Canaan Inc. (NASDAQ:CAN) Q4 2022 Earnings Conference Call March 7, 2023 8:00 AM ET Company Participants Clark Soucy - IR Director Nangeng Zhang - Chairman and Chief Executive Officer James Cheng - Chief Financial Officer Conference Call Participants Michael Donovan - H.C. Wainwright Jiaer Zhu - China Renaissance Mike Legg - The Benchmark Company Shuang Sun - Guosheng Securities Chris Brendler - D. A. Davidson Andrew Bond - Rosenblatt Securities Operator Ladies and gentlemen, thank you for standing by and we ...

Financial & Operational Highlights [Q4 2022 Highlights](index=1&type=section&id=Fourth%20Quarter%202022%20Operating%20and%20Financial%20Highlights) In Q4 2022, Canaan experienced a significant downturn, with total computing power sold dropping 75.8% year-over-year, leading to an 82.1% decrease in total revenues, while mining revenue showed substantial growth, increasing by 368.2% YoY, reflecting a strategic shift towards its own mining operations | Metric | Q4 2022 | Q4 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Computing Power Sold | 1.9 million Thash/s | 7.7 million Thash/s | -75.8% | | Total Revenues | RMB 391.9 million | RMB 2,184.6 million | -82.1% | | Mining Revenue | RMB 72.2 million | RMB 15.4 million | +368.2% | [Full Year 2022 Highlights](index=1&type=section&id=Full%20Year%202022%20Operating%20and%20Financial%20Highlights) For the full year 2022, total computing power sold decreased by 32.4% compared to 2021, resulting in a moderate decline in total revenues, with a key positive being the tenfold increase in mining revenue, highlighting the successful expansion of this business segment | Metric | Full Year 2022 | Full Year 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Computing Power Sold | 15.1 million Thash/s | 22.3 million Thash/s | -32.4% | | Total Revenues | RMB 4,378.9 million | RMB 4,986.7 million | -12.2% | | Mining Revenue | RMB 218.6 million | RMB 21.7 million | +907.4% | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management acknowledged the challenging market due to the low bitcoin price but emphasized strategic progress, exceeding revenue guidance for Q4, expanding its own mining operations significantly, and making key investments in R&D (A13 series) and wafer supply to prepare for the next market upswing, despite a negative impact on gross margin from a substantial inventory write-down - CEO Nangeng Zhang highlighted that despite a tough Q4, the company is positioning for a market resurgence by investing in production capacity and expanding mining operations, achieving an installed hash rate of **3.8 EH/s** by the end of February 2023[4](index=4&type=chunk) - CFO James Jin Cheng noted that Q4 gross margin was dampened by an inventory write-down of **RMB 205.3 million** and one-time higher R&D expenses for the A13 series tape-out, with the company also making substantial prepayments to secure wafer production capacity[6](index=6&type=chunk) - Strategic milestones in 2022 included global expansion with an overseas headquarters in Singapore and the debut of a new mining machine series with a cutting-edge process node[5](index=5&type=chunk) Financial Results [Q4 2022 Financial Performance](index=2&type=section&id=Fourth%20Quarter%202022%20Financial%20Results) The company reported a significant downturn in Q4 2022, with revenues falling 82.1% YoY to RMB 391.9 million, and a gross profit of RMB 1,486.9 million in Q4 2021 turning into a gross loss of RMB 230.9 million, driven by lower sales, a RMB 205.3 million inventory write-down, and a 99.5% YoY surge in R&D expenses, consequently posting a net loss of RMB 438.3 million [Revenue Analysis](index=2&type=section&id=Q4%202022%20Revenue%20Analysis) | Revenue Stream | Q4 2022 (RMB M) | Q4 2021 (RMB M) | Change (YoY) | | :--- | :--- | :--- | :--- | | Products Revenue | 319.6 | 2,168.9 | -85.3% | | Mining Revenue | 72.2 | 15.4 | +368.2% | | **Total Revenues** | **391.9** | **2,184.6** | **-82.1%** | - The sharp decline in product revenue was mainly due to a decrease in total computing power sold and lower selling prices resulting from the declined bitcoin price[7](index=7&type=chunk) [Profitability Analysis](index=3&type=section&id=Q4%202022%20Profitability%20Analysis) - The company recorded a gross loss of **RMB 230.9 million**, compared to a gross profit of **RMB 1,486.9 million** in Q4 2021, primarily due to a **RMB 205.3 million** inventory write-down and **RMB 74.9 million** in depreciation for mining machines[9](index=9&type=chunk) - Loss from