Cango Inc.

and good evening, everyone. Welcome to Cango, Inc.' 's second 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 and is being recorded. Joining us today are Mr. Paul Yu, Chief Executive Officer, and Mr. Michael Zong, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct a question and answer 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 make forward-looking statements. With that said, I will now turn the call over to Mr. Paul Yu, CEO of Kango. Please go ahead, sir.

Thank you. Good afternoon, and thank you for joining Kango's second quarter. 2025 earnings call. Today marks an important milestone as we report our first quarter following Congo's strategic transformation. This isn't just another quarterly update. It showcases our complete transformation into a leading Bitcoin mining company. In just nine months, we've scaled to 50x of computing power, placing us firmly among the world top miners. As part of this transformation, we recently completed a governance and leadership restructuring, onboarding a senior management team with deep expertise across digital asset infrastructure, finance, and energy investments. This leadership team gave us the right mix of skills to hit the ground running and execute our next phase of growth. I'm optimistic about what we can achieve together as we enter a new chapter in the journey. Today, I will walk you through how our strategic execution has fundamentally repositioned us to lead the industry over the long term. Let me start with our financials, where we generated 1 billion RMB in total revenue in the second quarter of 2025, with equal money contributing 989.4 million RMB of that amount. However, you can see we incurred a net loss which reflects two accounting adjustments that temporarily mask our operational strength. and should be built as essential investments in our foundation for the future. First, our clean exit from China. We completed the $352 million divestiture of our legacy China asset in May, which resulted in one-off loss from discontinued operations. As a part of the acquisition of mining equipment last November, we purchased 18 exahash of mining capacity, so a share-based payment. By the time the equipment was delivered in June, our stock price had nearly doubled, triggering a non-hash accounting adjustment in accordance with applicable fair value accounting standards. These were strategic decisions we took into consideration to rapidly build competitive skill and sharpen our focus. The important story is what lies beneath. Excluding this one of adjustments, adjusted EBITDA for the quarter was 710.1 million RMB. clear evidence of the underlying strength of our Bitcoin mining business. Now, let me reveal the progress we've made in the transformative quarter. We've already achieved one of the industry's largest scale at 50 exahash, representing approximately 6% of the global network's hash rate as of June 30th, 2025. July's Bitcoin production reached 650.5 BTC of 44.4% or approximately 200 BTC increase from June, primarily driven by the full deployment of the 50 exahash mining equipment since end of June. In addition, in August, We strategically acquired a 50 megawatt mining site in Georgia, a move that will reduce power costs and enhance operational stability and lay the groundwork for future expansion. We maintain a four-trade balance sheet with $118 million in cash-on-cash equivalents as of June 30th. provide an ample capital to fund our strategic expansion. Our asset life strategy provides a distinct advantage. By acquiring plug and play mining rigs with minimal upfront capital, we are able to scale more quickly and cost effectively than vertically integrated competitors. Although this model resulted in higher cash costs per BTC of $83,091 during the quarter, our all-in cost remained competitive at $98,636 per BTC. This is primarily due to significantly reduced depreciation expenses from low equipment acquisition costs, which offset elevated power expenses. As a result, our capital efficiency supports a solid return on capital employed and ensure resilience across market cycles without burden of heavy equipment financing. Additionally, our geographic diversified footprint across North and South America, Middle East, and Africa helps mitigate regional risks while sustaining industry-leading efficiency. Our roadmap forward is clear and purposeful. In the near term, we will maximize value from our 50 exahash of mining capacity by implementing efficiency upgrades and replicating the low-cost operational model of our Georgia site Looking to the mid-term, we plan to pilot new renewable energy storage projects aimed at achieving near zero-cost mining operations while simultaneously retrofitting select facilities to support HPC applications. Over the long term, we are ultimately building a dynamic computing platform that intelligently balances Bitcoin mining and AI workloads, all powered by our expanding energy expertise. This quarter's results reflect a company making bold and strategic moves. We have accepted temporary accounting adjustments to secure lasting competitive advantages, namely meaningful skill, cost-effective infrastructure, and a focused commitment on pure play, high value computing. With this strong foundation firmly in place and a clear path to compounding value, I will never be more confident in Kendall's future. Before I turn the call to Michael Johns, our CFO, to take you through our financial results for the quarter in more detail, Let me quickly reveal our legacy business. We remain focused on lean asset light operations for our used car export platform, AutoCandle. Since its launch, our platform has attracted over 6 million visits and surpassed 456,000 registered users. It now hosts more than 8,000 100,000 vehicles listing with 70,000 different models on offer, connecting China's used car market with international buyers seeking quality inventory. We continue to see steady growth opportunities in this segment in the future. With that, I will turn the call to Michael.

