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]

[Report Overview](index=1&type=section&id=Item%201.%20Report%20Overview) [Fourth Quarter 2021 Operating and Financial Highlights](index=1&type=section&id=Item%201.1.%20Fourth%20Quarter%202021%20Operating%20and%20Financial%20Highlights) Canaan Inc. achieved record-breaking results in Q4 2021, driven by strong demand for Bitcoin mining machines, leading to significant QoQ and YoY growth in total computing power sold, net revenues, gross profit, and net income - Increased sales orders for Bitcoin mining machines and healthy operating margins led to a substantial increase in the company's cash and cash equivalents[2](index=2&type=chunk) 2021 Fourth Quarter Key Operating and Financial Data | Metric | Q4 2021 | Q3 2021 | Q4 2020 | QoQ Growth | YoY Growth | | :----------------------- | :------------- | :------------- | :------------- | :------- | :------- | | Total Computing Power Sold (Thash/s) | 7.7 million | 6.7 million | 0.2 million | +15.5% | +3750% | | Cash and Cash Equivalents (RMB) | 2,684.3 million | N/A | 391.3 million | N/A | +586.0% | | Total Net Revenues (RMB) | 2,184.6 million | 1,317.6 million | 38.2 million | +65.8% | +5616.2% | | Gross Profit (RMB) | 1,486.9 million | 741.7 million | 9.1 million | +100.5% | +16240% | | Net Income (RMB) | 1,196.5 million | 557.6 million | (72.0) million | +114.6% | N/A | | Non-GAAP Adjusted Net Income (RMB) | 1,250.7 million | 587.5 million | (73.1) million | +112.9% | N/A | [Full Year 2021 Operating and Financial Highlights](index=1&type=section&id=Item%201.2.%20Full%20Year%202021%20Operating%20and%20Financial%20Highlights) For fiscal year 2021, Canaan Inc. achieved significant growth across all key financial metrics, transitioning from a net loss in 2020 to substantial profitability, primarily driven by increased computing power sales 2021 Full Year Key Operating and Financial Data | Metric | FY 2021 | FY 2020 | YoY Growth | | :----------------------- | :------- | :------- | :------- | | Total Computing Power Sold (Thash/s) | 22.3 million | 6.6 million | +238.5% | | Total Net Revenues (RMB) | 4,986.7 million | 447.7 million | +1013.9% | | Gross Profit (RMB) | 2,850.7 million | 37.8 million | +7448.4% | | Net Income (RMB) | 2,000.3 million | (215.1) million | N/A | | Non-GAAP Adjusted Net Income (RMB) | 2,301.6 million | (212.1) million | N/A | [Management Commentary](index=1&type=section&id=Item%201.3.%20Management%20Commentary) Management expressed satisfaction with the strong Q4 and full-year results amidst market volatility, highlighting global market expansion, enhanced Bitcoin mining operations, and AI business development, with a 2022 growth strategy focused on R&D, global expansion, agile operations, and prudent mining deployment - CEO Nangeng Zhang stated that despite Bitcoin price fluctuations and challenging industry dynamics, the company made encouraging operational progress, concluding the year with strong fourth-quarter results[5](index=5&type=chunk) - CFO Jin Cheng reported that total net revenues increased by **65.8% QoQ** to **RMB 2,184.6 million** in Q4, primarily due to business development, customer base growth, and a higher proportion of spot sales at increased average selling prices[5](index=5&type=chunk) - By the end of 2021, the company secured **RMB 1,340.7 million** in contract prepayments, ensuring stable revenue streams and expanded supply capacity for future quarters[5](index=5&type=chunk) - 2022 Outlook: The company plans to execute its growth strategy through active R&D investment, solid global business development, agile operations to adapt to industry dynamics, and prudent deployment of mining operations[5](index=5&type=chunk) [Company Information](index=4&type=section&id=Item%202.%20Company%20Information) [About Canaan Inc.](index=4&type=section&id=Item%202.1.