Cango Inc. Price & Performance (CANG)

Hello, everyone, and welcome to Kango's fourth quarter and full year twenty twenty four earnings call. Twenty twenty four was a milestone year for Cango, marking another pivotal transformation and growth phase for the company while assuring new development opportunities. Since our inception, Cango has navigated multiple challenges including macroeconomic downturns, the impact of COVID-nineteen 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. Since 2021, we have systematically refined our business structure, placing a strong emphasis on loan collection and post loan 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. As of the end of twenty twenty four, our outstanding loan balance has decreased from a peak of over RMB40 billion to approximately RMB3.9 billion with M1 plus and M3 plus ratios at 3.241.78% respectively. At the same time, we have reduced our credit risk exposure not covered by full debt full bad debt allowance or full risk assurance liabilities to RMB1.08 billion.

Our cash, cash equivalents and shortened investments amount to approximately RMB2.52 billion, providing ample liquidity to support the company's sustainable growth and strategic initiatives. Meanwhile, we observed that the approval of Bitcoin ETFs in The United States at the beginning of twenty twenty four 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. In November 2024, we made a critical move in our expansion into the crypto mining sector. On November 6, Cango announced our acquisition of Onrack Bitcoin mining machines with an aggregate hash rate of 50 for a total purchase price of $400,000,000 By November 15, we had taken delivery of thirty two years of mining power, massively boosting our effective computing power and making us the third largest bitcoin miner globally. In November and December 2024, we successfully mined 363.9 and 569.9 Bitcoins with effective computing powers of twenty nine point eight and thirty point four respectively. During these two months, our mining machines maintained an average operating hash rate of 9395% respectively, demonstrating robust operational performance.

As of December 2024, our total Bitcoin holdings were 933.8 Driven by the Bitcoin mining business, Cango recorded total net revenue of 70,000,000 in the fourth quarter of twenty twenty four, representing a year on year surge of over 400%. Net income for the fourth quarter was RMB 55,890,000.00. For the full year of 2024, the company achieved total revenue of RMB800 million with a net profit of RMB300 million. 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, Cango'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 enhancing service quality, we will strengthen our brand influence in overseas markets and lay a solid foundation for future expansion. 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. Cango intends to deepen our engagement in three key areas, steadily expanding computing power to reinforce our competitive edge, optimizing asset operation efficiencies 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.

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. 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, Yonghee 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 twenty twenty four earnings call. Before I started to review our financials, please note that unless otherwise stated, all numbers are in IME terms and all percentage comparisons are on a year over year basis. Total revenue in the fourth quarter twenty twenty four were RMB $668,000,000 compared with RMB 130,200,000.0 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 twenty twenty four was $653,000,000 with a total of 933.8 bitcoins mined and held as of the end of twenty twenty four. Revenue from automotive trading related income in the fourth quarter of twenty twenty four was $15,000,000 compared with $130,200,000 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 twenty twenty four were $645,500,000 compared with $159,100,000 in the same period 2023. Cost of revenue in the fourth quarter of twenty twenty four increased to 550,500,000.0 from RMB 110,900,000.0 in the same period 2023.

The year over year increase was primarily driven by the cost of new crypto mining business. As a percentage of total revenues, cost of revenue in the fourth quarter of twenty twenty four was 82.4% compared with 85.1% in the same period of 2023. Sales and marketing expenses in the fourth quarter of twenty twenty four decreased to $2,200,000 from $4,400,000 in the same period 2023. As a percentage of total revenues, sales and marketing expenses in the fourth quarter of twenty twenty four was 0.3% compared with 3.4% in the same period 2023. General and administrative expenses in the fourth quarter of twenty twenty four increased to $127,900,000 from $45,600,000 in the same period 2023. As a percentage of total revenues, general and administrative expenses in the fourth quarter of twenty twenty four were 19.1% compared with 35% in the same period of 2023. Research and development expenses in the fourth quarter of twenty twenty four decreased to RMB1.3 million from RMB7.3 million in the same period 2023. As a percentage of total revenues, research and development expenses in the fourth quarter of twenty twenty four was 0.2% compared with 5.6% in the same period 2023. Net loss on contingent risk assurance liability in the fourth quarter of twenty twenty four was $4,600,000 compared with $22,200,000 in the same period 2023.

