quarter of 2022 and a decrease of 71.7% from

RMB587

.5 million in the same period of 2021. Non-GAAP adjusted net income excludes share-based compensation expenses and change in fair value of warrant liability. For further information, please refer to “Use of Non-GAAP Financial Measures” in this press release.

Foreign currency translation adjustment, net of nil tax

, in the third quarter of 2022 was an income of

RMB94

.0 million (

US$13

.2 million), compared with an income of

RMB55

.1 million in the second quarter of 2022 and

RMB5.7 million

in the same period of 2021, respectively. The increase was due to the US dollar appreciation against the Renminbi during the third quarter of 2022.

Basic net earnings per American depositary share (“ADS”)

in the third quarter of 2022 was

RMB0

.36 (US$0.05). In comparison, basic net earnings per ADS in the second quarter of 2022 and in the same period of 2021 were

RMB3.53

and

RMB2.94

, respectively. Each ADS represents 15 of the Company’s Class A ordinary shares.

Diluted net earnings per ADS

in the third quarter of 2022 was

RMB0

.36 (US$0.05). In comparison, diluted net earnings per ADS in the second quarter of 2022 and in the same period of 2021 were

RMB3.53

and

RMB2.90

, respectively. Each ADS represents 15 of the Company’s Class A ordinary shares.

As of

September 30, 2022

, the Company held


cryptocurrency

assets

that comprised 535.48 Bitcoins, with a carrying value of

RMB74.1 million

(

US$10.4 million

).

Contract liabilities

as of

September 30, 2022

, were

RMB299

.5 million (

US$42

.1 million), decreasing from

RMB1,340.7 million

as of

December 31, 2021

, mainly due to decreased future orders of

Bitcoin

mining machines.

As of

September 30, 2022

, the Company had

cash and cash equivalents

of

RMB2,002.7 million

(

US$281

.5 million), compared to

RMB2,684.3 million

as of

December 31, 2021

.

Shares Outstanding

As of

September 30, 2022

, the Company had a total of 158,327,979 ADSs outstanding, each representing 15 of the Company’s Class A ordinary shares.

Recent Developments

The Release of Avalon Made A13 Series of

Bitcoin

Mining Machines

On

October 24, 2022

, the Company officially released its new generation of high-performance

bitcoin

mining machines, the Avalon Made A13 (“A13”) series, which will include two different models. Model A1346 features a hash rate of 110 Thash/s and a power efficiency of 30J/TH. Model A1366 has a hash rate of 130 Thash/s and a power efficiency of 25J/TH. Both new models demonstrate enhanced computing power and improved power efficiency over predecessors.

The Company’s Share Repurchase Update

On

March 16, 2022

, the Company announced that its board of directors authorized a share repurchase program (the “Share Repurchase Program”) under which the Company may repurchase up to

US$100 million

worth of its outstanding (i) ADSs, each representing 15 Class A ordinary shares, and/or (ii) Class A ordinary shares over the next 24 months starting from

March 16, 2022

.

From

August 13, 2022

, to

November 4, 2022

, the Company used approximately

US$11.2 million

to repurchase 3.4 million ADSs. As of

November 4, 2022

, the Company has repurchased a total of 6.2 million ADSs with an aggregate value of

US$21.5 million

and an average repurchase price of

US$3.46

per ADS under the Share Repurchase Program.

The At-the-Market (“ATM”) Offering

On

April 8, 2022

, the Company entered into an at-the-market offering agreement (the “ATM Agreement”), providing for a potential at-the-market (“ATM”) equity offering program, with H.C. Wainwright & Co., LLC (“HCW”).

The Company expects the ATM program to be a flexible mechanism for the Company to access public capital markets in the future. The timing and extent of the use of the ATM program will be at the discretion of the Company, provided that the Company has satisfied certain obligations set forth in the ATM agreements and the ATM facility is duly established.

Business Outlook

For the fourth quarter of 2022, the Company expects total net revenues to be approximately

RMB310 million

(

US$43.6 million

), considering the challenging market conditions across the industry. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

Conference Call Information

The Company’s management team will hold a conference call at 7:00 A.M. U.S. Eastern Time on

November 14, 2022

(or

8:00 P.M.

