Written by: Chris, Techub News
Canaan Inc. recently released its unaudited financial report for the second quarter of 2024. The financial report shows that the company's overall operating conditions have improved compared with the second quarter of 2023 and the first quarter of 2024, and profitability is moving in a positive direction. However, despite a number of indicators showing that the company is making progress, Canaan still faces significant financial challenges and market pressure.
summary:
In the second quarter of 2024, Canaan's operating loss was US$46.6 million, a 60.9% decrease from the US$119 million loss in the same period last year and a 31.5% decrease from the US$68 million loss in the previous quarter. Although losses still exist, the magnitude of the losses is significantly reduced.
In terms of total revenue, Canaan Technology achieved $71.9 million in revenue in the second quarter of 2024, which exceeded the market's previous expectation of $70 million and increased by 104.8% from the previous quarter. Such growth shows that the company's competitiveness in the market has increased, especially in the launch of new products and global sales layout.
However, despite the increase in revenue, Canaan Technology's financial situation is still not optimistic. Financial report data shows that the company's main business is still in a loss-making state. Specifically, in the second quarter of 2024, excluding inventory write-downs, prepayment write-downs, and inventory purchase commitment provisions, the product cost was US$62.4 million, while product revenue was only US$61.8 million, and the product loss was US$600,000. In the first quarter of 2024, the company obtained US$11.1 million in product profits under the same calculation method, which means that the company's core business performance in the new quarter has declined.
In addition, Canaan's cash flow also shows some pressure. The financial report shows that the company's cash and cash equivalents decreased by 30% from US$96.2 million on December 31, 2023 to US$66.8 million at the end of the second quarter of 2024. This shows that the company faces challenges in capital management and operations, and may need further capital investment in the future to support its continued R&D and market expansion.
Key Financial Data
2024 Q2 revenue was $71.9 million, exceeding the previous expectation of $70 million and increasing by 104.8% from the previous quarter.
The total computing power sold in Q2 2024 was 6.2 million TH/s, an increase of 83.9% month-on-month.
The operating loss in Q2 2024 was US$46.6 million, narrowing by 60.9% from the same period last year and 31.5% from the previous quarter.
General and administrative expenses decreased 27.0% quarter-on-quarter in Q2 2024. This resulted in a 44.0% year-on-year decrease in total expenses and a 10.6% decrease quarter-on-quarter. Operating loss narrowed 60.9% year-on-year and 31.5% quarter-on-quarter to $46.6 million.
Zhang Nangeng, Chairman and CEO of Canaan Technology, said: In the quarter of Bitcoin block reward halving, despite the market turmoil, Canaan Technology still executed its product delivery plan, strengthened global sales activities, optimized operations, and achieved revenue of US$71.9 million. The mass delivery of Canaan Technology's A14 products and further sales of traditional models brought the total computing power sales to 6.2 million Thash/s, an increase of 83.9% month-on-month.
Canaan also said that sales in the North American and Middle Eastern markets have achieved significant growth. Canaan's new product A1566 has received many orders since its launch, and coupled with the continued pre-sales of the A14 product, customer prepayments have increased by 30.2%. Canaan has also optimized its mining project matrix in response to local regulatory changes, bringing in $9.3 million in stable mining revenue.
The author believes that despite the increase in market demand, Canaan Technology still needs to further optimize its revenue structure. In the second quarter of 2024, the company's product revenue was US$61.8 million, an increase of 164% from US$23.4 million in the previous quarter and a year-on-year increase of 6.7% from the second quarter of 2023. However, despite the increase in revenue, the company is still under pressure to control product costs, resulting in the failure of the overall product business to achieve profitability. Especially in the context of fierce competition in the global mining machine market, how the company can further optimize product costs will be the key to whether it can achieve sustained profitability in the future.
Revenue and cost analysis
income
Revenue for Q2 2024 was $71.9 million, up 104.8% from $35.1 million in Q1 2024 and down 2.7% from $7.9 million in Q2 2023. Total revenue included product revenue of $61.8 million, mining revenue of $9.3 million, and other revenue of $0.8 million.
In the second quarter of 2024, the company's product revenue was US$61.8 million, an increase of 164% from US$23.4 million in the previous quarter and a year-on-year increase of 6.7% from the second quarter of 2023. However, despite the increase in revenue, the company is still under pressure to control product costs, resulting in the failure of the overall product business to achieve profitability. Especially in the context of fierce competition in the global mining machine market, how the company can further optimize product costs will be the key to whether it can achieve sustainable profitability in the future.
In addition to product sales, Canaan's mining revenue in the second quarter of 2024 was US$9.3 million, down 11.5% from US$10.5 million in the previous quarter and down 41.5% from the same period in 2023. The decrease in mining revenue reflects the impact of Bitcoin market fluctuations on the company. Especially in the context of the halving of Bitcoin block rewards, market uncertainty has increased, and the company needs to take more active measures in the operation of mining business and control of electricity costs.
cost
Canaan Technology's revenue cost in the second quarter of 2024 was US$91 million, an increase of 25.6% from US$72.4 million in the previous quarter, and a decrease of 36.7% from US$143.9 million in the same period of 2023. Among them, product costs were US$79.7 million, an increase of 33% from US$59.8 million in the first quarter of 2024, and a decrease of 30% from the same period of 2023.
