AsiaInfo-Linkage's CEO Discusses Q4 2012 Results - Earnings Call Transcript

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 |  About: AsiaInfo Holdings, Inc. (ASIA)
by: SA Transcripts

Operator

Ladies and gentlemen thank you for standing by, and welcome to the Q4 2012 AsiaInfo-Linkage Incorporated Earnings Call. At this time all participants are in a listen-only. There will be a presentation followed by question-and-answer session. (Operator Instructions)

I must advise you that this conference is being recorded today, Tuesday, Feburary 5, 2013. I’d now like to turn the call over to your host for today, Mr. Jimmy Xia, AsiaInfo-Linkage’s Head of Investor Relations. Thank you. Please go ahead.

Jimmy Xia

Thank you. Hello, everyone, and welcome to AsiaInfo-Linkage’s Fourth quarter and full year 2012 earnings conference call. Today, Mr. Steve Zhang, AsiaInfo-Linkage’s President and CEO will review business highlights from the quarter and discuss the company’s strategy. Our Chief Financial Officer, Michael Wu, will discuss financial results for the fourth quarter 2012 and give guidance for the first quarter of 2013.

Before we continue, please allow me to read you AsiaInfo-Linkage’s Safe Harbor Statements. Information discussed during this conference call might be forward-looking in nature and is subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Annual Report on Form 10-K from the fiscal year ended December 31, 2011, and reports subsequently filed with the Securities and Exchange Commission.

Please note that some of the information to be discussed today includes non-GAAP financial measures as defined in Regulation G, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to AsiaInfo-Linkage’s financial results prepared in accordance with GAAP are included in AsiaInfo-Linkage’s earnings release which has been posted on the Investor Relations section of the company’s website, www.asiainfo-linkage.com.

Also please note that the company does not intend to nor is it obligated to disclose any developments related to any non-binding "Going Private" proposals while this process remains ongoing. As such, the company will not comment on this process during this call. Our special committee continues to work with our financial and legal advisors in determining the best course of action for our investor base.

As previously noted, there can be no assurance that any definitive offer will be made, that any agreements will be executed or that this or any other transaction will be approved or consummated. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.

I will now turn the call over to AsiaInfo-Linkage’s President and CEO, Mr. Steve Zhang.

Steve Zhang

Hello, everyone, and thanks for joining us. We had a strong fourth quarter to finish what was another solid year for the company, especially when considering the wireless external factors in 2012 that influenced China’s three telecommunications carriers. We met our top line guidance for the quarter with non-GAAP net revenue of $155 million and met our bottom line guidance with non-GAAP net income attributable to AsiaInfo-Linkage of $0.41 per basic share.

In short, the fourth quarter with strong growth in terms of sales order booking, revenue recognition, and cash collection, which together reflected some of our clients have used the quarter to catch up on project we had delayed earlier in the year.

In the fourth quarter, we continued to see fixed increases is data traffic across networks of all three carriers. That growth had changed the way that carrier approached their smart pricing and the monetization efforts, and in turn shift the way we design our billing under CRM solution.

The tremendous popularity of instant messaging applications and other mobile Internet applications and games were reflected in the call detail records or CDRs of our major clients. And one example approximately 60% of the clients CDR was data related, which was an SMS traffic accounting for the remaining 40%.

As we have noted in previous calls, the landscape of the telecom industry continued to change rapidly. A big potential growth area for us is in-housing our customers find better ways of monetizing this data and optimizing their pricing plan.

In terms of specific updates from the first quarter, for our China Mobile account, we’ve reached important milestone with the number of our provincial customers. We successfully delivered a new CRM and a billing solution to China Mobile, which is now running our latest CRM in the billing systems.

We also successfully delivered a similar CRM solution to Liaoning Mobile, both the Shanghai and the Liaoning network have customer base of more than 25 million subscribers each. So the way that our teams were able to smoothly migrate such large number of users to new systems shows the expertise of our implementation engineers and it reflects our close relationship with our customers at all levels of the carriers’ organization.