Beijing Time on the same day) to discuss the financial results. Details for the conference call are as follows:

Event Title:                           Canaan Inc. Third Quarter 2022 Earnings Conference Call

Registration Link:

https://register.vevent.com/register/BI9e3f73b54ce24104a97a602d1a014193

All participants must use the link provided above to complete the online registration process in advance of the conference call. Upon registering, each participant will receive a set of participant dial-in numbers and a unique access PIN, which can be used to join the conference call.

A live and archived webcast of the conference call will be available at the Company’s investor relations website at investor.canaan-creative.com.

About Canaan Inc.

Established in 2013, Canaan (NASDAQ: CAN), is a technology company focusing on ASIC high-performance computing chip design, chip research and development, computing equipment production, and software services. The Company’s vision is “super computing is what we do, social enrichment is why we do it.” Canaan has a rich experience in chip design and streamlined production in the ASIC field. In 2013, it released and mass produced its first ASIC

Bitcoin

mining machine. In 2018, Canaan released the world’s first 7nm ASIC chip, providing energy efficient computing equipment to the

cryptocurrency

mining industry. In the same year, Canaan released the world’s first RISC-V architecture commercial edge AI chip, further harnessing the potential of ASIC technology in the field of high-performance computing and artificial intelligence.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars (“US$”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of

RMB7.1135

to

US$1.00

, the noon buying rate in effect on

September 30, 2022

, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all.

Safe Harbor Statement

This announcement contains forward−looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward−looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the business outlook and quotations from management in this announcement, as well as Canaan Inc.’s strategic and operational plans, contain forward−looking statements. Canaan Inc. may also make written or oral forward−looking statements in its periodic reports to the U.S. Securities and Exchange Commission (“SEC”) on Forms 20−F and 6−K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about Canaan Inc.’s beliefs and expectations, are forward−looking statements. Forward−looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward−looking statement, including but not limited to the following: the Company’s goals and strategies; the Company’s future business development, financial condition and results of operations; the expected growth of the

Bitcoin

industry and the price of

Bitcoin

; the Company’s expectations regarding demand for and market acceptance of its products, especially its

Bitcoin

mining machines; the Company’s expectations regarding maintaining and strengthening its relationships with production partners and customers; the Company’s investment plans and strategies, fluctuations in the Company’s quarterly operating results; competition in its industry in

China

; and relevant government policies and regulations relating to the Company and

cryptocurrency

. Further information regarding these and other risks is included in the Company’s filings with the SEC, including its registration statement on Form F−1, as amended, and its annual reports on Form 20−F, as amended. All information provided in this press release and in the attachments is as of the date of this press release, and Canaan Inc. does not undertake any obligation to update any forward−looking statement, except as required under applicable law.

Use of Non-­GAAP Financial Measures

In evaluating Canaan’s business, the Company uses non-GAAP measures, such as adjusted net income, as supplemental measures to review and assess its operating performance. The Company defines adjusted net income as net income excluding

share­-based

compensation expenses and change in fair value of warrant liability. The Company believes that the non-GAAP financial measures provide useful information about the Company’s results of operations, enhance the overall understanding of the Company’s past performance and future prospects and allow for greater visibility with respect to key metrics used by the Company’s management in its financial and operational decision-making.

The non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. The non-GAAP financial measures have limitations as analytical tools and investors should not consider them in isolation, or as a substitute for net income, cash flows provided by operating activities or other consolidated statements of operations and cash flows data prepared in accordance with U.S. GAAP. One of the key limitations of using adjusted net income is that it does not reflect all of the items of income and expense that affect the Company’s operations. Share-based compensation and change in fair value of warrant liability have been and may continue to be incurred in Canaan’s business and are not reflected in the presentation of adjusted net income. Further, the non-GAAP financial measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore their comparability may be limited. The Company mitigates these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures, all of which should be considered when evaluating the Company’s performance.

Investor Relations Contact

Canaan Inc.

Ms.

Xi Zhang


Email:

[email protected]

ICR, LLC.


Robin Yang


Tel: +1 (347) 396-3281

Email:

[email protected]

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SOURCE Canaan Inc.