Among them, the product cost in Q2 2024 was US$79.7 million, and the product cost in Q1 2024 was US$59.8 million, an increase of 33% in Q2 2024, and the product cost in Q2 2023 was US$113.3 million, a year-on-year decrease of 30% in Q2 2024. The year-on-year decrease was mainly due to the recorded inventory write-downs, prepayment write-downs and inventory purchase commitments. The inventory write-downs, prepayment write-downs and inventory purchase commitments recorded in this quarter were US$17.3 million, compared with US$47.5 million in the first quarter of 2024 and US$45.9 million in the same period of 2023. Product costs include the direct production costs of mining machines and AI products and indirect costs related to production, as well as inventory write-downs, prepayment write-downs and inventory purchase commitments.
By excluding the expenses of inventory write-downs, prepayment write-downs and inventory purchase commitment provisions, it can be calculated that the product cost in Q2 2024 after excluding inventory write-downs, prepayment write-downs and inventory purchase commitment provisions is US$62.4 million, while the product revenue is only US$61.8 million, and the product loss is US$600,000. The product revenue in Q1 2024 is US$23.4 million, and the product cost after excluding inventory write-downs, prepayment write-downs and inventory purchase commitment provisions is US$12.3 million, and the product profit is US$11.1 million. The product revenue in Q2 2023 is US$57.9 million, and the product cost after excluding inventory write-downs, prepayment write-downs and inventory purchase commitment provisions is US$67.4 million, and the product loss is US$9.5 million.
Despite the reduction in costs, Canaan's product business is still under pressure to make losses. In the second quarter of 2024, the company's product business lost $600,000 after deducting inventory write-downs, prepayment write-downs and inventory purchase commitment provisions, while it achieved a profit of $11.1 million in the previous quarter. This shows that the company still has a lot of room for improvement in product pricing, cost control and market competition.
It can be found that "selling mining machines", which is Canaan Technology's main business, is actually not very profitable. It can even be said that "selling mining machines is just to make friends, but not to make money." In terms of product revenue and product cost, except for 2024 Q1 which is profitable, 2024 Q2 and 2023 Q2 are both in a loss state, and this part of the loss has not yet taken into account the impairment of equipment and software.
Mining costs were $11 million in Q2 2024, $12.2 million in Q1 2024, and $30.6 million in the same period of 2023. Mining costs here include direct production costs of mining operations, including electricity and hosting, and depreciation of deployed mining machines. The quarter-on-quarter and year-on-year decreases were mainly due to lower electricity costs and lower depreciation due to the end of the depreciation period of earlier deployed mining machines and the impairment of currently deployed mining machines. Depreciation of deployed mining machines was $4.8 million this quarter, compared with $5.2 million in the first quarter of 2024 and $16.2 million in the same period of 2023.
The gross loss in Q2 2024 was US$19.1 million, a decrease of 49% from US$37.3 million in Q1 2024, and a decrease of 72.7% from US$70.1 million in the same period of 2023. Compared with the previous period, the gross loss was decreasing both quarter-on-quarter and year-on-year.
In the second quarter of 2024, Canaan's total operating expenses were US$27.5 million. This was a 10% decrease from US$30.7 million in the first quarter of 2024 and a 43.8% decrease from US$49 million in the same period of 2023. Among these operating expenses, general and administrative expenses (such expenses usually include management salaries, office rent, administrative expenses, etc.) decreased by 27.0% from the previous quarter.
The author believes that the reduction in expenses shows that Canaan Technology has taken some effective measures to control and reduce operating costs this quarter. These measures may include optimizing management processes, cutting unnecessary expenses, improving operational efficiency, etc., thereby successfully reducing overall expenses. This cost control is crucial for the company to improve profitability and enhance financial health.
James Jin Cheng, the company's chief financial officer, said that the revenue growth in the second quarter of 2024 was mainly due to the concentrated delivery of A14 products, which not only increased revenue but also increased gross profit margin. Although the mining business was affected by the Bitcoin halving, the company successfully maintained a gross profit margin similar to that before the halving, which contributed to the further increase in Bitcoin holdings. As of the end of the second quarter, the company held 1,114.2 Bitcoins, a record high.
But it is worth noting that although Canaan Technology's holdings of Bitcoin reached a record high, its cash and cash equivalents decreased by 30% from US$96.2 million on December 31, 2023 to US$66.8 million at the end of the second quarter of 2024.
The author believes that the reasons for the decrease in cash and cash equivalents held by Canaan Technology may be:
Operating expenses and investments: Canaan Technology may spend a lot of money on daily operations, R&D investment and market expansion. These expenses may include employee salaries, R&D expenses, marketing, supply chain management, etc. Although the company has controlled some costs, these operating and investment expenses may still lead to a reduction in cash reserves.
Capital Expenditure and New Project Investment: The company may have made capital expenditures during the period, such as purchasing equipment, upgrading infrastructure, or investing in new projects. While these expenditures may help the company's future growth, they will reduce available cash and cash equivalents in the short term.
Canaan Technology said that it plans to continue to strictly control operating expenses in the future to maintain cost controllability and efficiency, and continue to actively invest in R&D (research and development) to ensure that the company can maintain and improve its supply capacity. In addition, Canaan Technology also stated that it will further optimize the inventory structure to improve operational efficiency and capital liquidity.