operations was **RMB 624.4 million**, a significant reversal from an income from operations of **RMB 1,213.2 million** in the same period of 2021[13](index=13&type=chunk) [Operating Expenses](index=3&type=section&id=Q4%202022%20Operating%20Expenses) | Expense Category | Q4 2022 (RMB M) | Q4 2021 (RMB M) | Change (YoY) | | :--- | :--- | :--- | :--- | | Research & Development | 223.5 | 112.0 | +99.5% | | Sales & Marketing | 7.6 | 30.7 | -75.2% | | General & Administrative | 162.4 | 131.0 | +24.0% | | **Total Operating Expenses** | **393.5** | **273.7** | **+43.8%** | - The surge in R&D expenses was primarily due to a **RMB 96.0 million** one-off expenditure for the A13 series products[11](index=11&type=chunk) [Net Income and EPS](index=4&type=section&id=Q4%202022%20Net%20Income%20and%20EPS) | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Net (Loss)/Income | (RMB 438.3 M) | RMB 1,196.5 M | | Non-GAAP Adj. Net (Loss)/Income | (RMB 341.8 M) | RMB 1,250.7 M | | Basic (Loss)/Earnings per ADS | (RMB 2.61) | RMB 6.90 | [Full Year 2022 Financial Performance](index=5&type=section&id=Full%20Year%202022%20Financial%20Results) For the full year 2022, Canaan's revenue decreased by 12.2% to RMB 4,378.9 million, with profitability significantly impacted as gross profit fell by 38.7% and net income dropped 67.1% to RMB 658.2 million, driven by lower product sales, substantial inventory write-downs (RMB 421.9 million), and a 64.2% increase in R&D spending [Revenue Analysis](index=5&type=section&id=FY%202022%20Revenue%20Analysis) | Revenue Stream | FY 2022 (RMB M) | FY 2021 (RMB M) | Change (YoY) | | :--- | :--- | :--- | :--- | | Products Revenue | 4,159.6 | 4,956.9 | -16.1% | | Mining Revenue | 218.6 | 21.7 | +907.4% | | **Total Revenues** | **4,378.9** | **4,986.7** | **-12.2%** | [Profitability Analysis](index=5&type=section&id=FY%202022%20Profitability%20Analysis) - Gross profit decreased to **RMB 1,747.9 million** from **RMB 2,850.7 million** in 2021, with the increase in cost of revenues mainly due to **RMB 421.9 million** of inventory write-downs and **RMB 198.5 million** of depreciation from the growing mining fleet[21](index=21&type=chunk) - Income from operations was **RMB 557.8 million**, a significant decrease from **RMB 1,828.3 million** in 2021[23](index=23&type=chunk) [Operating Expenses](index=5&type=section&id=FY%202022%20Operating%20Expenses) | Expense Category | FY 2022 (RMB M) | FY 2021 (RMB M) | Change (YoY) | | :--- | :--- | :--- | :--- | | Research & Development | 546.6 | 332.8 | +64.2% | | Sales & Marketing | 63.0 | 100.5 | -37.3% | | General & Administrative | 580.5 | 589.1 | -1.5% | | **Total Operating Expenses** | **1,190.1** | **1,022.4** | **+16.4%** | [Net Income and EPS](index=6&type=section&id=FY%2022%20Net%20Income%20and%20EPS) | Metric | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net Income | RMB 658.2 M | RMB 2,000.3 M | | Non-GAAP Adj. Net Income | RMB 1,041.0 M | RMB 2,301.6 M | | Diluted Earnings per ADS | RMB 3.83 | RMB 11.65 | [Financial Position](index=6&type=section&id=Financial%20Position) As of December 31, 2022, the company's financial position showed a significant reduction in cash and cash equivalents to RMB 707.3 million from RMB 2,684.3 million at the end of 2021, while inventories nearly doubled and cryptocurrency holdings increased substantially, with total liabilities seeing a major decrease primarily due to a reduction in contract liabilities | Balance Sheet Item | Dec 31, 2022 (RMB M) | Dec 31, 2021 (RMB M) | | :--- | :--- | :--- | | Cash and cash equivalents | 707.3 | 2,684.3 | | Inventories | 1,512.1 | 812.4 | | Cryptocurrency | 87.3 | 20.3 | | Total Assets | 4,870.1 | 5,632.3 | | Total Liabilities | 462.5 | 2,173.6 | - The company held **757.14 bitcoins** with a carrying value of **RMB 87.3 million (US$12.7 million)** as of December 31, 2022[25](index=25&type=chunk) Business Updates and Outlook [Recent Developments](index=6&type=section&id=Recent%20Developments) The company is aggressively expanding its bitcoin mining business, having installed 3.8 EH/s by February-end 2023 with a target of 5-5.5 EH/s by the end of Q1 2023, continued its US$100 million share repurchase program, having bought back US$27.1 million in ADSs, and established an At-the-Market (ATM) offering to potentially raise up to US$750 million in capital - The company is developing its bitcoin mining business as a second engine, with an installed hash rate of **3.8 EH/s** as of February-end 2023, targeting **5 to 5.5 EH/s** by the