Cango Inc.

Good morning and good evening, everyone. Welcome to Kengo, Inc.' 's fourth quarter and full year 2024 earnings conference call. At this time, all participants are in a listen-only mode. This call is also being broadcast live on the company's IR website. Joining us today are Mr. Jia-Yin Lin, Chief Executive Officer, and Mr. Yong-Goo Zong, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct a Q&A session. Before we begin, I refer you to the Safe Harbor Statement and the company's earnings release, which also applies to the conference call today, as management will be making forward-looking statements. With that said, I am now turning the call over to Mr. Jiayuan Lin, CEO of Cango. Please go ahead, sir.

Hello, everyone. Welcome to the Cango 2024 4th quarter and full-year financial reporting conference.

Hello, everyone, and welcome to Kendall's Fourth Quarter and Four-Year 2024 Earnings Call.

2024 is a year full of ups and downs for Canggu. This year, we witnessed the company's once again significant change and growth, and at the same time, a new development opportunity. Since its establishment, Canggu has undergone many challenges, such as the decline of the macroeconomic economy, the outbreak of the COVID-19 pandemic, and the change in the automotive industry. Although the external environment has changed dramatically,

我们始终秉持着敏锐的市场洞察力和灵活的经营策略。 2024 was a milestone year for Kengo, marking another pivotal transformation and growth phase for the company while ushering new development opportunities. Since our inception, Kengo has navigated multiple challenges, including macroeconomic downturns, the impact of COVID-19 pandemic, and profound shifts across the automotive industry. Despite the ever-evolving external landscape, we have remained committed to developing key market insights and agile business strategies, ensuring our continued adaptability and resilience.

自2021年以来,我们有序调整业务结构, 重点加强了存量贷款的催收及贷后管理, 顺利完成了业务重点从汽车住贷转向汽车交易的战略布局。 通过一系列行之有效的措施,

Since 2021, we have systematically refined our business structure, placing a strong emphasis on loan collection and personal management for outstanding loans, while strategically transitioning our core business from auto financing facilitation to automotive transaction services. Through a series of effective measures, We have mitigated risks within our financing facilitation business, maintaining our competitive edge amid a complex and fast-evolving market landscape.

截至2024年底,我们的债贷余额已从峰值时的400多亿人民币下降至约39亿元, 其中M1价为3.24%,M3价为1.78%, At the same time, we will reduce the credit risk threshold to RMB10.08 billion for collective full-time bad debt preparation or full-time responsibility preparation. The company's cash and cash equivalent prices and short-term investment total amounted to RMB25.2 billion, providing sufficient mobility support for the company's future development.

As of the end of 2024, our outstanding loan balance has decreased from a peak of over 40 billion RMB to approximately 3.9 billion RMB, with M1 plus and M3 plus ratios at 3.24% and 1.78% respectively. At the same time, we have reduced our credit risk exposure not covered by full bad debt allowance or full risk assurance liabilities to 1.08 billion RMB. Our cash, cash equivalents, and short-term investments amount to approximately 2.52 billion RMB, providing ample liquidity to support the company's sustainable growth and strategic initiatives.

与此同时,我们也注意到, 2024年初比特币交易所交易基金ETF在美国获批, 这标志着加密货币行业迈入了一个重要的转折点。 对此,我们迅速展开了对加密货币行业的战略布局,

We have observed that the approval of Bitcoin ETFs in the United States at the beginning of 2024 marked a significant turning point for the cryptocurrency industry. In response, we swiftly initiated a strategic expansion into the cryptocurrency sector. Given this field's immense growth potential, we have further refined our strategic direction, focusing on energy plus computing power as the core of our future development strategy.

二零二四年十一月,我们迈出了进军加密货币挖矿的关键一步。 十一月六日,我们宣布以总计四亿美元购入总算力为50EH的比特币在价矿机, 并于十一月十五日完成了其中32EH算力的在价矿机的交割。

In November 2024, we made a critical move in our expansion into the crypto mining sector. On November 6th, Kengo announced our acquisition of Onrack Bitcoin mining machines with an aggregate hash rate of 50 EH for a total purchase price of $400 million USD. By November 15th, we had taken delivery of 32EH of mining power, massively boosting our effective computing power and making us the third largest Bitcoin miner globally.