%20About%20Canaan%20Inc.) Canaan Inc., founded in 2013, is a technology company specializing in ASIC high-performance computing chip design, R&D, computing equipment manufacturing, and software services, known for launching the first ASIC Bitcoin miner and the first 7nm ASIC chip and RISC-V commercial edge AI chip - The company was founded in 2013, focusing on ASIC high-performance computing chip design, R&D, computing equipment manufacturing, and software services[23](index=23&type=chunk) - Launched and mass-produced the first ASIC Bitcoin miner in 2013[23](index=23&type=chunk) - Released the world's first **7nm ASIC chip** in 2018, providing energy-efficient computing equipment for the cryptocurrency mining industry[23](index=23&type=chunk) - In the same year, launched the world's first commercial edge AI chip based on the RISC-V architecture, extending the potential of ASIC technology to high-performance computing and artificial intelligence[23](index=23&type=chunk) [Fourth Quarter 2021 Financial Results](index=2&type=section&id=Item%203.%20Fourth%20Quarter%202021%20Financial%20Results) [Net Revenues and Cost of Revenues](index=2&type=section&id=Item%203.1.%20Net%20Revenues%20and%20Cost%20of%20Revenues) In Q4 2021, the company's total net revenues significantly increased both YoY and QoQ, primarily driven by sustained growth in total computing power sold and average selling price per Thash/s, with cost of revenues also increasing in line with revenue growth 2021 Fourth Quarter Net Revenues and Cost of Revenues | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | YoY Growth | QoQ Growth | | :---------------- | :------------------- | :------------------- | :------------------- | :------- | :------- | | Total Net Revenues | 2,184.6 million | 38.2 million | 1,317.6 million | +5616.2% | +65.8% | | Cost of Revenues | 697.6 million | 29.2 million | 575.9 million | +2295.9% | +21.1% | [Operating Expenses](index=2&type=section&id=Item%203.2.%20Operating%20Expenses) Total operating expenses in Q4 2021 slightly decreased QoQ but significantly increased YoY, primarily due to higher R&D, sales and marketing, and general and administrative expenses, driven by increased staff costs, new product development, and professional service fees 2021 Fourth Quarter Total Operating Expenses | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | YoY Growth | QoQ Growth | | :--------------- | :------------------- | :------------------- | :------------------- | :------- | :------- | | Total Operating Expenses | 273.7 million | 80.1 million | 278.4 million | +241.7% | -1.7% | [Research and Development Expenses](index=2&type=section&id=Item%203.2.1.%20Research%20and%20Development%20Expenses) 2021 Fourth Quarter Research and Development Expenses | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | YoY Growth | QoQ Growth | | :--------------- | :------------------- | :------------------- | :------------------- | :------- | :------- | | R&D Expenses | 112.0 million | 40.1 million | 92.8 million | +179.6% | +20.8% | - The increase was primarily attributable to higher new product R&D costs and increased staff costs in technology-related departments, including **RMB 19.6 million** in share-based compensation expenses[7](index=7&type=chunk) [Sales and Marketing Expenses](index=2&type=section&id=Item%203.2.2.%20Sales%20and%20Marketing%20Expenses) 2021 Fourth Quarter Sales and Marketing Expenses | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | YoY Growth | QoQ Growth | | :--------------- | :------------------- | :------------------- | :------------------- | :------- | :------- | | Sales and Marketing Expenses | 30.7 million | 6.1 million | 37.6 million | +399.6% | -18.3% | - The YoY increase was primarily attributable to higher staff costs, while the QoQ decrease was mainly due to favorable quarterly timing differences in advertising expenses, including **RMB 2.1 million** in share-based compensation expenses[8](index=8&type=chunk) [General and Administrative Expenses](index=2&type=section&id=Item%203.2.3.%20General%20and%20Administrative%20Expenses) 2021 Fourth Quarter General and Administrative Expenses | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | YoY Growth | QoQ Growth | | :--------------- | :------------------- | :------------------- | :------------------- | :------- | :------- | | G&A Expenses | 131.0 million | 33.9 million | 148.1 million | +286.6% | -11.5% | - The YoY increase was primarily due to higher staff costs, professional service fees, and depreciation expenses; the QoQ decrease was mainly due to lower share-based compensation expenses, partially offset by increased staff costs, professional service fees, and depreciation expenses, including **RMB 54.6 million** in share-based compensation expenses[9](index=9&type=chunk) [Profitability and Net Income](index=2&type=section&id=Item%203.3.