Thanks, Paul. Hello, everyone, and welcome to our second quarter 2025 earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms. Total revenues in the second quarter of 2025 were $1 billion. Revenue from the Bitcoin mining business in the second quarter of 2025 was $989.4 million, with a total of 1,404.4 bitcoins mined in the second quarter of 2025. The average cost to mine bitcoins including depreciation of mining machines, was $83,091 per coin, with owing costs at $98,636 per coin during the quarter. Revenue from automobile trading income was $12.4 million in the second quarter of 2025. Now let's move on to our costs and expenses during the quarter. Cost of revenue exclusive of depreciation and amortization in the second quarter of 2025 was $836.9 million. Depreciation and amortization in the second quarter of 2025 was $156.4 million. General and administrative expenses in the second quarter was $21.7 million. Due to one-off loss from discontinued operations and non-cash impairment loss, we recorded an operating loss of $1.3 billion and a net loss of $2.1 billion in the second quarter of 2025 respectively. Excluding the impairment loss and the one-off loss from this continued operation, we recorded adjusted EBITDA of $710.1 billion in the second quarter of 2025 compared with $5.4 billion in the same period of last year. Moving on to our balance sheet, As of June 30, 2025, we had cash and cash equivalents of $843.8 million. Starting with our second quarter 2025 results, we intend to change the reporting currency of our consolidated financial statement from IMB to U.S. dollars, reflecting the profile of our revenue and profit after divestiture of our China asset in May 2025. The change is expected to be effective from the company's results for the third quarter of 2025, which will be reported in US dollars. 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. If your question has already been addressed and you'd like to remove yourself from queue, please press star then 2. We do ask that you please pick up your handset before pressing the keys. Once again, that is star than one if you have a question. And today's first question comes from Emerson Zhao with Goldman Sachs. Please go ahead.

Thank you, management team. This is Emerson from Goldman Sachs. I have two questions. Number one, could you outline your roadmap for computing power over the next 12 months, as well as the capital expenditure plans? For example, whether you will continue to acquire mining sites or order new miners. Number two, we understand the previous announcements mentioned your strategic direction of green energy plus storage. Could you update us when is the new progress expected? Thank you.

Thank you, Emerson, for attending the conference call. I will take the first question and our CEO, Paul, will take the second one. For the first question, for computing power, our goal for the second half of the year is to fully unlock the value of the current 50x hash computing power. This will be achieved by improving operational efficiency, upgrading machines, and the selective acquisition of mining sites with low electricity costs. One example of such a site is our newly acquired mining facility in the state of Georgia. If suitable opportunities come up, we will be open to expanding computing power through M&A as well. As for capital allocation, we will continue to maintain strict capital expenditure discipline. We are also evaluating opportunity in areas including computing power expansion, green energy storage, AIHPC center, and more for long-term growth. For the second half of the year in particular, The focus will be on selective mining site acquisition. Specifically, we are looking at sites that significantly reduce electricity costs, enhance energy security, and support the stability of our overall operations. More importantly, by operating this infrastructure, we will get critical hands-on management expertise. We believe this will provide a solid foundation and a strategic flexibility for future business expansion into energy plus HPC sector.

Thank you. Regarding the green energy plus storage, it is one of our most important strategic objectives. We are advancing through two parallel paths. First, we are actively seeking M&A targets globally for rapid deployment. And second, we will develop critical hands-on management experience by investing in pilot projects that are developed with experienced partners. Thank you.

