Cango Inc. Q2 FY2026 earnings call

• Mining Operations Restructuring: The company deliberately scaled back self-mining operations to improve economics over scale. They disposed of less efficient legacy machines (S19 series) and shifted capacity to a leasing model where lessees bear direct operating costs.
• Hash Rate Composition: As of June 30th, the combined operating hash rate was 27.58 X hashes per second. This consisted of 19.84 X hashes per second from self-mining and 7.74 X hashes per second from leased capacity. Approximately one-third of the operational (non-leased) hash rate is now comprised of newer S21 series machines.
• Cost Efficiency: Average cash mining cost decreased by about 5% to $73,313 per coin in Q2, down from Q1. All-in costs including depreciation were $98,405 per coin. Costs continued to optimize due to renegotiated hosting contracts with power price reduction mechanisms tied to lower Bitcoin prices.
• AI Infrastructure Development: Although post-quarter, significant progress was made starting July. Construction at the Georgia site was completed, supporting up to 3 MW. Container units and GPUs are being installed. The business has moved from technical validation to commercialization with the signing of its first customer contract.
• Hedging Strategy: A Bitcoin hedging program was implemented in Q2 to manage price volatility exposure and enhance cash flow predictability. This involves short-term loans denominated in BTC, structured as a risk management tool rather than for speculative purposes.
• Strategic Direction: Management intends to run mining and AI as parallel businesses. Future priorities include prudently managing the self-mining vs. leasing mix, executing AI deployment based on the Georgia experience, and evaluating further site expansions.

The company reported total revenue of $50.8 million for the second quarter of 2026, representing a decrease of approximately 50% compared to the first quarter. The Bitcoin mining segment was the sole contributor to this revenue, generating $47.4 million from the mining of 656 bitcoins. This accounts for 100% of the firm's reported revenue for the period. The AI infrastructure segment generated no revenue during Q2, as commercial activities and customer contracts were initiated only after the quarter-end cutoff.

• Revenue Recognition: Management expects to begin recognizing AI-related revenue in the third quarter of 2026. However, the initial contribution is anticipated to be modest.
• Mining Stability: Mining revenue and operational hash rate are expected to remain stable in Q3, with no significant planned reductions in active hash rate beyond seasonal adjustments.
• Seasonal Factors: Q3 includes summer months (July/August) which may introduce regional power containment issues, potentially impacting operational continuity.
• Cost Trends: Cash mining costs are expected to continue trending downward month-by-month due to negotiated power price reductions in hosting contracts.

• Bitcoin Price Volatility: The company faces exposure to fluctuations in Bitcoin prices, which directly impacts revenue and asset valuation. While a hedging program is in place, it is designed to mitigate, not eliminate, this risk.
• Operational Failures/Restructuring Losses: The deliberate restructuring resulted in significant non-cash impairment losses ($42.9 million) and disposal losses ($8.5 million) on mining machines, contributing to a net loss of $81.6 million.
• Power Supply Constraints: Regional power containment during summer months poses an operational risk that could disrupt mining activities or increase costs.
• Execution Risk in New Business: The transition to AI infrastructure carries execution risks, including the successful installation of hardware, securing additional customers, and establishing a reliable operating track record.

Q: Analyst asked for details on the Bitcoin hedging program's structure, size, and purpose, and sought visibility into AI revenue recognition timelines following the post-Q2 customer contract signings.

A: CFO Simon clarified that the hedging program consists of short-term BTC-denominated loans (approx. $8 million at quarter-end) used purely for risk management to reduce cash flow sensitivity to price drops, not for speculation. CEO Paul Yu stated that while AI developments occurred post-June 30th, revenue recognition is expected to begin in Q3. He emphasized that initial contributions will be modest but serve as critical commercial validation for the strategy.

Q: Analyst questioned whether Q3 mining revenue would stabilize or face further hash rate reductions, and requested details on the current machine mix and potential for further cost cuts.

A: CFO Simon indicated that operational hash rate would remain stable in Q3, barring seasonal power constraints. He noted that the mix of newer S21 series machines is increasing, comprising slightly over one-third of operational (non-leased) hash rate. Regarding costs, he explained that cash costs have been trending downward due to renegotiated hosting contracts featuring power price reduction mechanisms linked to lower Bitcoin prices.

Q: Analyst inquired about the long-term potential to convert existing mining infrastructure or power capacity into AI infrastructure over the next three years.

A: CFO Simon responded that the company is currently focusing on its own 50-megawatt site in Georgia. While small test nodes have been installed at partner sites to support near-location deployments, large-scale conversion of existing mining infrastructure is not yet the primary focus. The company is evaluating new sites and partnerships but has not committed to converting legacy mining assets en masse.