Cango Inc.

Good morning and evening, everyone. Welcome to Kango Inc's first quarter 2025 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. Ji Run Lin, Chief Executive Officer, and Mr. Yong Yi Zhang, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q&A session. Before we begin, I refer you to the Safe Harbor statement in the company's earnings release, which also applies to the conference call today, as management will make forward-looking statements. With that said, I am now turning the call over to Mr. Ji Run Lin, CEO of Kango. Please go ahead,

sir. Hello, everyone. Welcome to the Safe Harbor 2025 first quarter call.

Hi, everyone, and welcome to Kango's first quarter 2025 earnings call.

In the first quarter of 2025, despite the significant change in the encrypted currency market, Bitcoin's market-leading position has been further strengthened. During the unstable global economy, Bitcoin has demonstrated its stability and strong anti-cash ability as a risk-taking asset. In terms of policy, the Trump administration's support for the encrypted currency market has undoubtedly created a more favorable monitoring environment for the entire industry. The establishment of Bitcoin's strategic reserves, the appointment of key departments and officials who are friendly with digital currency, will be a period of clear direction and stability for the development of the industry.

In the first quarter of 2025, Bitcoin further solidified its dominance despite significant volatility in the cryptocurrency market. Amid global economic uncertainty, Bitcoin demonstrated strong resilience and stability as a safe haven asset. On a policy front, the Trump administration's supportive stance towards the crypto market has undoubtedly fostered a more favorable regulatory environment. The establishment of a strategic Bitcoin reserve and pro-digital currency appointments are expected to provide clearer direction and more stable expectations for the industry's future development. Kango enters the Bitcoin mining industry in November 2024. Over the past few months of exploration and operation, Kango has not only achieved business growth, but also unlocked new development opportunities.

The current profit margin of Kango is $13.61 million. The loss of music is $21.42 million. The main reason is that the currency price rebounded after the end of March, which has reduced the value of Bitcoin's public currency. As of the end of January, the company's cash and cash price and the total investment is $3.17 billion. Stable capital reserves will support the next step in business growth.

In the first quarter of 2025, Kango reported total revenue of $145 million, with $144 million contributed by our Bitcoin mining operations. Gross profit for the quarter reached $13.61 million. Operating loss stood at $21.42 million, primarily due to decline in Bitcoin prices toward the end of March, which led to a decrease in the fair value of the company's Bitcoin holdings. As of the end of the quarter, Kango maintained a strong cash position with total cash equivalents and short-term investments amounting to $347 million, providing solid support for future business expansion.

The value of Bitcoin's public currency has increased, and since March 31, 2025, the total amount of the exchange rate is about $2.6 billion. Among them, M1 is 2.86%, M3 is 1.59%, and the credit risk of the exchange is further reduced to $7.6 billion. Compared to the 10.8 billion in December 31, 2020, it has dropped by 30%.

and .59% respectively. In addition, our credit risk exposure not covered by full BAT allowance or full risk assurance liabilities further declined to $760 million RMB, down 30% from $1.08 billion RMB as of December 31, 2024.

In addition, the exchange rate of the 18EH is expected to increase by 7% and by 7.31 billion RMB. After the exchange, our currency will increase to 5EH.

to optimize resource allocation. Nearly 90% of our currency operational miners are water-cooled S19 XP models. In addition, the delivery of an additional 18EHs per second of computing power is progressing as planned, and it is expected to be completed by July 31. Once finalized, our total hash rate capacity will reach 50.

Since the Bitcoin mining business, we have always focused on improving various operating indicators. In the first quarter, the company's currency volume reached 1,541 US dollars. By the end of April, the company's currency volume was ,944.8 US dollars. The world's top company Bitcoin has the 14th highest holding volume in the ranking list. In the top mining sector, the currency volume is the fifth highest. In the first quarter, our average average effective calculation per month is more than 30EH. The efficiency is 94%. In March, the total hash rate capacity of the per month is 16.6. In the top mining sector, the average average efficiency of the first quarter is 21.6GHTH. In March, the average average efficiency of the first quarter is 21.5.

Since entering the Bitcoin mining industry, we have remained focused on improving our operational metrics. In the first quarter, we mined a total of 1,541 bitcoins. As of the end of April, our total bitcoin holding reached ,944.8 coins, ranking 14th globally among publicly listed companies, and fifth among listed mining firms. Throughout Q1, our average monthly effective hash rate consistently exceeded 30 extra hashes per second with a coin yield of 16.6 bitcoins per EHS, placing us among the top three publicly listed mining companies. And our efficiency rate is as high as 94%. In addition, in terms of energy efficiency, our average power efficiency for the quarter was 21.6GHTH with efficiency of 21.5 for March.