Thank you. And our next question today comes from Pingyu Wu with Civic Securities. Please go ahead.

Thank you for taking my question. This is Ping Yue from Citic. And I have also two questions. The first is, the company previously mentioned to follow a light asset model, and we also acquire mining sites. So does it mean that the company is gradually shifting towards an integrated operation? And my second question is, is there a plan to acquire more low electricity cost mining sites in the next phases? And are low-cost regions, such as Latin America and Middle East, prioritized? And what are the screening criteria? Thank you.

Thank you for your question. Acquiring those mining sites is solely about reducing costs. Beyond cost reduction, there are three strategic benefits. First, stable energy supply. Supporting our existing large-scale computing power requires reliable and consistent energy sources. Second, infrastructure and operational expertise. We gain critical operational experience that lays a solid foundation for upgrading our capacities. Third, creating a foundation for strategic transformation. By securing low cost power and scalable sites, We are building the infrastructure needed for future transformation into AI data centers. With these benefits in mind, our criteria for selecting mining sites also fall under three pillars. Low cost electricity to maintain business competitiveness, sufficient capacity, and power redundancy to support future upgrading and stronger regional grade stability to handle high load demands after transformation. Our asset life strategy avoids the risks of CapEx heavy mining models and by managing energy sources and available sites, we achieve dual strategic positioning for both current business support and future AI transformation. In our will, selectively acquiring mining sites doesn't change our capital life strategy in mining business. Instead, it enhances our operational efficiency and gradually creates a pathway towards green energy and AI computing centers. Regarding the plan to acquire more mining facilities, In general, we will continue to monitor M&A opportunities for energy projects in line with the company's strategic transformation needs. In money set selection, we conduct in-depth evaluations based on actual operational performance, detailed cost-benefit calculations, and potential strategic synergies. Regionally, the U.S. is our current priority. Most of our miners and hosting sites are already located there, and we want strengthening our local operations and market position. The Middle East, a region with attractive energy prices and policy stability, is also within our scope of consideration. For specific targets, we will focus on factors such as local climates, energy prices, and policy stability. We tend to prioritize acquiring sites where we already have long-term stable collaborative relationships, good operating conditions, and sustained low power cost advantages. Thank you.

Thank you. And as a reminder, if you would like to ask a question, please press star then 1. Our next question today comes from Jolie Chee with Guojin Securities. Please go ahead.

Thanks, management, for taking my question. This is Jolie from Guojin Securities. And I have two questions as well. The first one is that we have noticed the leading mining companies like Mara, CleanSpark, et cetera, have reached 50 EH. How will Kangal maintain its computing power market share? Are you facing minor supply shortage or energy efficiency bottleneck? And the second one is that when promoting related infrastructure investment in the US, do you face restrictive policy risks? Thanks.

Thank you for your question. I would take the first one. As one of the largest miners with a current scale of 50 exahash, per second, maintaining competitive isn't just about increasing the total volume of the computation of power. The critical factor, I think, is the optimization of computing power efficiency. We have established a unique SLR model, which focuses on strategic acquisition of second-hand on-rack miners to achieve rapid, low-cost mining capacity expansion. This strategy will continue to be a core advantage. Meanwhile, we will not cling to inefficient capacity. We closely monitor miner performance and economic metrics. We dynamically phase out inefficient capacity and upgrade to more energy-efficient miners. Miner supply shortage will not be a bottleneck. I think we've got the expertise and the relationships to acquire cost-effective hardware to grow to drive our growth. Furthermore, we remain open to computing power M&A opportunities that align with our strategies. Thank you.

Regarding U.S. infrastructure investments, we continuously monitor changes in the policy environment. We have deployed local compliance teams and and legal advisors to evaluate potential restrictive policies and mitigate related risks. Currently, most computing power-friendly states in the US have no restrictive policies on power access or land use for data centers. Instead, they have introduced computing power infrastructure investment subsidies. Only a few states have strict approval process requirements for converting critical computing power to general purpose computing power. We have established regular communications with local energy regulators to ensure compliance and efficiency during project implementation. Thank you.

