Cango Inc.

Good morning and evening, everyone. Welcome to Cango 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-Ran 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. Jairon Lin, CEO of Tango. Please go ahead, sir.

Hi everyone, and welcome to Canggu's first quarter 2025 earnings call. In the first quarter of 2025, despite significant changes in the currency market, Bitcoin's leading position has been further strengthened. In times of global economic instability, Bitcoin has shown its stability and strong anti-fraud capability as a currency 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 strategic reserves and the appointment of key department officials who are more friendly to the digital currency will be expected to provide a clearer direction and a more stable period for industry development.

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 the 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.

Changguzhi entered the Bitcoin mining industry in November 2024. After several months of exploration and operation, we not only achieved business growth, but also brought new opportunities for the company.

CanGo enters the Bitcoin mining industry in November 2024. Over the past few months of exploration and operation, CanGo has not only achieved business growth, but also unlocked new development opportunities.

In the first quarter of 2025, CanGo achieved a total revenue of $1.45 billion, of which Bitcoin mining business contributed $1.44 billion. In terms of profits, the company's net profit in the first quarter 1,361 million dollars, profit loss 2,142 million dollars, mainly due to the return of the price at the end of March, causing the company's Bitcoin supply value to decrease. As of the end of the first quarter, the company's cash and cash equivalent prices and short-term investment total remain at 3.47 billion dollars. Stable capital reserves provide support for the next step of business expansion.

In the first quarter of 2025, Kengo 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, Tango maintained a strong cash position with total cash, cash equivalents, and short-term investments amounting to $347 million, providing solid support for future business expansion.

At the same time as we actively open Bitcoin businesses, our balance of financial assets will continue to decline, and the quality will significantly increase. As of March 31, 2025, the total balance will be about 2.6 billion RMB, of which M1 will be 2.86%, M3 will be 1.59%. At the same time, we are actively preparing for the total balance. While actively expanding our Bitcoin business, we continue to reduce our total outstanding loan balance and significantly improve loan quality.

As of March 31, 2025, our total outstanding loan balance was approximately 2.6 billion RMB with M1 plus and M3 plus ratios of 2.86% and 1.59% respectively. In addition, our credit risk exposure not covered by full debt allowance or full risk assurance liabilities further declined to 760 million RMB, down 30% from 1.08 billion RMB as of December 31, 2024.

Currently, we have 32 EH, which accounts for about 4% of the net average of the first quarter. Our mining machines are distributed in countries and regions such as North America, South America, the Middle East, and Africa. Through globalization, we are able to achieve the best configuration of resources. Currently, there are nearly nine layers of S19XP water-cooled machines in the frame. In addition, another 18EH calculated decoupling work is planned to be completed on July 31. After the decoupling is completed, our calculated scale will be increased to 51EH.

Till now, we hold a total computing power of 32 exahashes per second, accounting for approximately 4% of the global average hash rate in Q1. Our mining machines are deployed across North America, South America, the Middle East, and Africa, a globally diversified setup that enables us to optimize resource allocation. Nearly 90% of our currency operational miners are water-cooled S19 XP models. In addition, the delivery of an additional 18 exahashes per second of computing power is progressing as planned, and it is expected to be completed by July the 31st. Once finalized, our total hashrate capacity will reach 50.

Since the opening of the Bitcoin mining business, we have always focused on improving all types of operating indicators. In a quarter, the company's output amount reached $1,541. At the end of April, the company's capital total amount was $2,944.8. Global listed companies' Bitcoin holdings are ranked 14th in the list. In the listed mining sector, the capital amount is ranked 5th. In a quarter, we have an average effective calculation of more than 30 pages a month. The efficiency has reached 94%. In March, the output of each unit reached 16.6 units. In the last four months, the average energy efficiency was 21.6 GTH. In March, the energy efficiency increased to 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 holdings reached 2,944.8 coins, ranking 14th globally among publicly listed companies and 5th among listed mining firms. Throughout Q1, our average monthly effective hash rate consistently exceeded 30 exahashes 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%. And in addition, In terms of energy efficiency, our average power efficiency for the quarter was 21.6 joule per terahash with efficiency of 21.5 for March.

