Cango Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 14, 2025

There are 4 speakers on the call.

Operator

Good morning and evening, everyone. Welcome to Cango Inc. First Quarter twenty twenty five Earnings Conference Call. Call is also being broadcast live on the company's IR website. Joining us today are Mr.

Operator

Ji Ran Lin, Chief Executive Officer and Mr. Yang Yee Zheng, Chief Financial Officer of the company. Following management's prepared remarks, we will conduct the Q and 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.

Operator

Jairan Lin, CEO of Tango. Please go ahead, sir.

Speaker 1

Hi, everyone, and welcome to Cango's first quarter twenty twenty five earnings call. In the first quarter of twenty twenty five, 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.

Speaker 1

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. In the first quarter of twenty twenty five, Cango reported total revenue of US145 million dollars with US144 million dollars contributed by our bitcoin mining operations. Gross profit for the quarter reached US13.61 million dollars Operating loss stood at million dollars primarily due to decline in bitcoin prices toward the 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 US347 million dollars providing solid support for future business expansion.

Speaker 1

While actively expanding our Bitcoin business, we continue to reduce our total outstanding loan balance and significantly improve loan quality. As of 03/31/2025, our total outstanding loan balance was approximately RMB2.6 billion with M1 plus and M3 plus ratios of 2.861.59% respectively. In addition, our credit risk exposure not covered by full allowance or full risk assurance liabilities further declined to RMB760 million, down 30% from RMB1.08 billion as of 12/31/2024. Till now we hold a total computing power of 32 extra hashes per second accounting for approximately 4% of the global average cash rate in Q1. Our mining machines are deployed across North America, South America and The Middle East and Africa, a globally diversified setup that enables us to optimize resource allocation.

Speaker 1

Nearly 90% of our currency operational miners are water cooled S19 XP models. In addition, the delivery of an additional 18 extra hashes per second of computing power is progressing as planned and is expected to be completed by July 31. Once finalized, our total hash rate capacity will reach 50. Since entering the bitcoin mining industry, we have remained focused on improving our operational metrics. In the first quarter, we mined a total of $15.41 bitcoins.

Speaker 1

As of the April, our total bitcoin holdings reached 2,944.8 coins ranking fourteenth 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%. And in addition, we in terms of energy efficiency, our average power efficiency for the quarter was 21.62 per terahash with efficiency of 21.5 for March. As we move into 2025, we remain firmly committed to deepening our focus on the Bitcoin mining business.

Speaker 1

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. 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.

Speaker 1

On our traditional automotive business, we remain focused on lean asset light operations for our used car export platform, AutoCango. Since its launch, the platform has attracted over 2,370,000 visits and more than 290,000 registered users. Today, AutoCango has more than 480,000 used car listings covering over 68,000 unique models. AutoCango 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, Kango will continue to strengthen its global presence and enhance AutoCango's platform of capabilities capabilities to deliver an even better experience for our users.

Speaker 1

I would like to hand over the call to our CFO, Mr. Yongyi Zhang to share our financial highlights for the first quarter of twenty twenty five.

Speaker 2

Thanks, Jiayuan. Hello, everyone, and welcome to our first quarter twenty twenty five earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in RMB terms and all percentage comparisons are on a year over year basis. Total revenue in the first quarter of twenty twenty five were billion compared with million in the same period 2024. The significant year over year increase was primarily driven by the Bitcoin mining business launched in November 2024.

Speaker 2

Revenue from Bitcoin mining business in the first quarter of twenty twenty five was billion with a total of fifteen forty one bitcoin mined in the first quarter of twenty twenty five. The average cost to mine bitcoin excluding depreciation of mining machine was US70602.1 dollars per coin in the quarter. Revenue from automotive trading related income in the first quarter of twenty twenty five was million compared with 64,400,000.0 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 twenty twenty five increased to RMB 955,100,000.0 from RMB 29,100,000.0 in the same period 2024.

Speaker 2

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 RMB 400,000.0 from CNY 3,500,000.0 in the same period of twenty twenty four. General and administrative expenses in the first quarter increased to CNY 92,500,000.0 from CNY 37,900,000.0 in the same period 2024. Research and development expenses in the first quarter decreased to RMB 300,000.0 from RMB 1,100,000.0 in the same period 2024. Net gain on contingent risk assurance liability in the first quarter of twenty twenty five was RMB 5,300,000.0 compared with RMB 15,000,000 in the same period 2024.