Thank you. And our next question today comes from William Gregorzewski with Green Ridge Global. Please go ahead.

Thanks and congratulations on all the progress you guys have made over the last 10 months on this change. I also have two questions. The cost for BTC has increased and you mentioned you have the new mining equipment, the Georgia acquisition, and then you're making optimizations. Is there a number we should be looking at uh for what you think the cost is going to be as you exit the year on that with your current xash portfolio and then second question is given how undervalued the stock is do you plan to do any repurchases or just prioritize the cash for operational expansion thank you william uh i think i would take uh both of the questions uh for the first one

As we just disclosed in our second quarter results, our cash cost for BGC was approximately $83,000, with an all-in cost of around $98,000. The deployment of our new equipment in July, bringing our operational hash rate to 50x of hash, is a key step towards improving both metrics. The increased scale and efficiency of this new piece are expected to increase our absolute Bitcoin production and improve our cost profile on Bitcoin bridges. However, we are also seeing continuous upward pressure on mining costs across the sector, driven primarily by the rapid increase in global network cash flow. Therefore, while our new risk will gain us further economy of scale, we anticipate these industry-wide headwinds will also be reflecting our cost structure during the third quarter. As for the second question, we absolutely agree that our current stock price doesn't reflect the intrinsic value of our business. We firmly believe that the most sustainable way to achieve a fair value is through the continued development of our core business and enhancement of profitability. Therefore, our primary focus is to strategically deploying our cash and liquidity to fund high return operational expansion and our business transformation. This includes investing in new high value areas such as AIDC, which we believe will drive future growth and profitability. Simultaneously, we are deeply committed to delivering return to our investors. We will continue to take a balanced approach, carefully evaluating our business development needs alongside capital market conditions to manage our liquidity prudently. This means we will consider all tools at our disposal, including our ongoing share repurchase program, to ensure we are creating long-term value for our shareholders. Thank you.

Thank you. And our next question today comes from Kevin Deedy at HC Wainwright. Please go ahead.

Thank you. Good afternoon. Appreciate you taking my questions. Paul and Michael, you've addressed this question a number of times, but it's still a little unclear to me. The August hash rate was almost 44x to hash of the 50 that you have deployed. I don't understand how improvements and optimization will get you that next six X to hash. Could you maybe explain that? And how should we look at that going forward?

Thank you, Kevin, for your questions. I think first, we'd like to highlight that the 43, I mean, near 44 X to hash is closing our August production report. represent our effective operational hash rate. Although it's reached like 87% effective rate, but it still has a difference and a gap compared to the top minor, which is above 90%. So we think we still have space to improve our efficiency. I think that's our major way to improve our efficiency is to upgrade our inefficient miners and also to To develop our operational team, I think maybe we can further improve the efficiency of the miners.

I think it takes time to implement our rigs on track after acquiring all the many machines. Also, there are a lot of curtailment in the U.S. during the summertime. I think we will improve our operational efficiency in the future.

Thank you. Thank you, Paul. I had suspected that curtailment was certainly a factor. Okay, just from a high level, what do you think is the most important aspect of Cango's June report? What would you really like to have resonate for investors?

This quarter was truly a milestone for us. First, we completed the divestiture of our China operations and the acquisition of 18 active hash rates. We have finalized the change in ownership and established a new management structure and team. We're now fully prepared and ready to move forward. For a business perspective, having 50 exahash, meaning we're officially entered the first tier of industry players. At the same time, our Bitcoin holdings continue to grow, now exceeding 5,000 BTC. and this has future solid R1 and R2 strategy. On the financial side, it's especially worth highlighting that while maintaining skill with validating the effectiveness of our business model through solid financials, we also see continued opportunities for cost optimization which will remain a focus in our next phase.

Perfect, Paul. Thank you very much. It was a very comprehensive review, and I appreciate you discussing it with me. Congratulations on all the progress you've made.

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