Cango Q2 2026 Earnings Call - Strategic Pivot to AI Begins as Bitcoin Mining Rightsizes

Operator: Please note today’s event is being recorded. I’d now like to turn the conference over to Paul Yu, CEO. Please go ahead.

Paul Yu, CEO, Cango: Thank you. Hello, everyone, and thank you for joining Cango’s second quarter 2026 earnings call. Let me start with a quick overview of the quarter. On the mining side, we deliberately scaled back operations as planned. That’s reflected our second quarter results. On the AI side, since the end of the second quarter, we have made real progress on infrastructure and signed our first customer contract, moving that business from build-out into commercialization. I will be clear that these AI developments occurred after June 30 and are not reflected in this quarter’s reported results. In terms of the numbers, total revenue for the quarter was approximately $50.8 million, with about $47.4 million coming from Bitcoin mining. Net loss was approximately $81.6 million, mainly driven by non-cash impairment and disposal losses on our mining machines, as direct results of the deliberate restructuring of our asset base.

As of June 30, we held 1,056 Bitcoins. In addition, our cash equivalents, and cryptocurrencies totaled approximately $23 million, while long-term debt was approximately $31.2 million. Now let me walk through the mining business and AI infrastructure business in more detail. This quarter, we continued to actively rightsize our mining operations, disposing of machines with lower marginal efficiency, and introduced a leasing model to shift our focus from scale to economics. As of June 30, our self-mining hash rate was 19.84 exahashes per second, and our leased hash rate was 7.74 exahashes per second, for a combined operating hash rate of 27.58 exahashes per second. Under the leasing arrangement, the lessee bears the direct operating costs associated with the hash rate, which also reduces our exposure to variable costs. We mined 656 Bitcoins this quarter.

Production was down sequentially, largely reflecting the deliberate reduction in self-mining capacity and shift of some capacity into leasing. We will continue to evaluate the mix between self-mining and leasing based on economics rather than scale. We will keep phasing out less efficient legacy capacity. This quarter, we also began implementing a hedging arrangement to manage our exposure to Bitcoin price volatility, thus enhancing the predictability of our operating cash flows. Our average cash mining cost in Q2 was $73,313 per coin, down about 35% from Q1. Now let’s turn into AI infrastructure. A quick on timing, everything I’m about to cover took place after June 30, since the start of the third quarter, so it isn’t reflected in the quarter’s financial results, but we want to share it with you.

On infrastructure, construction at our Georgia LN site was completed in early July, with the site infrastructure able to support up to 3 megawatts, leaving room for future expansion. Container units have arrived on site and being installed, and GPUs are arriving on site in batches. On the customer side, since the start of the third quarter, we have signed a customer contract and discussion with prospective customers are ongoing. That takes our AI business from technical validation into commercial monetization. This is a development since quarter end. Contracted revenue is still small, and we expect to begin recognizing related revenue in the third quarter. On the business model, we expected to pursue both bare metal GPU hosting using our existing site and power infrastructure to offer a standardized deployment environment and colocation intended to improve our overall infrastructure utilization.

We haven’t signed a formal colocation contract yet, and terms are still being worked out. We also have test nodes in Texas and on the West Coast, mainly to support customers who need deployment closer to their location in the future. We are evaluating several potential new sites as well, and we haven’t ruled out building our own. We will continue to run mining and AI as parallel businesses. Looking into the second half, our priority are managing the mix of self-mining and lease hash rate prudently, executing our AI deployment, and continuing to sign new customers, and building on the operating experience from Georgia as we evaluate further site expansion. Capital discipline and operating efficiency remain our priorities. That concludes my remarks. I will now turn it over to our CFO, Simon, for a detailed review of the financials. Thank you.

Simon, CFO, Cango: Thanks, Paul. Hi, good morning. Hi, everyone, and welcome to our second quarter 2026 earnings call. Before I start to review our financials, please note that unless otherwise stated, all amounts discussed are in USD. Total revenues were at $50.8 million. Revenue during the quarter from the Bitcoin mining business was $47.4 million, with a total of 656 Bitcoins mined during the period. The average cost to mine Bitcoin, excluding depreciation of mining machines, was $73,313 per Bitcoin, and all-in cost of $98,405 per Bitcoin. Compared to the first quarter of 2026, total revenue decreased by approximately 50%. This decline primarily reflects our proactive reduction in operational hash rate as we continued to selectively phase out older, less efficient S19 series mining machines and temporarily transition some capacity to a hosted leasing model.