Net recovery on provision for credit losses in the fourth quarter of twenty twenty four was RMB66.1 million compared with RMB31.2 million in the same period 2023. We recorded RMB22.5 $500,000 in income from operations in the fourth quarter of twenty twenty four compared with loss from operations of $28,900,000 in the same period 2023. Net income in the fourth quarter of twenty twenty four was RMB55.9 million compared with net loss of RMB103.8 million in the same period 2023. Non GAAP adjusted net income in the fourth quarter of twenty twenty four was RMB59.2 million compared with non GAAP adjusted net loss of RMB99.2 million in the same period of 2023. On a per share basis, basic and diluted net income per ADS in the fourth quarter of twenty twenty four were zero point five four and zero point four eight, respectively, and non GAAP adjusted basic and diluted net income per ADS in the same period were zero point five seven and zero point five one, respectively. For the full year of 2024, our total revenues were 804,500,000.0. Revenue from the bitcoin mining business was $653,000,000 with a total of 933.8 bitcoins mined and held as of the end of twenty twenty four.

Revenues from automotive trading related income was RMB151.5 million. Total operating costs and expenses were CNY625.6 million. Net income was CNY299.8 million and non GAAP adjusted net income was CNY316.9 million. Basic and diluted net income per ADS was RMB2.88 and RMB2.57 respectively. Non GAAP adjusted basic diluted net income per ADS was RMB3.04 and RMB2.72 respectively. Moving on to our balance sheet. As of 12/31/2024, the company had cash and cash equivalents of RMB1.3 billion compared with RMB691.8 million as of 09/30/2024. As of 12/31/2024, the company had a short term investment of RMB1.2 billion compared with RMB3.1 billion as of 09/30/2024. Looking ahead to the first quarter of twenty twenty three, 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, positioning us to strengthen our competitive advantage and increase operational efficiency. This concludes our prepared remarks. Operator, we are now ready to take questions.

Thank And today's first question comes from Pingyu Wu with Citi Securities. Please go ahead.

The first question is what are the company's expectations for future growth? And my second question is what's the company's strategy deduction? Will we continue to do automotive business after the transformation? Thank you. 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 cash settled hash rates as a basis for a conservative calculation. Well, based 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 of hash rates. So upon completion and delivery, our total computing power will reach 50 significantly increasing our projected annual bitcoin production. And in the first half of twenty twenty five, we will prioritize the integration and optimization of our existing Hash rate to ensure maximum efficiency. And in the second half, we will pursue the Hash rate 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 $15,000,000 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 economies of scale will help create significant opportunities for business growth, enhances our ability to attract top tier talent 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 and 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 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? 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 acquire Bitmain's on rack 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 RMB400 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. And 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, remain open to adjusting our holdings based on market conditions to enhance revenue and manage leverage.

Thank you. And our next question comes from Mankin Zhai with Mingsheng Securities. Please go ahead.

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? Thank you for your questions. Let me answer your questions one by one. So your first question, we anticipate the 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 trunk acquisitions we've announced. As such, we've already established a strong foothold in the sector and laid solid foundation for future expansion up and down the digital economy value chain.

So on your second question, Cango has been a prominent player in the automotive industry for many years, boasting strong expertise and also strong talent players. And since 2021, we have comprehensively reevaluated 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 industry and strengthened our confidence in pursuing larger 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. 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 Song Sun with Guoshang Securities. Please go ahead.

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 costs, 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 trailed Miro, the current industrial leader. So more suitable mining assets become available, we remain open to expanding our portfolio through additional acquisitions. Currently, the average energy consumption of our 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 including 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 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.

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 bitcoins, excluding depreciation of mining machine, was US67669.9 dollars 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, 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. Total transaction value was US400 million dollars only US256 million dollars will be settled in cash with the remainder executed through a stop 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. 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 our bitcoins price fluctuations largely short term 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 reserve 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 full year twenty twenty four earnings conference call today. Have a great day and you may now disconnect your lines. Thank you.