%20Profitability%20and%20Net%20Income) In Q4 2021, the company achieved substantial operating income and net income, reversing the loss from the prior year's corresponding period and demonstrating strong QoQ growth, reflecting improved operational efficiency and revenue performance 2021 Fourth Quarter Profitability | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | QoQ Growth | | :----------------------- | :------------------- | :------------------- | :------------------- | :------- | | Operating Income/(Loss) | 1,213.2 million | (71.0) million | 463.3 million | +161.9% | | Net Income Attributable to Ordinary Shareholders | 1,196.5 million | (72.0) million | 557.6 million | +114.6% | [Non-GAAP Adjusted Net Income](index=2&type=section&id=Item%203.4.%20Non-GAAP%20Adjusted%20Net%20Income) Non-GAAP adjusted net income in Q4 2021 showed strong QoQ growth and a significant turnaround from a loss in the prior year's corresponding period, excluding share-based compensation expenses 2021 Fourth Quarter Non-GAAP Adjusted Net Income | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | QoQ Growth | | :----------------------- | :------------------- | :------------------- | :------------------- | :------- | | Non-GAAP Adjusted Net Income | 1,250.7 million | (73.1) million | 587.5 million | +112.9% | [Earnings Per ADS](index=3&type=section&id=Item%203.5.%20Earnings%20Per%20ADS) Basic and diluted earnings per ADS in Q4 2021 were positive, marking a significant improvement from a loss in Q4 2020 and demonstrating strong QoQ growth 2021 Fourth Quarter Earnings Per ADS | Metric | Q4 2021 (RMB) | Q4 2020 (RMB) | Q3 2021 (RMB) | | :----------------- | :------------------- | :------------------- | :------------------- | | Basic EPS per ADS | 6.90 | (0.46) | 3.20 | | Diluted EPS per ADS | 6.81 | (0.46) | 3.15 | [Full Year 2021 Financial Results](index=3&type=section&id=Item%204.%20Full%20Year%202021%20Financial%20Results) [Net Revenues and Cost of Revenues](index=3&type=section&id=Item%204.1.%20Net%20Revenues%20and%20Cost%20of%20Revenues) For fiscal year 2021, total net revenues and cost of revenues significantly increased YoY, primarily driven by a substantial increase in total computing power sold and a higher average selling price per Thash/s 2021 Full Year Net Revenues and Cost of Revenues | Metric | FY 2021 (RMB) | FY 2020 (RMB) | YoY Growth | | :---------------- | :------------- | :------------- | :------- | | Total Net Revenues | 4,986.7 million | 447.7 million | +1013.9% | | Cost of Revenues | 2,136.0 million | 409.9 million | +421.1% | [Operating Expenses](index=3&type=section&id=Item%204.2.%20Operating%20Expenses) Total operating expenses in fiscal year 2021 significantly increased YoY, primarily due to higher R&D, sales and marketing, and general and administrative expenses, reflecting increased investments in new products, personnel, and professional services 2021 Full Year Total Operating Expenses | Metric | FY 2021 (RMB) | FY 2020 (RMB) | YoY Growth | | :--------------- | :------------- | :------------- | :------- | | Total Operating Expenses | 1,022.4 million | 291.6 million | +250.0% | [Research and Development Expenses](index=3&type=section&id=Item%204.2.1.%20Research%20and%20Development%20Expenses) 2021 Full Year Research and Development Expenses | Metric | FY 2021 (RMB) | FY 2020 (RMB) | YoY Growth | | :--------------- | :------------- | :------------- | :------- | | R&D Expenses | 332.8 million | 140.0 million | +137.7% | - The increase was primarily attributable to higher new product R&D costs and increased staff costs in technology-related departments[15](index=15&type=chunk) [Sales and Marketing Expenses](index=3&type=section&id=Item%204.2.2.%20Sales%20and%20Marketing%20Expenses) 2021 Full Year Sales and Marketing Expenses | Metric | FY 2021 (RMB) | FY 2020 (RMB) | YoY Growth | | :--------------- | :------------- | :------------- | :------- | | Sales and Marketing Expenses | 100.5 million | 20.0 million | +402.5% | - The increase was primarily attributable to higher staff costs, consistent with improved net revenue performance[15](index=15&type=chunk) [General and Administrative Expenses](index=3&type=section&id=Item%204.2.3.