In 2025, we will steadily upgrade the Bitcoin mining industry. We are confident in the stability of Bitcoin supply and its long-term value growth. Therefore, we will take a strategy of self-reliance and freedom.

As we move into 2025, we 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.

未来,我们重点将多步整合和优化现有算力资源, 以最大化 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 M&A 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 automotive industry, we continue to focus on the two-wheel drive export website that mass-produces green assets. In terms of the operation of AutoCandle, since the launch of AutoCandle, the website has attracted more than 2.37 million people. The number of users on the website has exceeded 290,000. AutoCandle carries more than 480,000 second-hand SKUs, covering more than 68,000 models. Through this platform, we hope to build a network of information for domestic second-hand car markets and overseas buyers, On our traditional automotive business, we remain focused on lean asset-like operations for our used car export platform, AutoCango.

Since its launch, the platform has attracted over 2.37 million visits and more than 290,000 registered users. Today, Auto Kengo has more than 480,000 used car listings covering over 68,000 unique models. Auto Kengo 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 AutoCanGo's platform of capabilities to deliver an even better experience for our users.

Next, I will hand over to our CFO, Zhang Rongyi, to share with you our financial performance in the first quarter and the whole year of 2025.

i would like to hand over the call to our cfo mr yong yi zhang to share our financial highlights for the first quarter of 2025. thanks hello everyone and welcome to our first quarter 2025 earnings call before i started to review our financials please go back unless otherwise stated all number in imb terms and all percentage comparisons on a year-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 year-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 machine was US$70,602.1 per core 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 year-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 of 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 operation 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. Move on to our balance sheet. As of March 31st, 2025, the company had a cash and cash equivalents of 2.5 billion compared with 1.3 billion as of December 31st, 2024. As of March 31st, 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 touch-tone phone. If you are using a speakerphone, 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 two. The first question comes from Emerson Zao with Goldman Sachs. Please go ahead.

Hey, thank you, Mr. Guan. This is Emerson from Goldman Sachs. Thank you, management. I'm from Goldman Sachs.

I have two questions. The first question is that 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 currency market situation. Thank you, Emerson, for your questions.

So 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.

Regarding your second question, it is the company's challenge to increase global computing growth and mining difficulty. On the one hand, we will continue to optimize the existing mining operation efficiency to ensure efficient production of mining machines. On the other hand, we will as soon as possible complete the 18EH computing intersection of DIP and continue to pay attention to subsequent computing purchasing opportunities to enhance the overall production capacity.

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

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

Thank you for accepting my question. I'm Chen Mengting from China. I have three questions for you. The first one is, we saw a significant decline in the company's data in April. I'd like to ask you why there's such a change. The second question is, will the increase in electricity costs bring pressure to the company? I don't know if the company has any plans to solve such a problem. Thank you, management, for taking my questions and from SinoLink Security.

So I have all together three questions. The first question is I noticed that the metrics and data for the company in April saw quite a big decrease. So could you give us more colors or the reasons behind these declines? And the second question is that do you see more pressure from increasing power costs or electricity costs on the company? And what are the plans that the company have to address these challenges? 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. And so could you again give us more details on your future strategic direction?

Okay. Regarding your first question, the company's market share has dropped. In April, we produced 470 Bitcoins in total. It fell by 11.3% in March. This is mainly due to the global computing power reaching the second highest in history. And the mining difficulty increased by 8% compared to March. On the other hand, we still maintain a higher level of mining efficiency. The deployment of computing power has been maintained at 32EH. The average operating power of a system is 31EH. Thank you for your questions.

On your first question, in April, we mined 470 coins, an 11.3% 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 exahashes per second. In the first quarter, our average operational hash rate was about 30 and the efficiency was 93.8%, relatively stable compared to the previous quarter.

Regarding the second issue, the increase in electricity costs, The current company's electricity costs are at a relatively high level. The main reason is that the delaying operation mode has led to a certain disadvantage in the electricity production phase. But it should be emphasized that this model makes us avoid the heavy asset investment and large-scale operating team's energy costs. As a result, the capital investment and operation of basic facilities and operation areas has significantly decreased. In order to continue to optimize the cost structure of the company, the company has initiated a global energy strategic layout. On the one hand, detailed cost analysis for the existing decommissioning agreement to explore the cost space. On the other hand, to build a specialized team to carry out real-time research in the region of Central and Eastern Australia and other rich energy areas, and to focus on the possibility of cooperation with low-cost clean energy projects such as light and solar panels.