In 2025, we will continue to develop and develop the Bitcoin mining industry. We are confident in the stability and long-term value growth of the Bitcoin public sector.

As we move into 2025, we will remain firmly committed to deepening our focus on the Bitcoin mining business. We have a strong confidence in the stability of Bitcoin's supply and its long-term value appreciation potential. As such, we will adopt a mine and hold strategy, prioritizing both self-mining and long-term holding.

In the future, we will focus on integrating and optimizing existing mining resources, to maximize its efficiency and continue to pay attention to the opportunity of mining, actively looking for a high-quality target, and further expanding the scale of mining. We believe that the scale advantage can bring us a wider business expansion opportunity, attract top talent to join, and improve market competitiveness and industry recognition.

Looking ahead, we will focus on gradually integrating and optimizing our existing computing power resources to maximize efficiency. At the same time, we will actively pursue MMA opportunities, seeking high-quality targets to further scale up our operations. We believe that greater scale will unlock broader growth opportunities, attract top talent, and enhance both our market competitiveness and industry recognition.

In addition, in the traditional car industry, we continue to focus on the operation of the auto-candle, a second-hand car export website that maximizes light assets. Since the launch of auto-candle, the website has attracted more than 2.37 million visitors. The website has exceeded 2.9 million users. The second-hand car SKU that auto-candle has has more than 480,000 cars, and has over 6.8 million vehicles. Through this platform, we hope to build a gateway for the domestic second-hand car market and overseas buyers, and help overseas buyers to reach excellent second-hand car resources in China. In the future, SKU will continue to deepen the integration with the overseas market, further optimizing the function of auto-candle, and better service to customers.

On our traditional automotive business, we remain focused on lean, effort-like operations for our used car export platform, auto-candle. Since its launch, the platform has attracted over 2.37 million visits and more than 290,000 registered users. Today, auto-candle has more than 480,000 used car listings, covering over 68,000 unique models. Auto-candle aims to connect China's used car market with overseas buyers, making it easier for international customers to access high-quality vehicle inventory from China. Looking ahead, Cango will continue to strengthen its global presence and enhance auto-candle's platform of capabilities to deliver an even better experience for our users. I would like to hand over the call to our CFO, Mr. Yong Yichang, to share our financial highlights for the first quarter of 2025.

Thanks, Jiayuan. Hello, everyone, and welcome to our first quarter 2025 earnings call. Before I started to review our financials, please note that unless otherwise stated, all number and IMB terms and all percentage comparisons are on a -over-year basis. Total revenue in the first quarter of 2025 were $1.1 billion compared with $64.4 million in the same period, 2024. The significant -over-year increase was primarily driven by the Bitcoin mining business launched in November 2024. Revenue from Bitcoin mining business in the first quarter of 2025 was $1 billion, with a total of 1,541 Bitcoin mined in the first quarter of 2025. The average cost to mine Bitcoin, excluding depreciation of mining machines, was ,602.1 per coin in the quarter. Revenue from automotive trading related income in the first quarter of 2025 was $7.6 million compared with $64.4 million in the same period, 2024. Now let's move on to our cost and expenses during the quarter. Cost of revenue in the first quarter of 2025 increased to $955.1 million from $29.1 million in the same period, 2024. The -over-year increase was primarily driven by the cost of Bitcoin mining business. Sales and marketing expenses in the first quarter decreased to $0.4 million from $3.5 million in the same period, 2024. General and administrative expenses in the first quarter increased to $92.5 million from $37.9 million in the same period, 2024. Research and development expenses in the first quarter increased to $0.3 million from $1.1 million in the same period, 2024. Net gain on contingent risk assurance liability in the first quarter of 2025 was $5.3 million compared with $15 million in the same period, 2024. Net recovery on provision for credit losses in the first quarter of 2025 was $28.7 million compared with $66.3 million in the same period, 2024. We recorded $155.5 million in loss from operations in the first quarter of 2025 compared with income from operations of $74.2 million in the same period, 2024. Net loss in the first quarter of 2025 was $207.3 million. Adjusted EBITDA in the first quarter of 2025 was $27.6 million. Moving on to our balance sheet. As of March 31, 2025, the company had a cash and cash equivalents of $2.5 billion compared with $1.3 billion as of December 31, 2024. As of March 31, 2025, the company had a short-term investment of $5.2 million compared with $1.2 billion as of December 31, 2024. Looking ahead to the rest of 2025, we are on track to grow our deployed hash rate to approximately 50 EH before the end of July. This concludes our prepared remarks. Operators, we are now ready to take questions.