We also migrated Zhejiang mobile to our latest CRM systems. To simply put, our customers are looking for base of our solutions to help them meet end-user demands that are increasingly sophisticated. Our clients have a goal of adopting a shopping card kind of user interface to make it easier for their customers to select the devices, service plans, and other features they want.

Quality CRM is especially important to China Mobile as it pushes to sell more of its own branded handsets. Our CRM and the sales solutions allowed the carriers to better manage and coordinate the sales online through its retail centers and through authorized resellers.

In the fourth quarter, we finalized all of our remaining NG-BOSS 3.5 contract and completed the signing of all 18 provincial customers. For NG-BOSS 4.0, we have started to make progress in standing with the view provinces and should be able to sign all 18 provincial customers by this year end.

We have also seen market demand for separate standalone solutions. Those are related to the carrier’s effort for analyzing data traffic in real-time, our system will ultimately enable the carriers to identify, collect, categorize and historic specific data regarding network usage patterns. As I mentioned, the goal is to enable from our pricing and the optimization of the network.

In 2012, we sold and implemented a couple of solutions for eight different China Mobile customers and we expect considerable growth in those areas in the years ahead. This is an area where our cloud computing solutions helping a big benefit in dealing with the massive amount of data involved, as they provide a significant cost saving our traditional stock data storage.

Regarding our OSS business, we continue to work with China Mobile to determine how best to structure and deploy the operation supported since the carrier is planning, whether the carrier besides our progress approach are used as large data centers for Groups multiple progresses. We are well positioned to win additional business in fact our strong sales in the working relationships with the carrier, our both second quarter on the provisional levels. Also, in terms of 4G upgrade, we are working closely with the carrier and building the earlier planning and testing stage for the support of TV LGE.

For China Unicom, we successfully completed the initial requirement within the Northern six provinces project and with also strong agreements with those same six provinces for elementary work. The number of Indian years and the amount of work required for this project made it one of our biggest in 2012, involving the total integrated and the comprehensive solutions that we’re increasing for most of our clients.

This supplementary work will likely extend to the end of the first quarter 2013. We also signed a contract for the second phase of our partnership relationship management our PRM project, which is the expectation of the work we begin for the carrier in 2011.

The PRM project for a wide functionality to help China Unicom to manage all of its third-party retail channels and provided with a centralized view of payment and the commission data in a shift from different rises in – at a provisional level. This is another example of where we have benefited from our strong and existing client relationships as this type of work requires interfacing enhancements at both the headquarters and the provisional levels of the carrier’s network. For China Telecom, we finalized dealing to bring 8 contracts for a total of 13 provinces in 2012, with the remaining two provinces completed in early 2013.

We have signed CRM 2.0 contracts in all 12 provinces in 2012. We also win E-Channel business for the carrier, which is similar to the work we have done for China Unicom. For China Telecom’s broadband business, we win six provisional projects to implement our differentiation access in the application control systems, our pack systems, which will enable users to purchase additional bandwidth on a short-term or need based on an adjusted basis.

Our goal for 2013 will be to extend this type of functionality to mobile users although the technology required will be much more complex. For both China Mobile and the China Telecom, we implemented a range of database security solutions in 2012. In short, this security solution provides the four as, authentication, authorization, account management, and auditing and prevents the misuse of sensitive customer information.

In the fourth quarter, the bulk of our overseas business involved delivery and the implementation work for our existing customers, particularly in home telecom for which we expect to complete GSM migration in the first half of this year. We have already completed carrier CDMA network migration for both its prepaid and postpaid customers. Regarding our cable business, we won contracts in the fourth quarter for Shanghai Cable and the Heilongjiang Cable. As a result our, cable business did not extend across almost all of China’s major developed market excluding Guangdong province.

I will now turn the call over to Michael who will discuss our financial results in more detail. Michael?

Michael Wu

Thank you, Steve and hello everyone. Please note that our numbers I will discuss today are in the U.S. dollars unless otherwise noted. We met fourth quarter guidance with non-GAAP net revenue of $155 million, an increase of 22% year-over-year and 20% sequentially.

