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    Canaan Inc. Reports Unaudited First Quarter 2022 Financial Results
    publish date 2022-05-19

    BEIJING, May 19, 2022 Canaan Inc. (NASDAQ: CAN) (“Canaan” or the “Company”), a leading high-performance computing solutions provider, today announced its unaudited financial results for the three months ended March 31, 2022.

     

    First Quarter 2022 Operating and Financial Highlights

     

    Total computing power sold was 4.3 million Thash/s, representing an increase of 119.1% from 2.0 million Thash/s in the same period of 2021.

     

    Revenues were RMB1,356.1 million (US$213.9 million), representing an increase of 236.7% from RMB402.8 million in the same period of 2021.

     

    Gross profit was RMB829.8 million (US$130.9 million), representing an increase of 327.2% from RMB194.2 million in the same period of 2021.

     

    Net income was RMB441.6 million (US$69.7 million), compared to a net income of RMB1.2 million in the same period of 2021.

     

    Non-GAAP adjusted net income was RMB543.4 million (US$85.7 million), representing an increase of 279.5% from RMB143.2 million in the same period of 2021.

     

    Mr. Nangeng Zhang, Chairman and Chief Executive Officer of Canaan, commented, “We kicked off the year 2022 in an increasingly unpredictable environment due to macroeconomic uncertainties and logistic disruptions caused by the COVID-19 pandemic. While confronting these challenges, we remained steadfast in our commitment to strengthening our partnerships with clients and expanding our global coverage. As a result, our computing power sold in the first quarter reached 4.3 million Thash/s, representing an increase of 119.1% from 2.0 million Thash/s in the same period of 2021. As we continued to develop globally, we established an international headquarters in Singapore which has already earned recognition and support from the local authorities. In order to provide best-in-class service and amplify our global reach, we are investing in building up our network of after-sales service centers overseas. We also recently launched an online store to enable global retail clients to seamlessly purchase our products. We have also been ramping up our mining business despite power shortages, and we now hold a total of 166.96 bitcoins on our balance sheet as of March 31, 2022. Looking ahead, while we are cognizant of the near-term headwinds, we are confident that our extensive experience, increasingly globalized operations, and execution capabilities put us in a solid position to navigate the current period of uncertainty.”

     

    Mr. James Jin Cheng, Chief Financial Officer of Canaan, stated, “We delivered revenues of RMB1,356.1 million in the first quarter of 2022. The underperformance of our topline result for the quarter was anticipated, given the sudden suspension of delivery logistics during the second half of March, resulting from COVID-19 control measures in the city where our factory and warehouses are located. Since the end of March, we have been gradually resuming production and delivery, following the guidelines from the local governments. I am pleased to report that all of the employees at our factory are healthy and have returned to their posts. As of present, we have shipped out most of the delayed orders from the first quarter. In addition, despite increasing costs for raw materials, especially wafers, we managed to achieve a net income of RMB441.6 million. We are staying vigilant and will dynamically manage our operations to navigate through the challenges ahead, including the recent downward fluctuation in the bitcoin price, COVID-19 resurgence, and ongoing supply chain constraints. Our solid balance sheet with a cash position of RMB2,643.2 million as of March 31, 2022, provides us considerable liquidity to further strengthen product offerings, optimize services, and expand our presence in international markets. At the same time, in the capital markets, we are facing pressure from both cryptocurrency price fluctuations and potential de-listing risks. The share repurchase program we announced in March this year reflects our confidence in the long-term prospects of the Company’s business and our commitment to shareholder value.”

     

    First Quarter 2022 Financial Results

     

    Revenues in the first quarter of 2022 were RMB1,356.1 million (US$213.9 million), representing an increase of 236.7% from RMB402.8 million in the same period of 2021. The year-over-year increase was mainly attributable to the increase in total computing power sold and the average selling price per Thash/s.

     

    Cost of revenues in the first quarter of 2022 was RMB526.3 million (US$83.0 million), representing an increase of 152.4% from RMB208.6 million in the same period of 2021. The year-over-year increase in cost of revenues was in line with revenue growth.

     

    Gross profit in the first quarter of 2022 was RMB829.8 million (US$130.9 million), representing an increase of 327.2% from RMB194.2 million in the same period of 2021.

     

    Total operating expenses in the first quarter of 2022 were RMB251.5 million (US$39.7 million), representing an increase of 21.0% from RMB207.9 million in the same period of 2021.

     

    Research and development expenses in the first quarter of 2022 were RMB101.2 million (US$16.0 million), representing an increase of 73.9% from RMB58.2 million in the same period of 2021. The year-over-year increase was primarily attributable to the increased staff costs in technology-related departments as well as increased costs associated with new product development. Research and development expenses in the first quarter of 2022 also included share-based compensation expenses of RMB20.0 million (US$3.1 million).

     

    Sales and marketing expenses in the first quarter of 2022 were RMB20.0 million (US$3.2 million), representing an increase of 217.0% from RMB6.3 million in the same period of 2021. The year-over-year increase was mainly driven by increased staff costs and advertising expenses. Sales and marketing expenses in the first quarter of 2022 also included share-based compensation expenses of RMB2.1 million (US$0.3 million).

     

    General and administrative expenses in the first quarter of 2022 were RMB130.4 million (US$20.6 million), representing a decrease of 9.1% from RMB143.4 million in the same period of 2021. The year-over-year decrease was mainly due to decreased share-based compensation expenses, partially offset by increased staff costs and administrative expenses. General and administrative expenses in the first quarter of 2022 also included share-based compensation expenses of RMB79.3 million (US$12.5 million).

