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 and twelve months ended December 31, 2021.

Fourth Quarter 2021 Operating and Financial Highlights

Total computing power sold was 7.7 million Thash/s, compared to 0.2 million Thash/s in the same period of 2020, and up 15.5% from 6.7 million Thash/s in the third quarter of 2021, setting a new record. The robust year-over-year and sequential increases were mainly driven by the solid market demand and the responsive delivery of Bitcoin mining machines.

As of December 31, 2021, the Company had cash and cash equivalents of RMB2,684.3 million (US$421.2 million), up 586.0% 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 and healthy profits from operations.

Total net revenues were RMB2,184.6 million (US$342.8 million), compared to RMB38.2 million in the same period of 2020, and RMB1,317.6 million in the third quarter of 2021, representing a sequential increase of 65.8%.

Gross profit was RMB1,486.9 million (US$233.3 million), compared to RMB9.1 million in the same period of 2020, and RMB741.7 million in the third quarter of 2021, representing a sequential growth of 100.5%.

Net income was RMB1,196.5 million (US$187.8 million), compared to a net loss of RMB72.0 million in the same period of 2020, and a net income of RMB557.6 million in the third quarter of 2021, representing a sequential growth of 114.6%.

Non-GAAP adjusted net income was RMB1,250.7 million (US$196.3 million), compared to a non-GAAP adjusted net loss of RMB73.1 million in the same period of 2020, and a non-GAAP adjusted net income of RMB587.5 million in the third quarter of 2021, representing a sequential growth of 112.9%.

Full Year 2021 Operating and Financial Highlights

Total computing power sold was 22.3 million Thash/s, representing a year-over-year increase of 238.5% from 6.6 million Thash/s in 2020.

Total net revenues increased to RMB4,986.7 million (US$782.5 million) from RMB447.7 million in 2020.

Gross profit increased to RMB2,850.7 million (US$447.3 million) from RMB37.8 million in 2020.

Net income was RMB2,000.3 million (US$313.9 million), compared to net loss of RMB215.1 million in 2020.

Non-GAAP adjusted net income was RMB2,301.6 million (US$361.2 million), compared to a non-GAAP adjusted net loss of RMB212.1 million in 2020.

Mr. Nangeng Zhang, Chairman and Chief Executive Officer of Canaan, commented, “Against the backdrop of Bitcoin price fluctuations and challenging industry dynamics, we made encouraging progress in our operations and finished the year with a strong fourth-quarter performance. Total computing power sold reached 7.7 million Thash/s in the quarter, up 15.5% sequentially, as we sustained the momentum of business development across a diversified global market and solidified our presence in key geographic areas. In addition, our Bitcoin mining business was enhanced by the delivery of additional computing power in the fourth quarter. We also continuously developed our AI business, expanding our partner base in a broader ecosystem. Looking ahead to the year 2022, we will keep carrying out our growth strategies through proactive investment in our R&D efforts, solid execution in global business development, agile operation to keep pace with industry dynamics, and prudent deployment in our mining operations. By leveraging our acumen, expertise, and our extensive experience in the market, we will continue to capitalize on developing opportunities in the industry.”

Mr. James Jin Cheng, Chief Financial Officer of Canaan, stated, “During the fourth quarter, we delivered outstanding results, even as we overcame the headwinds brought about by a volatile and unpredictable market. Our total net revenues grew 65.8% sequentially to RMB2,184.6 million. The higher-than-expected topline result was powered by our business development efforts, which drove the growth of our customer base, enabling us to achieve a larger proportion of spot sales with a higher averaging selling price per Thash/s. In conjunction with our efficient cost and expense management, we reported a substantial increase in net income to RMB1,196.5 million, up 114.6% quarter over quarter. As of the end of 2021, we had garnered contract advances of RMB1,340.7 million, ensuring stable revenue streams for the quarters to come and delivering further cash flows to expand our supply capabilities. Going forward, we will mitigate the negative effects from fluctuations in the Bitcoin price, geopolitical volatility, and regulatory uncertainties by staying vigilant and agile in our operations. We remain confident that our strategy and execution capabilities will sustain and further expand the Company’s growth trajectory.”

Fourth Quarter 2021 Financial Results

Total net revenues in the fourth quarter of 2021 increased to RMB2,184.6 million (US$342.8 million) from RMB38.2 million in the same period of 2020, and up 65.8% compared to RMB1,317.6 million in the third quarter of 2021. The year-over-year and quarter-over-quarter increases were mainly due to the continuous increase in total computing power sold and average selling price per Thash/s.

Cost of revenues in the fourth quarter of 2021 was RMB697.6 million (US$109.5 million), compared to RMB29.2 million in the same period of 2020, and up 21.1% from RMB575.9 million in the third quarter of 2021. The year-over-year and sequential increases in cost of revenues were in line with revenue growth.

Gross profit in the fourth quarter of 2021 was RMB1,486.9 million (US$233.3 million), compared to RMB9.1 million in the same period of 2020, and RMB741.7 million in the third quarter of 2021, representing a sequential growth of 100.5%.

Total operating expenses in the fourth quarter of 2021 were RMB273.7 million (US$43.0 million), compared to RMB80.1 million in the same period of 2020 and RMB278.4 million in the third quarter of 2021, representing a sequential decrease of 1.7%.

Research and development expenses in the fourth quarter of 2021 were RMB112.0 million (US$17.6 million), representing an increase of 179.6% from RMB40.1 million in the same period of 2020 and an increase of 20.8% from RMB92.8 million in the third quarter of 2021. The increases were primarily attributable to the increased research and development costs for new products, and the increased staff costs in technology-related departments. Research and development expenses in the fourth quarter of 2021 also included share-based compensation expenses of RMB19.6 million (US$3.1 million).