end of Q1 2023[27](index=27&type=chunk) - Under its share repurchase program, the company has repurchased a total of **8.2 million ADSs** for **US$27.1 million** as of February 28, 2023[28](index=28&type=chunk)[30](index=30&type=chunk) - An At-the-Market (ATM) offering program was established, allowing the company to sell up to **US$750 million** of its ADSs to access public capital markets flexibly[31](index=31&type=chunk) [Business Outlook](index=7&type=section&id=Business%20Outlook) Reflecting the ongoing challenging market conditions, Canaan projects total net revenues for the first quarter of 2023 to be approximately RMB 450 million (US$65 million), based on the company's preliminary assessment of market and operational conditions - For the first quarter of 2023, the Company expects total net revenues to be approximately **RMB 450 million (US$65 million)**[32](index=32&type=chunk) Unaudited Financial Statements [Consolidated Balance Sheets](index=10&type=section&id=CANAAN%20INC.%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The unaudited consolidated balance sheet as of December 31, 2022, shows total assets of RMB 4.87 billion and total liabilities of RMB 462.5 million, with key changes from year-end 2021 including a significant decrease in cash and contract liabilities, alongside a substantial increase in inventories | (Amounts in thousands RMB) | As of Dec 31, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | 3,994,630 | 5,273,461 | | **Total non-current assets** | 875,448 | 358,796 | | **Total assets** | **4,870,078** | **5,632,257** | | **Total current liabilities** | 448,261 | 2,085,104 | | **Total liabilities** | **462,463** | **2,173,567** | [Consolidated Statements of Comprehensive Income (Quarterly)](index=11&type=section&id=CANAAN%20INC.%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%2F%28LOSS%29) For the fourth quarter ended December 31, 2022, the company reported total revenues of RMB 391.9 million and a net loss of RMB 438.3 million, contrasting with a net income of RMB 46.1 million in Q3 2022 and a net income of RMB 1,196.5 million in Q4 2021, reflecting a significant deterioration in performance | (Amounts in thousands RMB) | Q4 2022 | Q3 2022 | Q4 2021 | | :--- | :--- | :--- | :--- | | Total revenues | 391,926 | 978,207 | 2,184,555 | | Gross profit/(loss) | (230,905) | 219,336 | 1,486,949 | | Income/(loss) from operations | (624,388) | (55,687) | 1,213,225 | | Net income/(loss) | (438,332) | 46,060 | 1,196,529 | [Consolidated Statements of Comprehensive Income (Annual)](index=13&type=section&id=CANAAN%20INC.%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) For the full year ended December 31, 2022, the company generated total revenues of RMB 4.38 billion and a net income of RMB 658.2 million, representing a significant decline from 2021, where revenues were RMB 4.99 billion and net income was RMB 2.0 billion | (Amounts in thousands RMB) | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Total revenues | 4,378,907 | 4,986,706 | | Gross profit | 1,747,948 | 2,850,745 | | Income from operations | 557,817 | 1,828,325 | | Net income | 658,245 | 2,000,282 | [Non-GAAP Reconciliations](index=12&type=section&id=Non-GAAP%20Reconciliations) The company provides non-GAAP financial measures to supplement its U.S. GAAP results, with Q4 2022 non-GAAP adjusted net loss at RMB 341.8 million after excluding share-based compensation, and full year 2022 non-GAAP adjusted net income at RMB 1.04 billion after excluding share-based compensation and changes in the fair value of warrant liability Quarterly Non-GAAP Reconciliation (in thousands RMB) | | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Net income/(loss) | (438,332) | 1,196,529 | | Add: Share-based compensation | 96,548 | 76,364 | | Add: Change in fair value of warrant liability | - | (22,148) | | **Non-GAAP adjusted net income/(loss)** | **(341,784)** | **1,250,745** | Annual Non-GAAP Reconciliation (in thousands RMB) | | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net income | 658,245 | 2,000,282 | | Add: Share-based compensation | 407,397 | 491,461 | | Add: Change in fair value of warrant liability | (24,598) | (190,178) | | **Non-GAAP adjusted net income** | **1,041,044** | **2,301,565** |

Canaan Inc. (NASDAQ:CAN) Q3 2022 Earnings Conference Call Nov 14 2022 7:00 AM ET Company Participants Clark Soucy - IR Director Nangeng Zhang - Chairman and Chief Executive Officer James Cheng - Chief Financial Officer Conference Call Participants<span sty ...

