canaan-inc.-reports-unaudited-second-quarter-2021-financial-results-and-announces-change-of-board-composition

Canaan Inc. Reports Unaudited Second Quarter 2021 Financial Results and Announces Change of Board Composition

Canaan Inc. (NASDAQ: CAN) (“Canaan” or the “Company”), a leading high-performance computing solutions provider, today announced its unaudited financial results for the second quarter ended June 30, 2021 and the Change of Board Composition.

Second Quarter 2021 Operating and Financial Highlights

Total computing power sold was 5.9 million Thash/s, up 126.9% from 2.6 million Thash/s in the same period of 2020 and up 200.0% from 2.0 million Thash/s in the first quarter of 2021, setting a new high mark. The robust year-over-year and sequential increases were mainly due to the increase in the number of Bitcoin mining machines being delivered driven by strong market demand.

As of June 30, 2021, the Company had cash and cash equivalents of RMB1,220.2 million (US$189.0 million), up 211.8% compared to RMB391.3 million as of December 31, 2020, primarily due to a larger number of down payments received by the Company as a result of the larger volume of sales orders of Bitcoin mining machines, as well as the net proceeds from the Company’s registered direct offering in May 2021.

Total net revenues were RMB1,081.8 million (US$167.5 million), marking the strongest quarterly sales in the Company’s operating history, up 507.3% from RMB178.1 million in the same period of 2020, and up 168.6% from RMB402.8 million in the first quarter of 2021.

Gross profit was RMB427.1 million (US$66.2 million), up 887.0% from RMB43.3 million in the same period of 2020, and up 119.9% from RMB194.2 million in the first quarter of 2021.

Net income was RMB245.0 million (US$37.9 million), marking the highest quarterly net profit since the Company’s initial public offering in 2019 (the “IPO”), compared to a net loss of RMB16.8 million in the same period of 2020 and a net income of RMB1.2 million in the first quarter of 2021.

Non-GAAP adjusted net income was RMB320.1 million (US$49.6 million), again signifying a new high mark since the Company’s IPO, compared to a non-GAAP adjusted net loss of RMB16.0 million in the same period of 2020 and a non-GAAP adjusted net income of RMB143.2 million in the first quarter of 2021.

Mr. Nangeng Zhang, Chairman and Chief Executive Officer of Canaan, commented, “We delivered a remarkable performance in the second quarter of 2021. Despite unexpected regulatory policy dynamics and Bitcoin price volatility, we achieved record-high topline results as we delivered a robust 5.9 million Thash/s of computing power to our clients. During the second quarter and recently, we also secured substantial preorders, thanks to the effective execution of our strategies, including business development in the overseas markets, institutional client relationship building, and strengthening our supply chain. Regarding our self-operated Bitcoin mining program, we plan to continue to deploy computing power to grasp the tremendous opportunities of Bitcoin mining. We also made encouraging strides in the AI business by launching our self-developed edge AI chip, Kendryte K510, and garnered demand from multiple outstanding clients in the technology field. Looking ahead, while we endeavor to gain greater market share in our Bitcoin mining machine business, we will continue our research and development efforts to further advance our underlying ASIC and edge computing technologies, propelling forward our growth prospects.”

Mr. James Cheng, Chief Financial Officer of Canaan, stated, “We reported solid financial results for the quarter. Besides the record-setting revenue of RMB1.08 billion and a non-GAAP net profit of RMB320.1 million, our vigorous book of preorders, primarily from overseas clients, have brought abundant prepayments, which further enhanced our cash position. This enabled us to secure future wafer supply, grow our research and development team, and carry out strategic investments. Currently, we are fully aware of the industry-wide challenges, such as Bitcoin price fluctuation, wafer supply instability, regulatory uncertainties in different countries. Nevertheless, we remain confident in our effective growth strategies, technologically advanced products, solid operating capabilities, as well as the enormous potential of the industry.”

Second Quarter 2021 Financial Results

Total net revenues in the second quarter of 2021 increased by 507.3% to RMB1,081.8 million (US$167.5 million) from RMB178.1 million in the same period of 2020, and up 168.6% compared to RMB402.8 million in the first quarter of 2021. The year-over-year and quarter-over-quarter increases were mainly due to the substantial increase in total computing power sold.

Cost of revenues in the second quarter of 2021 increased to RMB654.6 million (US$101.4 million) from RMB134.8 million in the same period of 2020 and RMB208.6 million in the first quarter of 2021. Both the year-over-year and sequential increases in cost of revenues were in line with the increases in the Company’s Thash sales volume and cost per Thash.

Gross profit in the second quarter of 2021 was RMB427.1 million (US$66.2 million), up 887.0% from RMB43.3 million in the same period of 2020 and up 119.9% from RMB194.2 million in the first quarter of 2021.

Total operating expenses in the second quarter of 2021 were RMB261.6 million (US$40.5 million), compared to RMB62.2 million in the same period of 2020 and RMB207.9 million in the first quarter of 2021, as the Company enhanced its investment in research and development efforts and sales bonus spending during the quarter.

Research and development expenses in the second quarter of 2021 were RMB64.0 million (US$9.9 million), representing an increase of 145.4% from RMB26.1 million in the same period of 2020 and an increase of 10.0% from RMB58.2 million in the first quarter of 2021. The increase was primarily attributable to the increased headcounts in technology related departments. Research and development expenses in the second quarter of 2021 also included share-based compensation expenses of RMB23.7 million (US$3.7 million).