%20General%20and%20Administrative%20Expenses) 2021 Full Year General and Administrative Expenses | Metric | FY 2021 (RMB) | FY 2020 (RMB) | YoY Growth | | :--------------- | :------------- | :------------- | :------- | | G&A Expenses | 589.1 million | 131.6 million | +347.6% | - The increase was primarily due to higher staff costs, professional service fees, and depreciation expenses[15](index=15&type=chunk) [Profitability and Net Income](index=3&type=section&id=Item%204.3.%20Profitability%20and%20Net%20Income) For fiscal year 2021, the company's profitability significantly improved, achieving substantial operating income and net income, reversing the loss from the previous year 2021 Full Year Profitability | Metric | FY 2021 (RMB) | FY 2020 (RMB) | | :----------------------- | :------------- | :------------- | | Operating Income/(Loss) | 1,828.3 million | (253.9) million | | Net Income Attributable to Ordinary Shareholders | 2,000.3 million | (215.1) million | [Non-GAAP Adjusted Net Income](index=3&type=section&id=Item%204.4.%20Non-GAAP%20Adjusted%20Net%20Income) Non-GAAP adjusted net income for fiscal year 2021 demonstrated strong performance, reversing the loss from the previous year, with this metric excluding share-based compensation expenses 2021 Full Year Non-GAAP Adjusted Net Income | Metric | FY 2021 (RMB) | FY 2020 (RMB) | | :----------------------- | :------------- | :------------- | | Non-GAAP Adjusted Net Income | 2,301.6 million | (212.1) million | [Earnings Per ADS](index=3&type=section&id=Item%204.5.%20Earnings%20Per%20ADS) Basic and diluted earnings per ADS for fiscal year 2021 were positive, marking a significant improvement from a loss in 2020 2021 Full Year Earnings Per ADS | Metric | FY 2021 (RMB) | FY 2020 (RMB) | | :----------------- | :------------- | :------------- | | Basic EPS per ADS | 11.90 | (1.38) | | Diluted EPS per ADS | 11.73 | (1.38) | [Financial Position](index=3&type=section&id=Item%205.%20Financial%20Position) [Key Balance Sheet Items](index=3&type=section&id=Item%205.1.%20Key%20Balance%20Sheet%20Items) As of December 31, 2021, Canaan Inc. saw substantial increases in cash and cash equivalents and contract liabilities, reflecting strong sales orders and healthy operating margins, while also holding a small amount of cryptocurrency Key Balance Sheet Items as of December 31, 2021 | Metric | December 31, 2021 (RMB) | December 31, 2020 (RMB) | YoY Growth | | :----------------------- | :------------------- | :------------------- | :------- | | Cash and Cash Equivalents | 2,684.3 million | 391.3 million | +586.0% | | Cryptocurrencies Held | 20.3 million | — | N/A | | Contract Liabilities | 1,340.7 million | 430.4 million | +211.5% | [Shares Outstanding](index=3&type=section&id=Item%205.2.%20Shares%20Outstanding) As of December 31, 2021, the company had 157,945,733 ADSs outstanding - As of December 31, 2021, the company had **157,945,733 ADSs** outstanding, with each ADS representing **15 Class A ordinary shares**[17](index=17&type=chunk) [Recent Developments](index=4&type=section&id=Item%206.%20Recent%20Developments) [Share Repurchase Program](index=4&type=section&id=Item%206.1.%20Share%20Repurchase%20Program) Canaan Inc. completed its up to $20 million share repurchase program, buying back approximately 3.6 million ADSs, demonstrating its commitment to enhancing shareholder value - The company completed its share repurchase program, authorized on September 20, 2021, for up to **$20 million**[19](index=19&type=chunk) - Approximately **3.6 million ADSs** were repurchased for a total of **$20 million**[19](index=19&type=chunk) [Management Changes](index=4&type=section&id=Item%206.2.%20Management%20Changes) Mr. Shaoke Li resigned as Board Secretary for personal reasons but will continue as a company advisor for a smooth transition, with Ms. Lu Meng appointed as the new Board Secretary - Mr. Shaoke Li resigned as Board Secretary for personal reasons on March 3, 2022, and will continue to serve as a company advisor[20](index=20&type=chunk) - Ms. Lu Meng succeeded as Board Secretary, having joined the company in September 2018 as Assistant to the CEO[20](index=20&type=chunk) [Business Outlook](index=4&type=section&id=Item%207.%20Business%20Outlook) [First Quarter 2022 Revenue Forecast](index=4&type=section&id=Item%207.1.