2024年11月和12月,我们分别产出比特币363.9枚和569.9枚,对应有效算力分别为29.8EH和30.4EH。

In November and December 2024, we successfully mined 363.9 and 569.9 bitcoins with effective computing powers of 29.8 EH and 30.4 EH respectively. During these two months, our mining machines maintained an average operating hash rate of 93% and 95% respectively, demonstrating robust operational performance. As of December 2024, our total Bitcoin holdings were 933.8.

比特币挖矿业务的驱动下,2024年第四季度,公司录得总收入为6.7亿元人民币,较去年同期增长超过4倍。

Driven by the Bitcoin mining business, Kengo recorded total net revenue of RMB 670 million in the fourth quarter of 2024, representing a year-on-year surge of over 400%. Net income for the fourth quarter was RMB 55.89 million, For the full year of 2024, the company achieved a total revenue of 800 million RMB with a net profit of 300 million RMB.

在积极开展新的加密货币业务的同时,我们也在稳步推进传统汽车业务的发展。 通过线上线下相结合的服务模式,为客户提供便捷高效的二手车交易体验。 此外,参股的二手车出口网站正在逐步扩大国际市场布局。 While actively pursuing new cryptocurrency ventures, we are also making steady progress in the development of our traditional automotive business.

Through a combination of online and offline service models, we provide customers with a convenient and efficient used car trading experience. In addition, Kengo's used car export platform is gradually expanding its presence in international markets. Despite facing certain market challenges, we are confident that by continuously optimizing our supply chain management and enhancing service quality, we will strengthen our brand influence in overseas markets and lay a solid foundation for future expansion.

展望未来,加密货币挖矿业务将是我们重点布局的战略领域。 In the same direction that the Bitcoin market has gradually entered the standard of supervision and technological transformation, the industry is looking forward to a continuous structural growth trend. The Canggu Project will be deepened from three dimensions, continue to expand the algorithm to consolidate the basic advantages, improve asset operation efficiency through intelligent management systems, while expanding energy optimization and other value chains, and build a more complete industrial and ecological transformation.

Looking ahead, cryptocurrency mining will be a key strategic focus for our business expansion. With the dual drivers of increasing regulatory oversight and technological updates or upgrades, the industry is poised to sustain its structural growth. Kengo intends to deepen our engagement in three key areas, steadily expanding computing power to reinforce our competitive edge, optimizing asset operation efficiency through intelligent management systems, and broadening our value chain by exploring energy optimization and other value-added services to create a more robust and integrated industry ecosystem.

面对行业波动周期, 我们已建立市场监测与政策研判机制, 动态优化经营策略, 通过严格的风控体系和灵活的资源配置, 既有效应对监网环境变化,

In response to crypto industry fluctuations, we have established a comprehensive market monitoring protocol and a robust policy analysis mechanism to enable agile adjustments to our operational strategies. By implementing a stringent risk control framework and adaptive resource allocation, we can effectively navigate regulatory shifts and market risks while capitalizing on opportunities driven by technological innovation. This approach ensures sustained growth momentum for Cango's continued expansion in the cryptocurrency sector.

这次我们也由衷地感谢大家一直以来的支持与训练。 下面时间交给我们的CFO张永毅与各位分享我们在2024年第四季度及前年的财务表现。

We would like to take this opportunity to express our gratitude for your continued support and trust. Now I would like to hand over to our CFO, Yongyi Zhang, to share our financial insights for the fourth quarter and full year of 2024.