While this adjustment has reduced our top-line mining revenue, it has also significantly lowered our operating cost and improved our cash flow profile, and some of these efforts continued throughout the second quarter. Now let’s move on to our costs and expenses. Cost of revenue, exclusive of depreciation, was $50.7 million, down from $99.6 million in the first quarter, driven by lower electricity and hosting expenses following the hash rate reduction. Depreciation was $16.9 million, down from $29.4 million in the first quarter. General and administrative expenses, including related party fees, totaled $8.4 million. Impairment loss from mining machines in the second quarter was $42.9 million, and loss on disposal of mining machines in the second quarter was $8.5 million. Loss from changes in the fair value of crypto assets was $4.1 million compared with a loss of $151.8 million in the first quarter.

The change was primarily driven by two factors. The decrease in Bitcoin prices as of June 30th, and this was partially offset by the implementation of our hedging program. As Paul mentioned earlier, we began implementing a Bitcoin hedging program during the second quarter. The purpose of this program is to manage our exposure to Bitcoin price volatility and provide greater predictability to our operating cash flow. We intend to selectively continue to use hedging as a risk management tool, and this is not for speculative purposes. The related short-term positions are reflected on our balance sheet and will be reflected as we continue to execute this program in a disciplined manner. Operating loss for the quarter was $80.6 million, with a net loss from continuing operations of $81.6 million in the second quarter.

The net loss was primarily driven by the non-cash impairment and disposal losses I just mentioned, which together total approximately $51 million. On a non-GAAP basis, adjusted EBITDA was a loss of $10.7 million, including a $4.1 million loss from the changes in the fair value of the receivables for the Bitcoin collateral. Lastly, moving on to our balance sheet. As of June 30th, we had cash and cash equivalents of $10.1 million, compared with $7.2 million as of March 31st. At the same time, our balance sheet also has Bitcoins in the number of 1,056 Bitcoins held in treasury. In terms of operational assets, we carried our mining machines at a net value of $58.7 after depreciation. On the liability side, we had $31.2 million in long-term debt, compared with $30.6 million as of March 31st. This concludes our prepared remarks.

Operator, we are now ready to take questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any time your question has been addressed and you’d like to withdraw your question, please press star then two. At this time, we’ll pause for just a moment to assemble our roster. Today’s first question comes from Ping Wu with CITIC Securities. Please go ahead.

Ping Wu, Analyst, CITIC Securities: Hi. Thank you, Marathon, for taking my question. I have three questions. First, can Marathon provide more color on the Bitcoin hedging program in terms of overall notional size, instrument structure, and duration? Additionally, could you clarify whether this is risk mitigating or it involves any directional positioning? My second question is regarding the AI infrastructure progress you highlighted, such as the Georgia site completion and container deployment. We think it is a milestone occurred towards the second quarter. What is the rationale for including them now? More importantly, could we incorporate this development as material included in our third quarter financial models? My third question is regarding the newly signed customer contracts. Could you provide some visibility into the anticipated revenue contribution and timeline for top-line recognition? Thank you.

Simon, CFO, Cango: Thanks, Ping Wu. It’s Simon here. Why don’t I take the first question, and then Paul can address your second and third questions with regards to the AI progress. In terms of the hedging program, it’s structured as a short-term loan denominated in BTC. That is reflected in our balance sheet under short-term debt, which as of quarter end was around $8 million. At the same time, there is a roughly equivalent amount recorded under current asset as well. This short-term loan in BTC is lent to us on day one, and then which we typically size based on the scale of our Bitcoin mining productions. For example, we might want to think about, okay, we’ll do one month of production or two months of production. That’s the way we think about this.