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.

The third issue is the company's future strategy. We will continue to focus on optimizing mining operations, improving mining efficiency, and exploring new market opportunities. 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.

Thank you.

And the next question comes from Jack Sun with Kellong Key Research. Please go ahead.

Thank you for accepting my question. I have three questions I would like to ask. The first question is, the Bitcoin mining business has contributed 99% of the total revenue. Is it facing the risk of a relatively single input structure? How to balance the diversification of the business? The second question is, is the profit loss due to the fluctuation of the supply value of the raw materials? The third question is, investors are more concerned about the cash flow situation. Is there a future plan such as equity financing? Thank you.

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 much is your plan to balance or diversify your business lines? And my second question is regarding the operating loss. So do you consider using derivatives to hedge against volatility in your fair value and 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 uh

We will also 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 AutoCango, 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.

本季度的营业亏损主要是受三月份币价下跌影响。 我们认为比特币价格的波动更多的是短期影响。 我们看好比特币的长期价值。 In addition, we are introducing risk management tools at different stages. In the short term, we have signed a long-term contract with the electricity supplier to lock the electricity price and reduce the cost pressure. At the same time, we are also actively looking for low-cost creditors. 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 of operating loss, well, the operating loss in this quarter was primarily due to the decline in Bitcoin prices in March, and 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 in electricity prices and reduce cost pressures. And 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 prudently to mitigate potential risks.

At present, we have plenty of funds to support the mining of 32EH, including the cost of $400 million per year provided by our partners. Given the current lower debt, we still have room to add debt. We will prioritize debt rather than equity.

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 debt-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.

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 18 exahash you still have to deploy. Can you provide more clarity on that and has the deal with or Salfa 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 very much. I have two questions. The first question is still about the new 18 EH calculations that will be added. Could you please explain in more detail whether the progress of the current transaction has been finalized? As you mentioned before, it may be completed in July. When exactly will the 18 EH calculations be in place? Is it at the end of July? Is there any possibility that other factors will hinder the timely delivery of the 18 EH calculations? The second question is that you mentioned in your speech that your strategy of mining Bitcoin is to mine and maintain it for a long time. Have you considered using Bitcoin as a tool to borrow or have you considered using other methods to get more profit from Bitcoin?

Can we have Mr. Xiaohu answer this question in person?

Thank you for your questions. I will hand over your questions to our CFO, Yongyi Zhang.

Thank you for your question. For the 18EH transaction, we expect it to be completed by the end of July. Currently, the main terms of the agreement have been met. Thank you for your question.

So on your first question on the 18EH deal, actually we expect to close the deal by the end of July, because we have already reached agreements on the maintenance, except for some small details, and we are still finalizing the small details.

Because some of these main regulations are mainly for the domestic PRC business transactions that we received in April. Based on such a transaction, we need to make certain corrections to the corresponding regulations of the original 18EH. As we expect to hold the PIC transaction meeting this Friday, we expect that after the meeting, when the entire PIC transaction can be completed, we will complete the PIC transaction meeting according to the 18EH agreement.

To be more specific about the terms and conditions revisions, actually in April, you know, we received some offer or request on our domestic or PLC due That's why we need to make some revisions to the 18EH due terms and conditions. In fact, our plan is that for this Friday, we are going to have an extraordinary shareholders meeting. the shareholders' meeting to deliberate the PRC deal. And so we thought that after the extraordinary shareholders' meeting, then we will be able to complete the PRC deal and then thereby completing our plant revision to the 18EH deal.

Your second question is that our strategy is still to use mining and mining as our main strategy. Under the current situation, we will continue to increase the scale of Bitcoin. Of course, when the scale of Bitcoin reaches a certain level, we will consider expanding the profits of such transactions.

Our second question, yes, our strategy is mine and hold. So right now, our focus is still on increasing our Bitcoin holdings. However, when our holdings reach a certain size, then we will definitely consider taking on some transactions to improve to earn more use on Bitcoin. Thank you.

And that concludes our question and answer session. Thank you once again for joining Kengo's first quarter 2025 earnings conference call today. Have a great day.