%20First%20Quarter%202022%20Revenue%20Forecast) The company forecasts total net revenues for Q1 2022 to be between RMB 1.5 billion and RMB 1.6 billion, representing a YoY increase of 275%-300% 2022 First Quarter Total Net Revenues Forecast | Metric | Q1 2022 Forecast (RMB) | YoY Growth | | :--------------- | :----------------------- | :------- | | Total Net Revenues | 1,500 million - 1,600 million | 275%-300% | [Non-GAAP Financial Measures Explanation](index=5&type=section&id=Item%208.%20Non-GAAP%20Financial%20Measures%20Explanation) [Use of Non-GAAP Financial Measures](index=5&type=section&id=Item%208.1.%20Use%20of%20Non-GAAP%20Financial%20Measures) Canaan Inc. uses non-GAAP measures, such as adjusted net (loss)/income, to supplement its operating performance assessment, excluding share-based compensation expenses and changes in fair value of warrant liabilities, while acknowledging their limitations and emphasizing they are not substitutes for GAAP results - The company uses non-GAAP measures, such as adjusted net (loss)/income, to review and evaluate its operating performance[26](index=26&type=chunk) - Adjusted net (loss)/income excludes share-based compensation expenses and changes in fair value of warrant liabilities[26](index=26&type=chunk) - Non-GAAP financial measures are not defined or presented in accordance with U.S. GAAP, have limitations, and should not be considered in isolation or as a substitute for net (loss)/income prepared in accordance with U.S. GAAP[27](index=27&type=chunk) [Consolidated Financial Statements](index=7&type=section&id=Item%209.%20Consolidated%20Financial%20Statements) [Unaudited Consolidated Balance Sheets](index=7&type=section&id=Item%209.1.%20Unaudited%20Consolidated%20Balance%20Sheets) The consolidated balance sheet shows a significant increase in total assets as of December 31, 2021, primarily driven by substantial growth in cash and cash equivalents, inventories, and prepayments, with total liabilities also increasing due to higher contract liabilities Key Consolidated Balance Sheet Data (as of December 31, 2021) | Metric | December 31, 2021 (thousand RMB) | December 31, 2020 (thousand RMB) | Change (thousand RMB) | Change Rate | | :------------------------ | :--------------------- | :--------------------- | :----------- | :----- | | Total Assets | 5,632,257 | 1,036,376 | 4,595,881 | +443.4% | | Cash and Cash Equivalents | 2,684,342 | 391,310 | 2,293,032 | +586.0% | | Inventories | 812,363 | 225,522 | 586,841 | +260.2% | | Prepayments and Other Current Assets | 1,729,027 | 316,366 | 1,412,661 | +446.5% | | Contract Liabilities | 1,340,731 | 430,388 | 910,343 | +211.5% | | Total Liabilities | 2,173,567 | 603,818 | 1,569,749 | +259.9% | | Total Shareholders' Equity | 3,458,690 | 432,558 | 3,026,132 | +699.6% | [Unaudited Consolidated Statements of Comprehensive (Loss)/Income (Q4 2021)](index=8&type=section&id=Item%209.2.%20Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%2FIncome%20(Q4%202021)) The Q4 2021 consolidated statements of comprehensive income show significant growth in net revenues and gross profit, transitioning the company from a net loss in Q4 2020 to substantial net income Key Consolidated Statements of Comprehensive (Loss)/Income Data (Q4 2021) | Metric | Q4 2021 (thousand RMB) | Q4 2020 (thousand RMB) | Change (thousand RMB) | Change Rate | | :-------------------- | :--------------------- | :--------------------- | :----------- | :--------- | | Total Net Revenues | 2,184,555 | 38,246 | 2,146,309 | +5611.9% | | Cost of Revenues | (697,606) | (29,155) | (668,451) | +2292.8% | | Gross Profit | 1,486,949 | 9,091 | 1,477,858 | +16256.2% | | Operating (Loss)/Income | 1,213,225 | (71,000) | 1,284,225 | N/A | | Net (Loss)/Income | 1,196,529 | (71,955) | 1,268,484 | N/A | [Reconciliation of Non-GAAP Adjusted Net (Loss)/Income (Q4 2021)](index=9&type=section&id=Item%209.3.%20Reconciliation%20of%20Non-GAAP%20Adjusted%20Net%20(Loss)%2FIncome%20(Q4%202021)) The Q4 2021 reconciliation table shows non-GAAP adjusted net income was higher than GAAP net income, primarily due to the exclusion of share-based compensation expenses, partially offset by changes in fair value of warrant liabilities Reconciliation of Non-GAAP Adjusted Net (Loss)/Income (Q4 2021) | Metric | December 31, 2021 (thousand RMB) | September 30, 2021 (thousand RMB) | December 31, 2020 (thousand RMB) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | | Net (Loss)/Income | 1,196,529 | 557,586 | (71,955) | | Share-based Compensation Expenses | 76,365 | 120,316 | (1,160) | | Change in Fair Value of Warrant Liabilities | (22,148) | (90,354) | — | | Non-GAAP Adjusted Net (Loss)/Income | 1,250,746 | 587,548 | (73,115) | [Unaudited Consolidated Statements of Comprehensive (Loss)/Income (Full Year 2021)](index=10&type=section&id=Item%209.4.