Canaan has begun a $20 million share repurchase program while signaling it could sell additional cryptocurrency holdings to help finance further buybacks. The move comes as the bitcoin mining-machine maker faces a sharp collapse in revenue from its hardware segment.

The company said the new plan sits within a broader $100 million authorization approved by its board. Management also indicated it wants to pursue repurchases more actively when funding is available, even as a large part of Canaan’s treasury remains committed elsewhere.

Hardware sales slump while mining brings in more revenue

Canaan’s core business of selling mining equipment weakened sharply in the third quarter. Revenue from hardware fell to $4.8 million, down 96% from $118.6 million a year earlier, which the company attributed to softer demand and lower selling prices.

By contrast, Canaan’s own mining operation generated $9.5 million in revenue during the quarter, almost twice the contribution from hardware sales. The figures underscore how much the company’s revenue mix has shifted as the market for mining rigs has deteriorated.

Crypto treasury may help fund repurchases

Chief executive Nangeng Zhang said Canaan is keeping a long-term digital-asset treasury strategy while selectively monetizing some of its crypto holdings to support share buybacks. Earlier disclosures offer an example of that approach in practice.

In an October update, the company said it had sold 3,952 ETH and 54.5 BTC for about $13.9 million. Canaan said $5.4 million of that amount was used to repurchase 13.6 million American depositary shares in late August.

Treasury and cash are partly tied up

Canaan reported holding 1,875.5 BTC as of Sept. 30, but much of that balance was not readily available. The company said 1,258 BTC had been pledged against loans and another 100 BTC had been placed in a fixed-term product.

That left 517.5 BTC recorded directly as cryptocurrency assets, valued at $43.7 million at the end of the quarter. Canaan also reported $72.8 million in cash and restricted cash, though $50 million of that total supported a letter of credit tied to infrastructure commitments, leaving roughly $22.8 million outside the restricted balance.

Profit supported by valuation gains

The company posted an $8 million quarterly profit despite reporting a $42.9 million operating loss. According to the company, the positive bottom line was helped by gains from revaluing cryptocurrency holdings and financial derivatives.

Those gains reflected bitcoin’s higher price at the end of the quarter rather than an improvement in the underlying operating result. At the same time, Canaan’s shares had fallen about 75% this year through Wednesday’s close.

Buyback authorization runs for 12 months

Management said it believes the company’s stock does not reflect the value of the business or its growth prospects. The current repurchase plan authorizes up to $20 million of buybacks under the wider $100 million board approval.

The authorization lasts for 12 months, and the company said the pace of purchases can be adjusted depending on operating conditions and funding needs. That means any expansion of repurchases is likely to depend on how much liquidity Canaan can free up from cash resources and, potentially, additional sales of crypto assets.

Source: www.coindesk.com