Sales and marketing expenses in the fourth quarter of 2021 were RMB30.7 million (US$4.8 million), representing an increase of 399.6% from RMB6.1 million in the same period of 2020 and a decrease of 18.3% from RMB37.6 million in the third quarter of 2021. The year-over-year increase was mainly attributable to the increased staff costs, while the sequential decrease was mainly due to the favorable variance from the quarterly pace of advertising expenses. Sales and marketing expenses in the fourth quarter of 2021 also included share-based compensation expenses of RMB2.1 million (US$0.3 million).

General and administrative expenses in the fourth quarter of 2021 were RMB131.0 million (US$20.6 million), representing an increase of 286.6% from RMB33.9 million in the same period of 2020 and a decrease of 11.5% from RMB148.1 million in the third quarter of 2021. The year-over-year increase was mainly due to higher staff costs, professional service fees, and depreciation expenses, while the sequential decrease was mainly due to the decreased share-based compensation expenses, partially offset by increased staff costs, professional service fees, and depreciation expenses. General and administrative expenses in the fourth quarter of 2021 also included share-based compensation expenses of RMB54.6 million (US$8.6 million).

Income from operations in the fourth quarter of 2021 was RMB1,213.2 million (US$190.4 million), compared to a loss from operations of RMB71.0 million in the same period of 2020 and income from operations of RMB463.3 million in the third quarter of 2021, representing a sequential increase of 161.9%.

Net income attributable to ordinary shareholders in the fourth quarter of 2021 was RMB1,196.5 million (US$187.8 million), compared to a net loss of RMB72.0 million in the same period of 2020 and a net income of RMB557.6 million in the third quarter of 2021, representing a sequential increase of 114.6%.

Non-GAAP adjusted net income in the fourth quarter of 2021 was RMB1,250.7 million (US$196.3 million), compared to a non-GAAP adjusted net loss of RMB73.1 million in the same period of 2020 and a non-GAAP adjusted net income of RMB587.5 million in the third quarter of 2021, representing a sequential increase of 112.9%. Non-GAAP adjusted net (loss)/income excludes share-based compensation expenses. 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 RMB19.9 million (US$3.1 million), compared with a loss of RMB15.2 million in the same period of 2020 and a gain of RMB5.7 million in the third quarter of 2021, due to the US dollar depreciation against the Renminbi during the fourth quarter of 2021.

Basic net earnings per American depositary share (“ADS”) in the fourth quarter of 2021 was RMB6.90 (US$1.08). In comparison, basic net loss per ADS in the same period of 2020 was RMB0.46, while basic net earnings per ADS in the third quarter of 2021 was RMB3.20. Each ADS represents 15 of the Company’s Class A ordinary shares.

Diluted net earnings per ADS in the fourth quarter of 2021 was RMB6.81 (US$1.07). In comparison, diluted net loss per ADS in the same period of 2020 was RMB0.46, while diluted net earnings per ADS in the third quarter of 2021 was RMB3.15. Each ADS represents 15 of the Company’s Class A ordinary shares.

Full Year 2021 Financial Results

Total net revenues in the full year of 2021 increased to RMB4,986.7 million (US$782.5 million) from RMB447.7 million in 2020. The increase was mainly due to the year-over-year increase in total computing power sold and the higher average selling price per Thash/s in the full year of 2021.

Cost of revenues in the full year of 2021 increased to RMB2,136.0 million (US$335.2 million) from RMB409.9 million in the full year of 2020. The year-over-year increase in cost of revenues was in line with the changes in the Company’s computing power sales volume and cost per Thash/s.

Gross profit in the full year of 2021 increased to RMB2,850.7 million (US$447.3 million) from RMB37.8 million in the full year of 2020.

Total operating expenses in the full year of 2021 increased to RMB1,022.4 million (US$160.4 million) from RMB291.6 million in the full year of 2020.

Research and development expenses in the full year of 2021 increased by 137.7% to RMB332.8 million (US$52.2 million) from RMB140.0 million in the full year of 2020, primarily due to the increased research and development costs for new products and the increased staff costs in technology-related departments.

Sales and marketing expenses in the full year of 2021 increased to RMB100.5 million (US$15.8 million) from RMB20.0 million in the full year of 2020. The increase was mainly attributable to increased staff costs, which are in line with better net revenue performance.

General and administrative expenses in the full year of 2021 increased to RMB589.1 million (US$92.4 million) from RMB131.6 million in the full year of 2020. This year-over-year increase was mainly due to increased staff costs, professional service fees, and depreciation expenses.

Income from operations in the full year of 2021 was RMB1,828.3 million (US$286.9 million), compared to a loss from operations of RMB253.9 million in the full year of 2020.

Net income attributable to ordinary shareholders in the full year of 2021 was RMB2,000.3 million (US$313.9 million), compared to a net loss of RMB215.1 million in the full year of 2020.

Non-GAAP adjusted net income in the full year of 2021 was RMB2,301.6 million (US$361.2 million), compared to a non-GAAP adjusted net loss of RMB212.1 million in the full year of 2020.

Basic net income per ADS in the full year of 2021 was RMB11.90 (US$1.87), compared to basic net loss per ADS of RMB1.38 in the full year of 2020.

Diluted net income per ADS in the full year of 2021 was RMB11.73 (US$1.84), compared to diluted net loss per ADS of RMB1.38 in the full year of 2020.

As of December 31, 2021, the cryptocurrencies held by the Company were 70.5 Bitcoins, with the carrying value of RMB20.3 million (US$3.2 million).

Contract liabilities as of December 31, 2021, were RMB1,340.7 million (US$210.4 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 December 31, 2021, the Company had cash and cash equivalents of RMB2,684.3 million (US$421.2 million), up 586.0% compared to RMB391.3 million as of December 31, 2020.