     

    Income from operations in the first quarter of 2022 was RMB578.3 million (US$91.2 million), compared to a loss from operations of RMB13.7 million in the same period of 2021.

     

    Net income attributable to ordinary shareholders in the first quarter of 2022 was RMB441.6 million (US$69.7 million), compared to a net income of RMB1.2 million in the same period of 2021.

     

    Non-GAAP adjusted net income in the first quarter of 2022 was RMB543.4 million (US$85.7 million), representing an increase of 279.5% from RMB143.2 million in the same period of 2021. Non-GAAP adjusted net income excludes share-based compensation expenses and change in fair value of warrant liability. For further information, please refer to “Use of Non-GAAP Financial Measures” in this press release.

     

    Foreign currency translation adjustment, net of nil tax, in the first quarter of 2022 was a loss of RMB4.8 million (US$0.8 million), compared with a gain of RMB2.4 million in the same period of 2021, due to the US dollar appreciation against the Renminbi during the first quarter of 2022.

     

    Basic net earnings per American depositary share (“ADS”) in the first quarter of 2022 was RMB2.57 (US$0.41). In comparison, basic net earnings per ADS in the same period of 2021 was RMB0.01. Each ADS represents 15 of the Company’s Class A ordinary shares.

     

    Diluted net earnings per ADS in the first quarter of 2022 was RMB2.57 (US$0.41). In comparison, diluted net earnings per ADS in the same period of 2021 was RMB0.01. Each ADS represents 15 of the Company’s Class A ordinary shares.

     

    As of March 31, 2022, the Company held cryptocurrency assets that comprised 166.96 Bitcoins, with a carrying value of RMB45.3 million (US$7.1 million).

     

    Contract liabilities as of March 31, 2022, were RMB1,769.9 million (US$279.2 million), increasing from RMB1,340.7 million as of December 31, 2021, mainly due to increased customer advances from sales orders of Bitcoin mining machines.

     

    As of March 31, 2022, the Company had cash and cash equivalents of RMB2,643.2 million (US$417.0 million), essentially remaining flat compared to RMB2,684.3 million as of December 31, 2021, as the increased cash from customer advances was offset by increased prepayment to suppliers and income tax payment during the first quarter of 2022.

     

    Shares Outstanding

     

    As of March 31, 2022, the Company had a total of 158,329,596 ADSs outstanding, each representing 15 of the Company’s Class A ordinary shares. The increase in the total ADS outstanding compared with the end of the fourth quarter of 2021 was due to the ADSs transferred from outstanding Class A ordinary shares held by an existing shareholder.

     

    Recent Developments

     

    The Impact of the Recent COVID-19 Quarantine Control

     

    Recently, local governments in a number of cities in China have initiated quarantine control mandates due to the recent resurgence of COVID-19 cases. On March 14, 2022, the government implemented a five-day quarantine lock-down for all residents and businesses in the city where the Company’s mining machine factory and warehouses are located. This strict quarantine control period was further extended until the end of March. This lock-down measure resulted in the logistics suspension for the delivery of the Company’s mining machines to clients that have made down payments or fully prepaid for computing power orders. As such, the Company’s revenue recognition in the first quarter of 2022 was adversely affected due to the delay in its inventory delivery.

     

    The Company actively cooperates with the local government for pandemic control and has taken measures to ensure the health and safety of its employees in the affected region. Since the end of March, the Company has been gradually resuming production and delivery under the guidance of the local government. As of the date of this press release, the Company has completed the delivery of most of the delayed orders from the first quarter.

     

    The Company is closely monitoring the evolvement of the COVID-19 pandemic situation and may adjust its operations further according to the quarantine requirements by the local government.

     

    The Company’s Share Repurchase Update

     

    In the first quarter of 2022, the Company repurchased a total of 2.1 million ADSs with an aggregate value of US$10.3 million and an average repurchase price of US$4.81 per ADS. As of the March 31, 2022, the Company has completed the share repurchase program of U$20 million approved in September 2021.

     

    On March 16, 2022, the Company announced that its board of directors authorized a share repurchase program under which the Company may repurchase up to US$100 million worth of its outstanding (i) American depositary shares, each representing 15 Class A ordinary shares, and/or (ii) Class A ordinary shares over the next 24 months starting from March 16, 2022.

     

    The At-the-Market (“ATM”) Offering

     

    On April 8, 2022, the Company entered into an at-the-market offering agreement (the “ATM Agreement”), providing for an at-the-market (“ATM”) equity offering program, with H.C. Wainwright & Co., LLC (“HCW”).

     

    The Company does not currently expect to sell any ADS under the ATM program at this point in time. However, the program has been established as a flexible mechanism for the Company to access public capital markets in the future. The timing and extent of the use of the ATM program will be at the discretion of the Company, provided that the Company has satisfied certain obligations set forth in the ATM agreement, and any equity offerings will be disclosed on a quarterly basis.

     

    The Company will prioritize shareholder interests and the general market when considering the execution of its financing plans and will make proactive adjustments to accommodate market conditions.

     

    Business Outlook

     

    For the second quarter of 2022, the Company expects total net revenues to be in the range of RMB1,600 million (US$252.4 million) to RMB1,800 million (US$283.9 million), representing an increase of 48% to 67% from the second quarter of 2021. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

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