Thanks, Jiayuan. Hello, everyone, and welcome to our fourth quarter and full year 2024 earnings poll. Before I started to review our financials, please note that unless otherwise stated, all numbers are in IMV terms and all percentage comparisons on a year-over-year basis. Total revenue in the fourth quarter of 2024 was $668 million compared with $130.2 million in the same period, 2023. The significant year-over-year increase was primarily driven by the new crypto mining business launched in November 2024. Revenue from the Bitcoin mining business in the fourth quarter of 2024 was $653 million. with a total of 933.8 bitcoins mined and held as of the end of 2024. Revenue from automotive trading-related income in the fourth quarter of 2024 was $15 million, compared with $130.2 million in the same period, 2023. Now let's move on to our costs and expenses during the quarter. Total operating costs and expenses in the fourth quarter of 2024 were $645.5 million compared with $159.1 million in the same period, 2023. Cost of revenue in the fourth quarter of 2024 increased to $550.5 million from $110.9 million in the same period, 2023. The year-over-year increase was primarily driven by the cost of new crypto mining businesses. As a percentage of total revenues, cost of revenue in the fourth quarter of 2024 was 82.4% compared with 85.1% in the same period, 2023. Sales and marketing expenses in the fourth quarter of 2024 decreased to $2.2 million from $4.4 million in the same period, 2023. As a percentage of total revenues, sales and marketing expenses in the fourth quarter of 2024 was 0.3% compared with 3.4% in the same period, 2023. General and administrative expenses in the fourth quarter of 2024 increased to 127.9 million from 45.6 million in the same period, 2023. As a percentage of total revenues, general and administrative expenses in fourth quarter of 2024 were 19.1% compared with 35% in the same period, of 2023. Research and development expenses in the fourth quarter of 2024 decreased to $1.3 million from $7.3 million in the same period, 2023. As a percentage with total revenues, research and development expenses in the fourth quarter of 2024 was 0.2% compared with 5.6% in the same period, 2023. Net loss on contingent risk assurance liability in the fourth quarter of 2024 was $4.6 million compared with $22.2 million in the same period, 2023. Net recovery on provision for credit losses in the first quarter of 2024 was $66.1 million compared with $31.2 million in the same period, 2023. We recorded $22.5 million in income from operations in the first quarter of 2024 compared with loss from operations of 28.9 million in the same period, 2023. Net income in the fourth quarter of 2024 was 55.9 million compared with net loss of 103.8 million in the same period, 2023. Non-GAAP adjusted net income in the fourth quarter of 2024 was 59.2 million compared with non-GAAP adjusted net loss of 99.2 million in the same period of 2023. On a per share basis, basic and diluted net income per ADS in the first quarter of 2024 were 0.54 and 0.48, respectively, and non-GAAP adjusted basic and diluted net income per ADS in the same period were 0.57 and 0.51, respectively. For the full year of 2024, our total revenues were $804.5 million, Revenue from the Bitcoin mining business was $653 million, with a total of 933.8 bitcoins mined and held as of the end of 2024. Revenue from automotive trading-related income was $151.5 million. Total operating costs and expenses were $625.6 million. Net income was $299.8 million, and non-GAAP adjusted net income was $316.9 million. Basic and diluted net income per ADS was $2.88 and $2.57, respectively. Non-GAAP adjusted basic diluted net income per ADS was $3.04 and $2.72, respectively. Moving on to our balance sheet, as of December 31, 2024, the company had cash and cash equivalents of 1.3 billion compared with 691.8 million as of September 30, 2024. As of December 31, 2024, the company had a short-term investment of 1.2 billion compared with 3.1 billion as of September 30, 2024. Looking ahead to the first quarter of 2023, As part of our continued commitment to growth and scaling our capabilities, we are targeting a substantial increase in our hash rate over the coming months. We are on track to grow our deployed hash rate to approximately 50 ETH before the end of this quarter. This increase was expected to be driven by the closing of our share-settled acquisition of Bitcoin mining assets. position us to strengthen our competitive advantage and increase operational efficiency. This concludes our prepared remarks. Operator, we are now ready to take questions.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad at this time. If at any time you'd like to remove yourself from the queue, please press star then 2. We'll pause for just a moment to assemble our roster. And today's first question comes from Pingyu Wu with CIPIC Securities. Please go ahead.

感谢管理层的提问机会。 我这边有两个问题。 第一个是公司对未来的增长是怎么样的一个预期? 第二个问题是我们的战略方向的问题。 在我们做了这个转型之后,是否还会继续去做汽车业务? And then I will translate it. The first question is what are the company's expectations for future growth? And my second question is what's the company's strategy direction? Will we continue to do automotive business after the transformation? Thank you.