The year-over-year and the sequential increase were mainly the result of increased sales due to the seasonality of our business and also reflected revenue recognition of our services and products that had been delivered to our major customers in the second and third quarter, while associated cost contract signings were pushed into the fourth quarter of 2012.

Non-GAAP gross margin of net revenue was 47.4% in the fourth quarter compared to 46.6% in the year-ago period and 42.6% in the previous quarter. The year-over-year and sequential increase in the non-GAAP gross margin was primarily due to the revenue recognition of delayed contracts pushed into fourth quarter of 2012 which also offset the negative impact from an increase in a number of delivery engineers and from the wage inflation.

Total operating expenses for the fourth quarter of 2012 increased 21% year-over-year and 12% sequentially to $53 million. The year-over-year increase was consistent with the company’s planning regarding new business and new market expansion, product standardization efforts and the integration initiatives.

The initial increase primarily reflect increase in hedge funds and wage inflation in both sales and marketing expenses and in the R&D expenses which was partially offset by a government subsidy. Sales and marketing expenses for the fourth quarter of 2012 increased 22% year-over-year and 23% sequentially to $25 million.

The year-over-year and the sequential increase in sales and marketing expenses were mainly attributable to increase in sales compensation due to increased sales order in the fourth quarter of 2012. The G&A expenses for the fourth quarter of 2012 increased 50% year-over-year and 11% sequentially to $7 million. The year-over-year increase in G&A expenses was mainly due to increased head count of approximately 40 professionals and in wage inflation, an increase of third-party professional service charges.

The sequential increase in G&A expenses was primarily the result of an increase in a third party professional service fees, which was offset by a reversal of our allowance adopt for account of US $0.8 million in the fourth quarter of 2012. R&D expenses increased to 22% year-over-year and 8% sequentially to $23 million. The year-over-year increase in R&D expenses was primarily driven by an increase of approximately 150 engineers of which a portion was shift from our delivery organization and to execute the company’s product standardization and integration strategy.

The sequential increase in R&D expenses was mainly due to the increased head count of approximately 70 engineers to support our product delivery. In our fourth quarter, the company received and recorded a development subsidy of $1 million mainly as a reward for its high-tech software innovations. Income from operations in the fourth quarter of 2012 was $50 million, an increase of 38% year-over-year and 585% sequentially.

Operating margin of total revenue was 9% for the fourth quarter of 2012 compared to 8% in the year ago period and a 2% in the previous quarter. The year-over-year and sequential increase in operating margin were mainly attributable to the revenue recognition of delayed contracts pushed into the fourth quarter of 2012 as well as seasonality of the Company’s business.

Operating margin of net revenue non-GAAP basis for the fourth quarter of 2012 was 19% compared to 18% in the year-ago period and 12% in the previous quarter. The year-over-year and sequential increase is operating margin of net revenue non-GAAP was primarily due to the revenue recognition of the delayed contract in a fourth quarter of 2012 as well as technology.

Other income for the fourth quarter of 2012 was $3 million compared to $2 million in the year-ago period and a $2 million in the previous quarter. The year-over-year and sequential increase in other income was mainly due to dividend income from financial products of $1 million incurred in the fourth quarter of 2012.

GAAP net income was $15 million or $0.21 per basic share, compared to $11 million or $0.15 per basic share in the year-ago period and $5 million or $0.06 per basic share in the previous quarter.

The effective tax rate for the fourth quarter of 2012 was 15%; a non-GAAP net income $30 million in the fourth quarter of 2012 and $0.41 per basic share versus $22 million or $0.30 per basic share in the year ago period, and $17 million or $0.24 per basic share in a previous quarter. Non-GAAP net income increased to 37% year-over-year and 73% sequentially, reflecting the factors that I mentioned earlier.

