Canaan(CAN) - 2022 Q1 - Quarterly Report

Report Overview Fourth Quarter 2021 Operating and Financial Highlights 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] 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 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 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] - 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] - 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] - 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] Company Information About Canaan Inc. 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] - Launched and mass-produced the first ASIC Bitcoin miner in 2013[23] - Released the world's first 7nm ASIC chip in 2018, providing energy-efficient computing equipment for the cryptocurrency mining industry[23] - 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] Fourth Quarter 2021 Financial Results Net Revenues and Cost of Revenues 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 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 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] Sales and Marketing Expenses 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] General and Administrative Expenses 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] Profitability and Net Income 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 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 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 Net Revenues and Cost of Revenues 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 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 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] Sales and Marketing Expenses 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] General and Administrative Expenses 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] Profitability and Net Income 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 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 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 Key Balance Sheet Items 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 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] Recent Developments Share Repurchase Program 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] - Approximately 3.6 million ADSs were repurchased for a total of $20 million[19] Management Changes 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] - Ms. Lu Meng succeeded as Board Secretary, having joined the company in September 2018 as Assistant to the CEO[20] Business Outlook First Quarter 2022 Revenue Forecast 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 Use of Non-GAAP Financial Measures 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] - Adjusted net (loss)/income excludes share-based compensation expenses and changes in fair value of warrant liabilities[26] - 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] Consolidated Financial Statements Unaudited Consolidated Balance Sheets 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) 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) 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) 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) 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 Exchange Rate Information 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] - This rate is based on the noon buying rate in the Federal Reserve Board's H.10 statistical release on December 30, 2021[24] Safe Harbor Statement 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] - 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] - 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] Investor Relations Contact 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] - ICR, LLC contact: Robin Yang, Phone: +1(347)396-3281, Email: canaan.ir@icrinc.com[29]