We will now begin the question and answer session. If you ask a question, you may press star, then 1 on a touchtone phone. If you are using a speaker phone, please take up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. The first question comes from Emerson Zhao with Goldman Sachs. Please go ahead.

Thank you, management. I have two questions. The first question is what is your view on the trends in the cryptocurrency market so far? And the second question is how is the company going to respond to increasing challenges brought about by increasing computing power around the world as well as increasing mining difficulty?

Thank you, Emerson. The first question is about the current cryptocurrency market. The current cryptocurrency market is full of challenges and challenges. We believe that as technology progresses and the market becomes more mature, cryptocurrency will play an increasingly important role. We will closely monitor the market and flexible strategies to better grasp the market.

The second question is about the challenges of the company's growth in global computing and mining. The current cryptocurrency market presents both opportunities and challenges. We believe that as technology advances and the market continues to mature, cryptocurrencies will play an increasingly important role. We will closely monitor market developments and flexibly adjust our strategies to better seize emerging opportunities.

The second question is about the challenges of the company's growth in global computing and mining. On the one hand, we will continue to optimize the existing mining operation efficiency to ensure the efficiency of mining machines. On the other hand, we will complete the second batch of 18EH computing cross-border as soon as possible and continue to pay attention to subsequent computing and purchase opportunities to improve the overall production capacity.

On your second question, on the challenges of increasing computing power around the world and increasing mining difficulty, our responses include, firstly, we will continue to optimize the efficiency of our existing mining operations to ensure high productivity. At the same time, we are working to expedite the delivery of our second batch of computing power totaling 18EHs per seventh and continue to monitor further acquisition opportunities to further enhance our overall production capacity.

And the next question comes from Joy Chai with Guarding Security. Please go ahead.

Firstly, we see a decrease in the data in April. We would like to ask the management team why this change has occurred. Secondly, will the increase in power cost bring pressure on the company? We don't know if there are any plans for the company to solve this problem. The third question is a relatively big one. We see that the company has made a lot of changes in the past year. So we would like to ask the management team further about the company's future strategic direction. These are the three questions. Thank you.

And the second question is that do you see more pressure from increasing power costs or electricity costs on the company? What are the plans that the company has to address this challenge? And my third question is a more general question regarding the future strategy of the company because we have seen quite a lot of changes in the company over the past year. So could you again give us more details on your future strategic direction? Thank you for your questions. On your first question, in April we mined 470 coins, an .3% decrease compared to March. And this was mainly due to the second largest monthly increase in global network hash rate on record, as well as an 8% rise in mining difficulty compared to March. Meanwhile, we maintained a high level of mining efficiency with our deployed hash rate remaining steady at 32 extra hashes per second. In the first quarter, our average operational hash rate was about 30 and the efficiency was .8% relatively stable compared to the previous quarter.

On the other hand, we formed a special team to conduct a real-time survey in the areas of central, eastern and Australian energy supply. The key focus was to examine the possibility of cooperation between the light and natural gas and low-level clean energy projects. We used the multi-energy supply system to achieve this effect.

For your second question, yes, the company is currently experiencing relatively high electricity costs primarily due to the premium associated with power procurement under the hosted operation model. However, it is important to note that this model allows us to avoid a heavy capital investment and large staffing costs required for building and operating our own mining facilities. As a result, we have significantly reduced the capital expenditures and operating costs on the infrastructure and operations front. To continuously refine our cost structure, the company has launched a global energy strategy. On one hand, we are conducting detailed cost analysis of existing hosting agreements to explore potential room for renegotiation. On the other hand, we have formed a dedicated team to carry out on-site researches in energy-rich regions such as the Middle East and Australia with a focus on evaluating the feasibility of partnerships in low-cost clean energy projects including solar and natural gas. Through a diversified energy supply system, we aim to reduce costs and enhance operational efficiency. And on your third question, our future strategic direction, we will remain focused on optimizing our mining operations, enhancing efficiency and exploring new market opportunities. At the same time, we will strengthen our partnerships to jointly drive industry advancement. And we will also continue to proactively pursue sustainable and more cost-efficient energy sources. Thank you.

Okay, I'm going to ask a question from Jack Sun with Chalongki Research. Please go ahead.