This loan in BTC is sold at spot price on day one. If in the coming month, if Bitcoin prices fall below that, then we’ll choose to repay in the BTC that is mined out of our mining operations. I hope that illustratively addresses your question with regards to how we think about the sizing and the structure. Again, I would like to emphasize that we purely think of this as a risk management tool, and the purpose is really just to reduce the sensitivity of our cash flow to the Bitcoin price ranges. With that, I’ll pass it to Paul for the second and third question.

Paul Yu, CEO, Cango: Sure. Thank you. We wanted to give you the most current picture of where the AI business stands. Even though this development fall after June 30th’s cut-off, we are not reflected in this quarter’s revenue, and only a small amount of property-related costs have been capitalized in Q2. The amount is immaterial. We expect the related revenue to start showing up in our third quarter numbers, which we will report in the normal course. That means we expect to begin recognizing AI-related revenue in the third quarter. The initial contribution will be modest, but it provides initial validation of the commercial viability of our AI infrastructure’s strategy and establishes an operating track record we can build on. Thank you.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Our next question today comes from Sid Rajeev with Fundamental Research Corp. Please go ahead. Hello, Sid, your line is open. Perhaps you are on mute.

Sid Rajeev, Analyst, Fundamental Research Corp: Hi. Thank you for the call. Should we expect Q3 mining revenue to stabilize at current levels or anticipate further hash rate reductions?

Simon, CFO, Cango: Sid, thank you for your question. In terms of the operational hash rate and the mining machines that we have on our balance sheet, in the third quarter, it would not change significantly. But again, given the third quarter includes the summer months of July and August, whereby we may experience some regional power curtailment.

Sid Rajeev, Analyst, Fundamental Research Corp: Got it. Maybe you could provide some color on roughly how much of the current hash rate is from S19 versus newer generation machines.

Simon, CFO, Cango: This percentage is increasing. In terms of the mix between the 19s and the 21s, I would say, and this is purely the amount that is operational, that is on rack and excluding. Let me think about how to address this. Excluding the part that is leased, the split is roughly a little bit above a third.

Sid Rajeev, Analyst, Fundamental Research Corp: Got it.

Simon, CFO, Cango: in the 21 series.

Sid Rajeev, Analyst, Fundamental Research Corp: Got it. Are you able to talk about your cash costs? Can you further cut costs? Because I see you did have cost reductions in the quarter. How about Q3? How should we look at it?

Simon, CFO, Cango: Yes, Sid, and I think that is a great question. The reason that in the second quarter the cost continued to optimize, there were two reasons. One reason was that we continued to negotiate with our hosted sites, because as you remember, most of our sites are externally hosted instead of self-owned mining sites. Our own self-owned mining site is just a 50 megawatt site in the state of Georgia in Ellen, and the rest of our mining machines are hosted externally with third parties. We continue to negotiate contracts with them, and a lot of these contracts have a power price reduction mechanism whereby the power prices would decrease in an environment where Bitcoin prices are decreasing as well.

Sid Rajeev, Analyst, Fundamental Research Corp: Okay.

Simon, CFO, Cango: If we were to look at the cash cost on a month-by-month basis between each month of the second quarter, the cash cost was on a downward trend.

Sid Rajeev, Analyst, Fundamental Research Corp: Got it. Just one more question.

Simon, CFO, Cango: This is, in a way, is a price reduction mechanism to give us a little bit more downside protection.

Sid Rajeev, Analyst, Fundamental Research Corp: Got it. If I may, one more question. This is slightly more long-term. How much of your existing, say, mining infrastructure or power capacity could realistically be converted to AI infrastructure over the next three years?

Simon, CFO, Cango: We’re starting in the U.S. at the moment. We’re still more focused on our own 50 megawatts site right now, but we have started to install small test mills in other sites. These are sites that are not necessarily our own, but they could be with partner sites.

Sid Rajeev, Analyst, Fundamental Research Corp: Perfect. Thank you so much, Simon. Appreciate it.

Simon, CFO, Cango: Thank you.

Operator: Thank you. That does conclude our question and answer session. I would like to turn the conference back over to the management team for any closing remarks.

Simon, CFO, Cango: Any other remarks. Thank you very much for dialing for our conference call. Thanks.