Speaker 2

Net recovery on provision for credit losses in the first quarter of twenty twenty five was RMB 28,700,000.0 compared with million in the same period 2024. We recorded RMB155.5 million in loss from operation in the first quarter of twenty twenty five compared with income from operations of million in the same period 2024. Net loss in the first quarter of twenty twenty five was million. Adjusted EBITDA in the first quarter of twenty twenty five was million. Moving on to our balance sheet.

Speaker 2

As of 03/31/2025, the company had cash and cash equivalents of RMB2.5 billion compared with billion as of 12/31/2024. As of 03/31/2025, the company had a short term investment of RMB5.2 million compared with RMB1.2 billion as of 12/31/2024. Looking ahead to the rest of 2025, we are on track to grow our deployed hash rate to approximately 50 before the July. This concludes our prepared remarks. Operator, we are now ready to take questions.

Operator

We will now begin the question and answer session. The first question comes from Emerson Zhao with Goldman Sachs. Please go ahead.

Speaker 1

Thank you management. Have Emerson 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?

Speaker 1

Thank you, MSN 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. So on your second question on the challenges of increasing computing power around the world and increasing mining difficulty.

Speaker 1

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 18 extra hashes per seventh and continue to monitor further acquisition opportunities to further enhance our overall production capacity. Thank you.

Operator

And the next question comes from Joy Cai with Barding Securities. Please go ahead.

Speaker 1

Thank you management for taking my questions from Sino Link Securities. So I have four together, three questions. The first question is I noticed that the metrics and data for the company in April saw quite a big decrease. Could you give us more colors on 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?

Speaker 1

What are the plans that the company have 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 $4.70 coins, 11 point 3 percent decrease compared to March.

Speaker 1

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 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 efficiency was 93.8% relatively stable compared to the previous quarter. For your second question, yes, the company's currency is 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.

Speaker 1

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.

Speaker 1

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 advancements. And we will also continue to proactively pursue sustainable and more cost efficient energy sources. Thank you.

Operator

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

Speaker 1

Thank you for taking my questions. I have three questions. The first question is that, the Bitcoin mining business actually accounted for 99% of your quarterly revenue. So do you see any concentration risk in terms of your revenue And how is your plan to balance or diversify your business lines?

Speaker 1

And my second question is regarding the operating loss. So do you consider using derivatives to hedge against volatilities 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?

Speaker 1

On your first question, while the majority of our revenue currency comes from the 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 we'll 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. On your second question on operating loss, well, the operating loss in this quarter was primarily due to the decline in bitcoin prices in March.

Speaker 1

And we believe that fluctuations in bitcoins 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 no potential risks.

Speaker 1

Regarding cash flow, we currently have sufficient liquidity to support mining operations at 32 extra hedges per second including a $400,000,000 our new 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.

Speaker 2

Thank

Speaker 1

you.

Operator

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

Speaker 3

Hello. Thank you for taking my question. This is Michael Donovan from Kevin Dede's team. Let's start with the 18 exahash used to have to deploy. Can you provide more clarity on that?

Speaker 3

And has the deal with Ursulpha been finalized? And you mentioned July. So when can we expect the 18xSASH to be online at the July or is there anything that would hold this up? And then my second question is around your Bitcoin huddle 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?

Speaker 3

Thank you.

Speaker 1

Thank you for your questions. I will hand over your questions to our CFO, Yunyi Zhang. Thank you for your questions. So on your first question on the eighteen year deal, actually we expect to complete to close the deal by the July, because we have already reached agreements on the main tenants and except for the some small details and we still we are still finalizing the small details. To be more specific about terms and conditions revisions, actually in April, we received some offer or request on our domestic or PRC deal.

Speaker 1

So that's why we need to make some revisions to the 18EH due terms and conditions. So in fact, our plan is that for this February sorry, I mean this Friday, we are going to have AGM extraordinary shareholders meeting, I mean, to have the shareholders meeting to deliberate the PRC deal. And so we start that after the extraordinary shareholders meeting, then we will be able to complete the PRC deal and then thereby completing our planned revision to the 18EH deal. On your second question, yes, our strategy is a minor hold. So right now, our focus is still on increasing our bitcoin holdings.

Speaker 1

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.

Operator

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

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Cango Q1 2025
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