Thank you for taking my questions. I have three questions. The first question is that, well, the Bitcoin mining business actually accounted for 99% of your quarterly revenue. So do you see any concentration risk in terms of your revenue streams here and how do you plan to balance or diversify your business lines? My second question is regarding the operating loss. So do you consider using derivatives to hedge against volatility in your fair value? My third question is regarding cash flow. Investors are interested in cash flow positions. So my question is, do you have any plan in the future for equity financing or other financing plans?

Okay, so regarding the contribution of Bitcoin mining business, we believe that although the contribution of Bitcoin mining business accounts for most of our revenue, we believe that the current phase of focus on mining business is in line with the company's strategy. At the same time, we are also fully confident in the second-hand export business. We will focus on the operation of the second-hand export website AutoPango, which is a lightweight and light-weight asset. In the future, we will explore other business opportunities in the market to realize diversification of business. At the same time, we will optimize mining business to ensure its steady growth.

On your first question, while the majority of our revenue currency comes from Bitcoin mining, we believe that focusing on mining at this stage is aligned with our overall strategy. Meanwhile, we remain confident in the potential of our used car export business and will concentrate on operating AutoPango, our asset-light platform for used car exports. Looking ahead, we plan to gradually explore additional business opportunities based on market conditions to diversify our operations. At the same time, we will continue to refine our mining business to ensure its stable and sustainable growth.

In addition, we are in the process of introducing a risk management tool. In the short term, we have signed a contract with the power supplier to lock the price and reduce the cost. At the same time, we are actively looking for low-cost power supplies. In the long term, we are also studying the feasibility of related risk management tools and carefully choosing to prevent risks.

On your second question on operating loss, while the operating loss in this quarter was primarily due to the decline in Bitcoin prices in March, we believe that fluctuations in Bitcoin's price are primarily short-term in nature and we remain confident in its long-term value. In addition, we are introducing risk management tools in phases. For the near term, we are signing medium to longer-term contracts with power suppliers to lock electricity prices and reduce cost pressures. At the same time, we are actively seeking low-cost renewable energy sources. Looking ahead, we are also exploring the feasibility of more relevant risk management tools and will adopt them properly to mitigate potential risks.

Regarding cash flow, we currently have sufficient funds to support the mining of the Sanzeh EH mine. This includes the credit amount of $4 billion per year provided by our partners. Given the lower current debt rights, we still have room to increase the debt. We will consider debt first, not the cash flow.

Regarding cash flow, we currently have sufficient liquidity to support mining operations at 32 extra hashes per second, including a $400 million USD annual credit facility provided by our partners. Given our relatively low -to-equity ratio, we still have ample room to take on additional leverage. As such, we plan to prioritize debt financing over equity financing. Thank you. Thank you.

And the next question comes from Michael Donovan with HC Wainwright. Please go ahead.

Hello. Thank you for taking my question. This is Michael Donovan from Kevin Deedy's team. Let's start with the 18X hash you used to have to deploy. Can you provide more clarity on that? And has the deal with UrSALFA been finalized? And you mentioned July. So when can we expect the 18X hash to be online at the end of July? Or is there anything that would hold this up? And then my second question is around your Bitcoin HODL strategy that you mentioned on the call. Do you have any plans to use your Bitcoin in terms of lending or have any plans to earn yield on the Bitcoin? Thank you.

Thank you. Thank you for your questions. I will hand over your questions to our CFO, Yongyi Zhang. Thank you for your questions. So on your first question on the 18EHDU, actually we've got to complete the two claims. We closed the deal by the end of July because we have already reached agreements on the main terms, except for some small details. And we are still finalizing the small details.

So we are still finalizing the small details. So we are still finalizing the small details. So we are still finalizing the small details. So we are still finalizing the small details. So we are still finalizing the small details. So we are still finalizing the small details. So we are still finalizing the small details. To be

more specific about terms and conditions revisions, actually in April we received some offer requests on our domestic or PLC due. So that's why we need to make some revisions to the 18EHDU terms and conditions. In fact, our plan is that for this Friday, we are going to have an extraordinary shareholders meeting, to have the shareholders meeting to deliberate the PLC due. And so we expect that after the extraordinary shareholders meeting, then we will be able to complete the PLC due and thereby completing our planned revisions to the 18EHDU.

So that's our strategy. So that's our strategy. So that's our strategy. So that's our strategy. So that's our strategy. So that's our strategy.

So that's our strategy. So that's our strategy. So that's our strategy. So that's our strategy. So that's our strategy.

That's our strategy. Thank you once again for joining KENGO's first quarter 2025 earnings conference call today. Have a great day.