Thank you. Regarding your first question, the company's expectations for future growth, We believe that in terms of Bitcoin mining business, based on our cash settlement part, the ratio of 32 ETH is conservatively estimated that our current annual output is around 6,000 ETH. Currently, we are working hard to promote the 18-billion-euro settlement of the second batch. This is the current core task. After the settlement is completed, our total settlement will reach 50 ETH. The annual output of Bitcoin will be further improved. Thank you for your questions. On your first question on our expectation for future growth,

Well, first of all, on Bitcoin mining, well, let's use our 32 EH cash settled hash rates as a basis for a conservative calculation. Well, on this basis, we forecast an annual production of around 6,000 Bitcoins. We are in the final stage of a share-based transaction to acquire an additional 18 EH of hash rates. So upon completion and delivery, our total computing power will reach 50EH, significantly increasing our projected annual Bitcoin production. And in the first half of 2025, we will prioritize the integration and optimization of our existing hashrate to ensure maximum efficiency. And in the second half, we will pursue the hashrate expansion strategy, actively seeking valuable assets to increase our overall capacity. And on traditional auto trading business, we expect to export 1,500 used cars in 2025 with a total value of 15 million US dollars.

我们的战略方向是继续扩大挖矿业务,保持在行业的算力领先地位。 这不仅是为了追求数字或排名,更重要的是,规模优势能够为我们带来显著的业务拓展机会,吸引顶尖人才的能力。 and improve market competitiveness and industry recognition. On the basis of strategic expansion, the company will optimize existing facilities, maximize efficiency and profitability. We focus on investment and actively explore more potential and new development directions on the value chain. Continue to seek sustainable and lower-cost energy sources, and continue to持有比特币以优化财务模型。 At the same time, we will continue to advance the automotive industry,

On your second question about strategic direction, our primary focus is on expanding our mining operations and maintaining an industry-leading position in computing power. This is not just about numbers or rankings. More importantly, we believe the economies of scale will help create significant opportunities for business growth, enhances our ability to attract top-tier talents, and strengthen our market competitiveness and industry standing. While expanding our mining operations, we will also optimize our existing facilities to maximize both efficiency and profitability. We remain committed to investing in and actively exploring new opportunities along the value chain, as well as sourcing sustainable lower-cost energy solutions. Additionally, we will continue to hold bitcoins to further optimize our financial model. Meanwhile, we will continue to drive progress in our automotive-related business, especially used car exports, aiming to become a leading asset-light gateway for China's used car exports. That's all from me. Thank you.

Thank you. And our next question comes from Emerson Zhao with Goldman Sachs. Please go ahead.

Thank you, Mr. Guan. I have three questions. First, can you introduce the logic of the company's entry into the Bitcoin industry? Second, will the Bitcoin transaction be monitored? Third, will the company have a plan to sell Bitcoin?

Thank you, management, for taking my questions. I have three questions. My first question is on why did you decide on going into the Bitcoin mining or cryptocurrency mining industry? Could you give us more color on the reasons? And the second question is, will your Bitcoin transactions be under regulation? And my third question is, does the company have any plan to sell your Bitcoin holdings?

We entered the Bitcoin mining industry based on our optimistic views on the future development of Bitcoin. In the past few years, we have been looking for strategic opportunities for business transformation. Since 2021, we have gradually reduced the scale of our business and slowly withdrew from this industry. This has brought us huge liquidity. Since then, we have discussed many areas, including new energy, car manufacturing and trading, as well as new energy projects such as solar and wind power. In the process of research on the new energy industry, we found that with the global algorithmic construction wave caused by the breakthrough of artificial intelligence technology, Bitcoin mining is effectively applied in balancing the power supply and handling the power supply during the process. So in November 2024, we acquired the leading algorithmic scale in the industry through the acquisition of Bitcoin Continent, and quickly established a position in the industry. In addition, this time, the $400 million transaction was carried out overseas and did not involve China's supervision. During the entire transaction, we had a close communication with the relevant US regulators. Based on our optimistic view on the future development of Bitcoin, at the moment, we can predict that our strategy is asset and持有. This also helps to optimize our financial model. Of course, we do not rule out the market conditions Thank you for your questions.