Canaan Inc. (NASDAQ:CAN) Q2 2022 Earnings Conference Call August 18, 2022 8:00 AM ET Company Participants Clark Soucy - IR, Director of the Company Nangeng Zhang - Chairman and CEO James Cheng - CFO Conference Call Participants Jiaer Zhu - China Renaissance Securities Michael Legg - The Benchmark Company Kevin Dede - H.C. Wainwright Operator Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.'s Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this ...

Canaan Inc. (NASDAQ:CAN) Q1 2022 Earnings Conference Call May 19, 2022 8:00 AM ET Company Participants Xi Zhang - IR Manager Nangeng Zhang - Chairman and CEO James Cheng - CFO Conference Call Participants Hans Chung - D.A. Davidson Mike Legg - The Benchmark Company Song Jiaji - Guosheng Securities Operator Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.'s First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. Now, I'd li ...

Table of Contents Title of each classTrading Symbol Name of each exchange on which registered American Depositary Shares, each representing 15 Class A ordinary share CAN NASDAQ Global Market. Class A ordinary shares, par value US$0.00000005 per share* NASDAQ Global Market. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ...

Financial Data and Key Metrics Changes - In Q4 2021, the company achieved a revenue of RMB 2.18 billion, representing a 55.8% quarter-over-quarter increase and exceeding the upper range of guidance [8][23] - The net profit for Q4 2021 reached RMB 1.2 billion, marking a record high for the company [8] - For the full year 2021, total net revenues were RMB 4.99 billion, up more than tenfold compared to 2020, with a net profit of RMB 2 billion [8][26] - Gross profit for Q4 2021 was RMB 1.49 billion, with a gross margin of 68%, while the full-year gross margin was 57.2% [24][31] Business Line Data and Key Metrics Changes - The company sold 7.74 million Terahash per second of computing power in Q4 2021, a 15.5% increase quarter-over-quarter [9][23] - The total computing power sold for the full year 2021 was 32.34 million Terahash per second, up 238.5% year-over-year [8] - AI business revenue in Q4 2021 was RMB 5.5 million, reflecting a year-over-year growth of 150.3% [25] Market Data and Key Metrics Changes - The company expanded its customer base to include new clients from Malaysia, UAE, Argentina, and Peru, with new customers contributing 41% of total computing power sold [10] - Traditional markets like Central Asia, North America, and Europe remained strong, with existing clients accounting for 59% of total sales [10] Company Strategy and Development Direction - The company aims to enhance its R&D capabilities, focusing on chip design and improving product performance in 2022 [21] - The strategy includes balancing production capacity between machine sales and mining operations to maximize profitability [14][21] - The company is committed to developing its AI business and has established strategic partnerships to promote localized open-source projects [15] Management Comments on Operating Environment and Future Outlook - Management acknowledged challenges such as semiconductor supply shortages and geopolitical factors affecting Bitcoin prices [6][7] - The company remains confident in its revenue for upcoming quarters, supported by strong pre-sales performance and secured production capacity [11] - Management expects total net revenue in Q1 2022 to be between RMB 1.5 billion and RMB 1.6 billion, indicating a year-over-year increase of 275% to 300% [22] Other Important Information - The company completed a share repurchase program, buying back approximately 3.6 million ADS for a total of $20 million [19] - As of December 31, 2021, cash and cash equivalents were RMB 2.68 billion, up 586% from the previous year [32] Q&A Session Summary Question: Impact of Bitcoin price drop on sales and control measures - Management noted that Bitcoin price fluctuations historically lead to a decline in sales, but institutional clients tend to have a long-term perspective, mitigating immediate impacts [34] - Measures to mitigate negative impacts include reaching new clients and adjusting machine allocations between inventory and mining [35] Question: Progress on computing power deployment for mining business - As of February 28, 2022, the company had 2.38 million Terahash of mining computing power under deployment, with plans to continue