- Revenue Surpasses Guidance, up 104.8% QoQ - - Profitability Improves with Operating Loss Narrows by 60.9% YoY and 31.5% QoQ - SINGAPORE, Aug. 15, 2024 /PRNewswire/ -- 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 June 30, 2024. Second Quarter 2024 Operating and Financial Highlights Revenues were US$71.9 million, which beat the previous guidance of US$70 million and increased 104.8% sequentially. Total computing power sold was 6.2 million Thash/s, representing a sequential increase of 83.9%. Loss from operations was US$46.6 million, narrowed 60.9% year-over-year and 31.5% sequentially. Nangeng Zhang, chairman and chief executive officer of Canaan, commented, "During the Bitcoin halving quarter, we witnessed significant fluctuations in both Bitcoin prices and the total network hash rate as market variables evolved. Despite this turbulence, we executed on our product delivery plan, enhanced our global sales campaign, and optimized operations, achieving a topline performance of US$71.9 million, surpassing our guidance. The bulk delivery of our A14 products and further sales of traditional models yielded a total computing power sold of 6.2 million Thash/s, a remarkable 83.9% sequential increase. Additionally, our sales in North American and the Middle East markets achieved significant growth, demonstrating our expanding market presence. Our new product, the A1566, has received active customer orders since its launch, and along with continued presales of A14 products, contributed to a robust 30.2% increase in customer advances. We also refined our mining project matrix in response to local regulatory changes, leading to a solid US$9.3 million in mining revenue." "Bitcoin's fourth halving has now been completed, and the global political and economic dynamics surrounding Bitcoin continue to unfold, attracting the attention of a wider audience. We navigated the halving quarter with solid results and the introduction of advanced products, continuing to invest heavily in both R&D and production capacity. With strong confidence in the opportunities that Bitcoin presents and the beginning of a bull market, we believe we are on a trajectory of renewed growth." James Jin Cheng, chief financial officer of Canaan, stated, "In the second quarter of 2024, our impressive topline growth was primarily driven by the concentrated delivery of our A14 products, which contributed the largest share to our revenue. This shift in product mix led to a notable boost in the average selling price of computing power and improved gross margins. Our mining business successfully weathered the Bitcoin halving, maintaining a gross margin similar to the previous quarter before the halving, leading to continued growth in our Bitcoin holdings. By the end of the second quarter, we held a record high of 1,114.2 Bitcoins. Operationally, our expense control measures were effective, with G&A expenses decreasing by 27.0% sequentially. This resulted in a 44.0% year-over-year and 10.6% sequential reduction in total expenses. Our loss from operations narrowed significantly by 60.9% year-over-year and 31.5% sequentially to US$46.6 million." "Our balance sheet liquidity was further bolstered by cash inflows from product sales during the second quarter. While adopting a stringent approach to operational expenditure, we continued to invest actively in Research & Development, as well as securing supply capacity, leading to a further optimized inventory mix. We are focused on improving profitability, strengthening our balance sheet, fulfilling customer orders, and achieving success alongside our customers in the coming bull market." Second Quarter 2024 Financial Results Revenues in the second quarter of 2024 were US$71.9 million, as compared to US$35.1 million in the first quarter of 2024 and US$73.9 million in the same period of 2023. Total revenues consisted of US$61.8 million in products revenue, US$9.3 million in mining revenue and US$0.8 million in other revenues. Products revenue in the second quarter of 2024 was US$61.8 million, compared to US$23.4 million in the first quarter of 2024 and US$57.9 million in the same period of 2023. The sequential increase was driven by the increased computing power sold and increased average selling price, as well as the increased delivery of the integrated mining solutions. The year-over-year increase was driven by the increased delivery of the integrated mining solutions and the increased computing power sold. Mining revenue in the second quarter of 2024 was US$9.3 million, compared to US$10.5 million in the first quarter of 2024 and US$15.9 million in the same period of 2023. The sequential and year-over-year decreases were mainly due to the decline in bitcoins mined after the halving. Cost of revenues in the second quarter of 2024 was US$91.0 million, compared to US$72.4 million in the first quarter of 2024 and US$143.9 million in the same period of 2023. Product cost in the second quarter of 2024 was US$79.7 million, compared to US$59.8 million in the first quarter of 2024 and US$113.3 million in the same period of 2023. The sequential increase was in line with revenue growth. The year-over-year decrease was mainly due to the decrease of inventory write-down, prepayment write-down and provision for inventory purchase commitments recorded. The inventory write-down, prepayment write-down and provision for inventory purchase commitments recorded for this quarter was US$17.3 million, compared to US$47.5 million for the first quarter of 2024 and US$45.9 million for the same period of 2023. Product cost consists of direct production costs of mining machines and AI products and indirect costs related to production, as well as inventory write-down, prepayment write-down and provision for inventory purchase commitments. Mining cost in the second quarter of 2024 was US$11.0 million, compared to US$12.2 million in the first quarter of 2024 and US$30.6 million in the same period of 2023. Mining costs herein consist of direct production costs of mining operations, including electricity and hosting, as well as depreciation of deployed mining machines. The sequential and year-over-year decreases were mainly due to the decreased electricity cost, as well as the decreased depreciation which was driven by the end of the depreciation period of