I will take all of your three questions together. So why did we decide to go into this industry? Well, we entered the Bitcoin mining sector based on our positive outlook on Bitcoin's future potential. Over the past few years, we have been proactively exploring strategic opportunities for business transformation. Since 2021, we have steadily scaled back our loan facilitation business and systematically exited this sector, which substantially boosted our liquidity. As we researched and got involved in energy-related projects, such as PV power stations and new energy storage systems, we identified Bitcoin mining as an effective solution for balancing grid loads and utilizing surplus electricity, especially amidst the global surge in computing power demand driven by advancements in artificial intelligence. So we decided to seize the opportunity and acquired Bitmain's Onrack mining machines in November 2024, which gave us industry-leading computing power capacity and quickly established our strong presence in the sector. And about our transaction regulation, the 400 million transaction was conducted entirely offshore and is not subject to regulation by Chinese authorities. And throughout the process, we have maintained close engagement with regulators. Also about our future plan for our Bitcoin holdings, well, given our optimistic outlook on the future of Bitcoin and our cryptocurrency, our strategy for the foreseeable future is to mine and hold. This will also help optimize our financial model. However, we remain open to adjusting our holdings based on market conditions to enhance revenue and manage leverage. Thank you.

Thank you. And our next question comes from Mengting Zhai with Mengsheng Securities. Please go ahead.

感谢管理层接受我的提问 我这边主要也是有三个问题 首先第一个就是我们作为行业的参与者 对比特币的价格有怎么样的一个预期 以及公司在整个比特币行业的具体布局 能否给我们展开的介绍一下 The second question is, what are the advantages of the company's transformation into Bitcoin, and will we see other companies doing a similar business transformation? The third question is, what is the current operation of the company in mining maintenance and mining management? I would like to know more about how it is going and if there are any relevant plans this year. Thank you.

Thank you, management, for taking my questions. I have several questions. My first question is that as a participant in this new industry, what is your expectation for Bitcoin prices? And also, could you give us more colors on your strategy for your Bitcoin mining business? My second question is that what do you see are the competitive edges of Cango in Bitcoin mining, and do you see others joining the drive to mine Bitcoins in the future? And my next question is about your mining rig maintenance and also mining farm management. So how do you do that, and what's your plan for 2025?

关于您的第一个问题, We expect that Bitcoin's trading price in 2025 will be in the range of $90,000 to $120,000, mainly due to the promotion of more and more institutions to absorb Bitcoin, monitor and relax, and strategic reserves. Of course, there is a certain fluctuation in the future price of Bitcoin. Our layout in this area is to quickly establish a position in the industry through the acquisition of these two transactions, Thank you for your questions.

Let me answer your questions one by one. So your first question, we anticipate that Bitcoin may trade between 90,000 to 120,000 in 2025, driven by factors such as increased institutional adoption, regulatory approvals, and strategic reserves. However, Bitcoin's future price is naturally subject to inherent volatility and uncertainty. We have secured industry-leading computing power capacity through the two Bitcoin mining machine acquisitions we've announced. As such, we've already established a strong foothold in the sector and laid a solid foundation for future expansion up and down the digital economy value chain.

Regarding the second question, Canggu has been growing in the automotive industry for many years. We have accumulated experience and talent in business management. Since the beginning of 2022, we have systematically carried out business-scale remodeling and transformation exploration. We have been more in touch with projects related to energy and new energy storage and other energy-related areas. With the breakthrough of artificial intelligence technology, we have gradually established the transition direction of energy and computing. We have done in-depth research on digital currency and analyzed energy and computing related projects. This has given us a profound understanding and insight into the industry, and has strengthened our determination to promote large-scale transactions. We have also noticed that as the environment and market conditions continue to change, more and more companies are starting to pay attention to the potential development opportunities of encrypted currency mining business. However, the real entry into the field needs to face higher entry barriers, such as large-scale capital expenditure and comprehensive operation preparation. These are all important factors that potential participants need to carefully consider.

On your second question, Kengo has been a prominent player in the automotive industry for many years, boasting strong expertise and also strong talent pool. And since 2021, we have comprehensively re-evaluated our business model and began restructuring to capitalize on new strategic growth opportunities. And since then, our increasing involvement in energy-related projects such as PV power stations and new energy storage systems has become a key part of our evolution. As AI advancements drove surging global demand for computing power, we gradually refined our transformation strategy to focus on energy plus computing power. And we have conducted in-depth research into digital currencies and closely examined projects tied to energy and computing power. This gave us a solid understanding of the industry and strengthened our confidence in pursuing large-scale transactions. Of course, as the regulatory landscape and market conditions change, we are seeing an increasing number of companies exploring growth opportunities in the crypto mining sector. However, the crypto industry presents high barriers to entry, including the need for substantial capital investment and comprehensive operational readiness. So these are crucial factors that any potential new player must carefully evaluate.