increasing deployment while balancing sales and mining [38] Question: Competitive moat against competition - The competitive landscape has stabilized, but the company believes its accumulated experience and technological advancements provide a significant advantage [39][40] - The company has developed strong partnerships to secure production capacity and mitigate supply chain risks [40] Question: Market share insights - The company estimated its market share based on computing power sold, achieving 22.3 million Terahash in 2021 compared to 6.6 million in 2020, indicating growth in market share [46] Question: Stock dividend program - Management is evaluating the situation regarding future stock repurchase proposals and is committed to investing in R&D and market development to enhance shareholder value [49]

Financial Data and Key Metrics Changes - The company achieved total net revenues of RMB 1,317.6 million, representing a year-over-year increase of 708.2% and a quarter-over-quarter increase of 21.8%, marking a historical high [5][15][19] - Gross profit reached RMB 741.7 million, up 73.3% sequentially, with a gross margin of 56.3% [15][19] - Non-GAAP adjusted net income was RMB 587.5 million, reflecting an 83.6% sequential increase [19] - Cash and cash equivalents increased by 334% to RMB 1,698.5 million compared to RMB 391.3 million as of December 31, 2020 [19] Business Line Data and Key Metrics Changes - The company sold 6.7 million terahash of computing power, an increase of 128.4% year-over-year and 12.9% quarter-over-quarter [7][15] - The average selling price (ASP) of computing power improved by 7% sequentially [15] - R&D expenses increased by 188.8% year-over-year to RMB 92.8 million, driven by increased staff costs and development expenses [11][17] Market Data and Key Metrics Changes - The company delivered mining machines to 26 countries and regions, strengthening its presence in overseas markets, particularly in the U.S. [7] - Repeat orders from large-scale mining companies indicated strong recognition of the company's product performance and service quality [7] Company Strategy and Development Direction - The company aims to expand its business footprint in overseas markets to offset the impact of regulatory changes in China [24] - A multipronged growth strategy has been implemented, establishing long-term partnerships with major foundries to secure stable supplies [26] - The company is focusing on renewable energy mining and enhancing its technological capabilities through R&D investments [6][10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from regulatory changes and supply constraints but emphasized the company's ability to navigate these issues [12][13] - The company expects revenue in Q4 2021 to increase by 35% to 50% sequentially, reflecting confidence in continued growth [14] - The management noted that the overall global demand for mining machines has resumed an upward trajectory despite short-term volatilities [23] Other Important Information - The company has initiated a new share repurchase program of up to $20 million, reflecting confidence in its growth potential [12] - The company is negotiating additional contracts for approximately 1 million terahash of computing power to be shipped by January 2022 [10][32] Q&A Session Summary Question: Impact of Chinese government regulations on cryptocurrency mining - Management noted that the computing power from mining firms in Mainland China has largely relocated to overseas markets, and the overall global demand for mining machines has resumed an upward trajectory [22][23] Question: Collaboration with partners and cost operations - The company has established long-term partnerships with multiple foundries to secure stable supplies and improve production capacity [26][27] Question: Future mining business impact from regulations - Management believes that new policies in Kazakhstan will promote sustainable development in the cryptocurrency mining sector, benefiting large-scale companies [30] Question: Bitcoin holding and trading strategy - The company currently holds 23.86 Bitcoin and plans to hold them in the short term, with the possibility of trading in the future [33] Question: Mining costs in Q3 - The costs of mining in Q3 were about 39% of mining revenue, with a gross margin of 61%, slightly higher than the gross margin from sales of mining machines [35]