%20Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%2FIncome%20(Full%20Year%202021)) The full-year 2021 consolidated statements of comprehensive income reflect significant growth in net revenues and gross profit, transitioning the company from a net loss in 2020 to substantial net income Key Consolidated Statements of Comprehensive (Loss)/Income Data (Full Year 2021) | Metric | December 31, 2021 (thousand RMB) | December 31, 2020 (thousand RMB) | Change (thousand RMB) | Change Rate | | :-------------------- | :--------------------- | :--------------------- | :----------- | :--------- | | Total Net Revenues | 4,986,706 | 447,686 | 4,539,020 | +1013.9% | | Cost of Revenues | (2,135,961) | (409,922) | (1,726,039) | +421.1% | | Gross Profit | 2,850,745 | 37,764 | 2,812,981 | +7448.4% | | Operating (Loss)/Income | 1,828,325 | (253,881) | 2,082,206 | N/A | | Net (Loss)/Income | 2,000,282 | (215,094) | 2,215,376 | N/A | [Reconciliation of Non-GAAP Adjusted Net (Loss)/Income (Full Year 2021)](index=11&type=section&id=Item%209.5.%20Reconciliation%20of%20Non-GAAP%20Adjusted%20Net%20(Loss)%2FIncome%20(Full%20Year%202021)) The full-year 2021 reconciliation table shows non-GAAP adjusted net income was higher than GAAP net income, primarily due to the addition of share-based compensation expenses, partially offset by the exclusion of changes in fair value of warrant liabilities Reconciliation of Non-GAAP Adjusted Net (Loss)/Income (Full Year 2021) | Metric | December 31, 2021 (thousand RMB) | December 31, 2020 (thousand RMB) | | :------------------------------------ | :--------------------- | :--------------------- | | Net (Loss)/Income | 2,000,282 | (215,094) | | Share-based Compensation Expenses | 491,462 | 2,950 | | Change in Fair Value of Warrant Liabilities | (190,178) | — | | Non-GAAP Adjusted Net (Loss)/Income | 2,301,566 | (212,144) | [Other Information](index=5&type=section&id=Item%2010.%20Other%20Information) [Exchange Rate Information](index=5&type=section&id=Item%2010.1.%20Exchange%20Rate%20Information) The exchange rate for converting RMB amounts to USD in this announcement is RMB 6.3726 to $1.00, based on the noon buying rate in the Federal Reserve Board's H.10 statistical release on December 30, 2021, provided solely for reader convenience - The exchange rate for converting RMB amounts to USD in this announcement is **RMB 6.3726 to $1.00**[24](index=24&type=chunk) - This rate is based on the noon buying rate in the Federal Reserve Board's H.10 statistical release on December 30, 2021[24](index=24&type=chunk) [Safe Harbor Statement](index=5&type=section&id=Item%2010.2.%20Safe%20Harbor%20Statement) This statement indicates that certain forward-looking statements in the announcement carry risks and uncertainties that could cause actual results to differ materially from expectations, advising readers to consult SEC filings for further risk information - This announcement contains forward-looking statements, identifiable by words such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," and "estimates"[25](index=25&type=chunk) - Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement[25](index=25&type=chunk) - Risk factors include the company's goals and strategies, future business development, financial condition and operating results, Bitcoin industry growth and price, product demand and market acceptance, relationships with manufacturing partners and customers, investment plans and strategies, fluctuations in quarterly operating results, industry competition, and relevant government policies and regulations[25](index=25&type=chunk) [Investor Relations Contact](index=5&type=section&id=Item%2010.3.%20Investor%20Relations%20Contact) Investor relations contact information for Canaan Inc. and ICR, LLC is provided - Canaan Inc. Investor Relations contact: Ms. Xi Zhang, Email: IR@canaan-creative.com[28](index=28&type=chunk) - ICR, LLC contact: Robin Yang, Phone: +1(347)396-3281, Email: canaan.ir@icrinc.com[29](index=29&type=chunk)

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]