early deployed mining machines and the impairment of the currently deployed mining machines. The depreciation in this quarter for deployed mining machines was US$4.8 million, compared to US$5.2 million in the first quarter of 2024 and US$16.2 million in the same period of 2023. Gross loss in the second quarter of 2024 was US$19.1 million, compared to US$37.3 million in the first quarter of 2024 and US$70.1 million in the same period of 2023. Total operating expenses in the second quarter of 2024 were US$27.5 million, compared to US$30.7 million in the first quarter of 2024 and US$49.0 million in the same period of 2023. Research and development expenses in the second quarter of 2024 were US$14.6 million, compared to US$15.3 million in the first quarter of 2024 and US$17.9 million in the same period of 2023. The sequential decrease was mainly due to a decrease of US$0.7 million in the research and development expenditure. The year-over-year decrease was mainly due to a decrease of US$3.9 million in staff costs. Research and development expenses in the second quarter of 2024 also included share-based compensation expenses of US$1.7 million. Sales and marketing expenses in the second quarter of 2024 were US$1.6 million, compared to US$1.1 million in the first quarter of 2024 and US$2.4 million in the same period of 2023. The sequential increase was mainly due to an increase of US$0.5 million in channel commission. The year-over-year decrease was mainly due to a decrease of US$1.2 million in staff costs. Sales and marketing expenses in the second quarter of 2024 also included share-based compensation expenses of US$14 thousand. General and administrative expenses in the second quarter of 2024 were US$10.4 million, compared to US$14.3 million in the first quarter of 2024 and US$17.3 million in the same period of 2023. The sequential decrease was mainly due to a decrease of US$1.4 million in staff costs and a decrease of US$1.2 million in share-based compensation expenses. The year-over-year decrease was mainly due to a decrease of US$3.6 million in share-based compensation expenses and a decrease of US$1.7 million in staff costs. General and administrative expenses in the second quarter of 2024 also included share-based compensation expenses of US$4.8 million. Impairment on property, equipment and software in the second quarter of 2024 was US$0.8 million, compared to nil in the first quarter of 2024 and US$9.1 million in the same period of 2023. Loss from operations in the second quarter of 2024 was US$46.6 million, compared to US$68.0 million in the first quarter of 2024 and US$119.1 million in the same period of 2023. Excess of fair value of Series A Convertible Preferred Shares in the second quarter of 2024 was nil, compared to US$0.4 million in the first quarter of 2024 and nil in the same period of 2023. For further information, please refer to "Preferred Shares Financing" in this press release. Change in fair value of cryptocurrency in the second quarter of 2024 was an unrealized loss of US$9.8 million, compared to an unrealized gain of US$33.6 million in the first quarter of 2024 and nil in the same period of 2023. The unrealized loss of change in fair value of cryptocurrency was due to the declined bitcoin price as of June 30, 2024 compared to the bitcoin price as of March 31, 2024. Foreign exchange gains, net in the second quarter of 2024 were US$11.4 million, compared with a loss of US$1.8 million in the first quarter of 2024 and a gain of US$2.6 million in the same period of 2023, respectively. The foreign exchange gains were due to the U.S. dollar appreciation against the Renminbi during the second quarter of 2024. Net loss in the second quarter of 2024 was US$41.9 million, compared to US$39.4 million in the first quarter of 2024 and US$110.7 million in the same period of 2023. Non-GAAP adjusted EBITDA in the second quarter of 2024 was a loss of US$30.6 million, as compared to a loss of US$26.0 million in the first quarter of 2024 and a loss of US$78.8 million in the same period of 2023. 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 second quarter of 2024 was a loss of US$4.0 million, compared with a loss of US$5.0 million in the first quarter of 2024 and a loss of US$23.5 million in the same period of 2023, respectively. Basic and diluted net loss per American depositary share ("ADS") in the second quarter of 2024 were US$0.15. In comparison, basic and diluted net loss per ADS in the first quarter of 2024 were US$0.16, while basic and diluted net loss per ADS in the same period of 2023 were US$0.65. Each ADS represents 15 of the Company's Class A ordinary shares. As of June 30, 2024, the Company held cryptocurrency assets that primarily comprised 1,133.5 bitcoins with a total fair value of US$69.9 million, which consisted of 584.2 bitcoins owned by the Company, 530 bitcoins pledged and 19.3 bitcoins received as customer deposits. As of June 30, 2024, the Company had cash of US$66.8 million, compared to US$96.2 million as of December 31, 2023. Accounts receivable, net as of June 30, 2024 was US$8.2 million, compared to US$3.0 million as of December 31, 2023. Accounts receivable was mainly due to an installment policy implemented for some major customers who meet certain conditions. Contract liabilities as of June 30, 2024 were US$50.6 million, compared to US$19.6 million as of December 31, 2023. Shares Outstanding As of June 30, 2024, the Company had a total of 273,741,843 ADSs outstanding, each representing 15 of the Company's Class A ordinary shares. Recent Developments Preferred Shares Financing On November 27, 2023, the Company entered into a Securities Purchase Agreement with an institutional investor (the "Buyer"), pursuant to which the Company shall issue and sell to the Buyer up to 125,000 Series A Convertible Preferred Shares (the "Preferred Shares") at the price of US$1,000.00 for each Preferred Share. On December 11, 2023, the Company closed the first tranche of the preferred shares financing (the "First Tranche Preferred Shares Financing") and is obligated to issue the second tranche of the preferred shares financing (the "Forward Purchase Liabilities"), raising total net proceeds of $25.4 million. Pursuant to the First Tranches Preferred Shares Financing, the Company issued 25,000 Preferred Shares ...