关于第三个问题,目前我们主要通过与比特大陆的合作来运维和管理矿机。 整个运维和矿机的状况良好,我们的在线率和产币量在行业中也是处有竞争力的水平。 后续,随着我们算力规模的进一步扩张,我们将进一步强化公司运营团队的运营能力建设。

On your third question, we currently manage and operate our mining rigs in partnership with Bitmain. Our overall operations and machine performance are solid, with both average operating hash rate and coin production at a highly competitive level within the industry. Moving forward, as our computing capacity continues to expand, we plan to gradually build our in-house operational capabilities and establish a dedicated operations team. Thank you.

Thank you. And our next question comes from Shang Sun with Guosheng Securities.

Please go ahead. Hello, Mr. Guan. Can you hear me?

Yes. Thank you.

I want to ask the first question. Do we have a calculated goal for 2025? And the current energy consumption ratio, the overall level of our accounting energy consumption ratio, and the electricity bill, what is the situation? And also, Thank you.

I have a question on the 2025 hash rate target. So could you share with us what is your hash rate target for 2025, and what are the current energy efficiency and electricity cost figures, and what are the company's plans for optimizing energy and reducing costs?

Since your question is on cost, so I will hand over the question to our CFO, Michael Zhang.

Thank you for your question. So when we complete our second acquisition, we will become the second largest publicly listed Bitcoin mining company by computing power. Closely trail Mara, the current industry leader. So more suitable mining assets become available, we remain open to expanding our portfolio through additional acquisitions. Currently, the average energy consumption of a mining machine is 21.6 joule per TH. As our mining operations are spread across five countries, electricity costs vary due to regional cost variations. Overall, our mining costs mainly consist of hosting fees, which include electricity and equipment depreciation. The Trump administration has announced plans to expand traditional energy projects, which is expected to put downward pressure on overall energy prices. So we will also We will also negotiate for lower electricity costs as we renew our IDC contracts. At the same time, we are actively exploring more cost-effective energy solutions, including potential energy projects in the Middle East and Australia.

Thank you. 然后我的第二个问题就是咱们单币的挖矿成本这个情况可以介绍一下吗? 就是对。

The second question is on the average mining cost per Bitcoin, and also could you give us more detailed description of your mining farms and mining rigs?

Also with mining operations spread across five countries, our electricity costs fluctuate based on our local grid rates. The average cost to mining of bitcoins, excluding depreciation of mining machine, was 67,769.9 USD per bitcoin in the fourth quarter. We currently operate over 138,000 machines, primarily from S90 series. with nearly 90% being water-cooled units. Approximately 40% of these machines are located in the United States, distributed across multiple states, including South Carolina, Arkansas, Oklahoma. The remainder are spread across East Africa, Oman, Paraguay, and Canada, forming a diversified global footprint. Thank you.

Thank you.

And my last question is on cash flow. So after these strategic transactions, will there still be enough cash flow to support your business expansion?

We thoroughly assess our cash flow position before moving forward with this strategic acquisition. While the total transaction value was $400 million, only $256 million will be settled in cash, with the remainder executed through a stock-for-stock acquisition. So even after completing this transaction, we still have sufficient cash and liquidity to support our operations. We are closely monitoring our cash flow to make sure that we have ample liquidity to address various scenarios. We are also actively exploring ways to enhance capital efficiency and ensure we optimize our use of financial resources.

Thank you.

Thank you. My last question is about the price volatility of Bitcoins. Will this kind of volatility have a big impact on your performance? Thank you.

Our strategy is to mine and hold Bitcoins. So as we view Bitcoin's price fluctuations largely shortened and are optimistic about its long-term value. So we are very confident that Bitcoin will positively impact the company's performance in the long run. At the same time, from the financial security and liquidity perspective, we will maintain substantial capital reserves to manage potential price volatility. Thank you.

Thank you. And that concludes the question and answer session. Thank you once again for joining Cango's fourth quarter and four-year 2024 earnings conference call today. Have a great day, and you may now disconnect your lines.

Thank you.