Canaan Inc. — FY2022 Form 20-F summary
Reporting period: Fiscal year ended December 31, 2022; the filing is an annual report, not a standalone fourth-quarter report. Financial statements are prepared under U.S. GAAP. Amounts below are in RMB unless noted.
Business context
Canaan designs ASIC chips and sells Bitcoin mining machines under the AvalonMiner brand. It also generates revenue from its own Bitcoin mining operations and develops edge-computing AI chips. The company is a Cayman Islands holding company whose operations are conducted through subsidiaries, principally in China. Mining-machine sales remain its core business; 97.2% of revenue from mining-machine sales and related parts came from customers outside mainland China in 2022.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | RMB4,378.9 million (US$634.9 million) | RMB4,986.7 million |
| Gross profit / margin | RMB1,547.8 million / 35.3% | RMB2,850.7 million / 57.2% |
| Operating income / margin | RMB304.7 million / approximately 7.0% | RMB1,828.3 million |
| Net income | RMB486.4 million (US$70.5 million) | RMB2,000.3 million |
| Operating cash flow | RMB(1,696.7) million | RMB1,438.9 million |
| Cash and restricted cash, year-end | RMB707.3 million; no restricted cash | RMB2,731.7 million |
Mining-machine and related-parts revenue was RMB4,150.3 million, down from RMB4,939.9 million. Mining revenue increased to RMB218.6 million from RMB21.7 million; AI-product revenue declined to RMB9.3 million from RMB17.0 million. The company reported no borrowing outstanding at year-end. Total liabilities were RMB538.3 million, including RMB26.2 million of lease liabilities. Current assets were RMB3,870.3 million and current liabilities RMB524.1 million; current assets included RMB1,474.0 million of inventories and RMB1,689.1 million of prepayments and other current assets.
Capital expenditures were RMB95.1 million. Research and development expense was RMB546.6 million, sales and marketing expense RMB63.0 million, and general and administrative expense RMB580.5 million. Basic earnings were RMB0.19 per ordinary share (19.00 RMB cents).
Material changes versus FY2021
- Revenue fell 12.2%, primarily as Bitcoin prices weakened and computing power sold declined from 22.3 million to 15.1 million Thash/s. Average selling price per Thash increased from RMB220 to RMB274, but did not offset lower sales volume.
- Gross profit declined 45.7% and gross margin fell 21.9 percentage points, reflecting weaker market conditions and substantial inventory-related charges.
- FY2022 included RMB629.4 million of inventory write-downs, prepayment write-downs and provisions for inventory purchase commitments, versus RMB50.7 million in FY2021.
- Operating cash flow swung to a substantial outflow, principally due to a RMB1,559.1 million increase in inventories and a RMB1,386.1 million decrease in contract liabilities. Year-end cash and restricted cash declined by RMB2,024.4 million.
- R&D expense rose 64.2%, including RMB96.0 million of one-off incremental development costs for A13 products. Marketing expense fell 37.3%; G&A expense decreased 1.3%.
- Foreign-exchange gains rose to RMB243.0 million from RMB17.9 million, partly offsetting lower operating income. Cryptocurrency impairment was RMB53.0 million; the company reported approximately 757 bitcoins held at year-end.
Outlook, risks and other notable items
- No numerical revenue or earnings guidance is provided. Management said cash and expected operating cash flows should cover ordinary working-capital needs and capital expenditures for the next 12 months, while noting that additional financing could be needed if conditions or plans change.
- Results remain highly exposed to Bitcoin prices, mining economics, network difficulty, electricity costs, regulation and demand for mining machines. Management described continued low market demand and pricing pressure into early 2023 and disclosed further A12-series price reductions and related inventory/prepayment write-downs based on subsequent selling prices.
- Customer concentration is significant: the three largest customers accounted for 33%, 22% and 16% of FY2022 revenue, respectively. The filing also identifies reliance on a small number of foundry partners and substantial supplier prepayments.
- PRC restrictions on cryptocurrency mining and trading remain a material risk. New CSRC overseas-listing filing rules became effective March 31, 2023; the company discusses uncertainty about their interpretation and application to future offerings.
- The PCAOB reported full inspection access to audit firms in mainland China and Hong Kong in 2022, removing the immediate HFCAA inspection barrier described in the filing; future access remains subject to annual PCAOB determinations.
- A shareholder class action relating to statements about orders and chip supply was dismissed, with leave to amend by April 26, 2023. The company recorded no contingency liability because it could not reasonably estimate any loss.
- Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2022; two previously identified material weaknesses were reported as remediated. The auditor issued unqualified opinions on the financial statements and internal controls.
- The company repurchased ordinary shares and warrants during 2022. It had no outstanding borrowings at year-end and had not sold ADSs under its $750 million at-the-market offering by December 31, 2022. No dividend is planned for the foreseeable future.
Important facts for investors to verify
- Whether inventory, supplier prepayments and firm foundry purchase commitments can be realized at amounts supporting their carrying values, particularly after subsequent price reductions.
- How quickly operating cash flow and cash balances stabilize, given the FY2022 cash outflow and working-capital movements.
- Mining-machine orders, selling prices, customer concentration and the sustainability and economics of the company’s growing self-mining operations.
- The scale and commercial progress of AI products, which remain a small share of revenue.
- Current status and potential exposure of the shareholder litigation, and the application of evolving PRC rules to the company and future capital raising.