Sales and marketing expenses in the second quarter of 2021 were RMB25.8 million (US$4.0 million), compared to RMB6.5 million in the same period of 2020 and RMB6.3 million in the first quarter of 2021. The increase was mainly attributable to the increased sales bonus for the outstanding sale performance in the quarter. Sales and marketing expenses in the second quarter of 2021 also included share-based compensation expenses of RMB1.8 million (US$0.3 million).

General and administrative expenses in the second quarter of 2021 were RMB171.9 million (US$26.6 million), compared to RMB29.6 million in the same period of 2020 and RMB143.4 million in the first quarter of 2021. The increase was mainly due to the staff cost and the rental costs for new offices expansion. General and administrative expenses in the second quarter of 2021 also included share-based compensation expenses of RMB126.5 million (US$19.6 million).

Income from operations in the second quarter of 2021 was RMB165.5 million (US$25.6 million), compared to a loss from operations of RMB18.9 million in the same period of 2020 and a loss from operations of RMB13.7 million in the first quarter of 2021.

Change in fair value of warrant liability in the second quarter of 2021 was a gain of RMB77.7 million (US$12.0 million), compared to nil in the same period of 2020 and nil in the first quarter of 2021, due to the fair value change in warrants issued in May 2021.

Net income attributable to ordinary shareholders in the second quarter of 2021 reached a new high since the Company’s IPO to RMB245.0 million (US$37.9 million), compared to a net loss of RMB16.8 million in the same period of 2020 and a net income of RMB1.2 million in the first quarter of 2021.

Non-GAAP adjusted net income in the second quarter of 2021 was RMB320.1 million (US$49.6 million), compared to a non-GAAP adjusted net loss of RMB16.0 million in the same period of 2020 and a non-GAAP adjusted net income of RMB143.2 million in the first quarter of 2021. Non-GAAP adjusted net (loss)/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, was a loss of RMB10.2 million (US$1.6 million), compared with a loss of RMB0.08 million in the same period of 2021 and a gain of RMB2.4 million in the first quarter of 2021, due to the US dollar depreciation against the Renminbi during the second quarter of 2021.

Basic net earnings per American depositary share (“ADS”) in the second quarter of 2021 was RMB1.46 (US$0.23). In comparison, basic net loss per ADS in the same period of 2020 was RMB0.11, while basic net earnings per ADS in the first quarter of 2021 was RMB0.01. Each ADS represents 15 of the Company’s Class A ordinary shares.

Diluted net earnings per ADS in the second quarter of 2021 was RMB1.40 (US$0.22). In comparison, diluted net loss per ADS in the same period of 2020 was RMB0.11, while diluted net earnings per ADS in the first quarter of 2021 was RMB0.01. Each ADS represents 15 of the Company’s Class A ordinary shares.

Contract liabilities as of June 30, 2021, were RMB1,040.6 million (US$161.2 million), increasing from RMB430.4 million as of December 31, 2020, mainly due to the increased down payments for the sales orders of Bitcoin mining machines to be delivered in the coming quarters.

As of June 30, 2021, the Company had cash and cash equivalents of RMB1,220.2 million (US$189.0 million), up 211.8% compared to RMB391.3 million as of December 31, 2020.

Recent Developments

The Company’s Share Repurchase Update

Between September 22, 2020, and September 12, 2021, the Company has cumulatively deployed approximately US$9.3 million to repurchase approximately 2.51 million ADSs under the Company’s share repurchase program with a total authorized amount of up to US$10 million.

Strategic Investment

On August 11, 2021, the Company through its wholly-owned subsidiary, Hangzhou Canaan Creative Information Technology Limited, entered into an agreement with Pixelworks Semiconductor Technology (Shanghai) Co., Ltd.(“PWSH”), a subsidiary of Pixelworks, Inc. (NASDAQ: PXLW) (“Pixelworks”) to invest approximately US$3.1 million in cash in exchange for an equity interest in PWSH (the “Investment”), subject to certain closing conditions. PWSH designs, manufactures and sales visual display processing semiconductors and custom application specific integrated circuits solutions for video applications, advanced media processing, and the efficient delivery and streaming of video in the target markets of smartphones, tablets, digital projection systems, high-quality video infrastructure equipment, and over-the-air streaming devices. This investment reflects the Company’s strategy of further expanding Canaan’s compelling computing power beyond cryptocurrency mining to AI solutions.

Change of Board Composition

Mr. Jiaxuan Li, a director of the Company, has stepped down from the board of directors of the Company for personal reasons, effective September 15, 2021.

Mr. Jiaxuan Li has served as a director of the Company since December 2015. Mr. Nangeng Zhang, Chairman and Chief Executive Officer of Canaan, commented, “On behalf of the board of directors, I would like to express our sincerest gratitude to Mr. Jiaxuan Li, for his outstanding contributions to the Company over the past years. We wish him success in his future endeavors.”

Business Outlook

For the third quarter of 2021, the Company expects total revenues to have a sequential increase of 10% to 30%. This forecast reflects the Company’s current and preliminary views on the market and operational conditions, which are subject to change.

Conference Call Information

The Company’s management team will hold a Direct Event conference call on Wednesday, September 15, 2021, at 8:00 A.M. Eastern Time (or 8:00 P.M. Beijing Time on the same day) to discuss the financial results. Details for the conference call are as follows:

Event Title:               Canaan Inc. Second Quarter 2021 Earnings Conference Call

Registration Link:     http://apac.directeventreg.com/registration/event/6764915

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

A replay of the conference call will be accessible through September 22, 2021, by dialing the following numbers:

International:                     +61-2-8199-0299 

United States:                   +1-646-254-3697 

Hong Kong, China:           +852-3051-2780 

Replay PIN:                      6764915

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

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