In the fourth quarter of 2012, we had a net operating cash inflow of $57 million. This is compared to a net operating cash inflow of $58 million in the fourth quarter of 2011 and net operating inflow of $9 million in the third quarter of 2012. The year-over-year change in the operating cash flow was mainly due to a decrease in net income, which was partially offset by the improved cash collection. And for the full year 2012, we had a net operating cash inflow of $46 million compared to $77 million for the full year of 2011. The year-over-year change in full year operating cash flow reflects to factors mentioned above.

And we continue to maintain a strong balance sheet. As of December 31, 2012, our cash and cash equivalents and the restricted cash totaled $313 million and we had a short-term investment totaling $41 million. As of December 31, 2012, we had gross accounts receivable of $286 million compared to $282 million as of September 30, 2012 and $282 million as of December 31, 2011.

Gross AR includes agent agreements with IBM; we should call IBM-Type Arrangements. Since this arrangement typically consists on back-to-back payment terms for certain product sold to our customer, so there is no impact on our cash flow or DSO.

Net AR, which excludes IBM-Type Arrangements was $233 million as of December 31, 2012, compared to $222 million as of September 30, 2012, and $204 million as of December 31, 2011. The combined effect of revenue and AR trends, including our focus on the collections process, resulted in the Company’s DSO being 144 days as of December 31, 2012, compared to 151 days as of September 30, 2012 and 147 days as of December 31, 2011.

We’re pleased to see improvement in our DSO as a result of management initiatives of full AR management and improved cash collection. In the fourth quarter we hired approximately 450 additional engineers, renew our total head count to over 11,000. The additional head count has been passed primarily with R&D and [delivery] work.

Looking now to guidance, we expect net revenue for AsiaInfo-Linkage in the first quarter of 2013 to be in the range of $133 million to $136 million. And we expect the first quarter 2013 net income attributable to AsiaInfo-Linkage Inc. of basic share non-GAAP to be in the range of $0.23 to $0.25.

I will now turn the call back over to Steve for his closing remarks. Steve?

Steve Zhang

Thank you, Michael. In closing I would like to thank you, thank our investors for their support in 2012. The company is ready to take advantage of the business opportunities available to us in 2013. Third, include the CRM and monetization projects related to data traffic growth that as I discussed earlier as well as giving system upgrades that will be require as China’s continue to ship for value-added tax affect the company’s telecommunication sector.

Furthermore, the possibility that China’s carrier may soon licensed Mobile Virtual Network Operator for advance potential business opportunities for us. As this the case with VAT report and way of north at a very early stage, but we will watch both developments closely.

I will now open the call to questions. As a reminder, please note that we will not comment on the privatization proposal or any other potential transactions involving the company at this time. Thank you.

Question-and-Answer Session

Operator

(Operator Instruction) Our first question in queue comes from the line of Steven Liu coming from Standard Chartered Bank. Please ask your question.

Steven Liu – Standard Chartered Bank

Thank you. This is Steven from Standard Chartered. May be this first question about the revenue [picked] down by the operators China Mobile, Telecom Unicom, and also if you disclose the revenue from the people sector, and the revenue from overseas market? Thank you. I mean for the whole year, for the whole year 2012?

Michael Wu

Hi Steve this is Michael.

Steven Liu – Standard Chartered Bank

Yeah.

Michael Wu

Revenue breakdown by our major clients is roughly 52% from China Mobile, 28% from China Unicom, and 17% from China Telecom, and the rest is from our people market and overseas business. I think your second question is asking about the breakdown of the revenue from our overseas business, is that the question?

Steven Liu – Standard Chartered Bank

Yeah. What is your actual number revenue from overseas, yeah, of the percentage?

Michael Wu

The overseas revenue is roughly 1% of total revenue for the full year.

Steven Liu coming – Standard Chartered Bank

Okay. And second question regarding the 4G department, China Mobile, Telecom, Unicom are deploying Wi-Fi, and how is China Mobile is going to I mean view 200 for the [biz units station] in China. So I mean, you will see the new opportunities from the per cost integrated network, I mean 4G, 3G, 2G, and Wi-Fi in the future. So what’s the outlook from the 4G deployment for your business opportunity over the coming – for the previous year?

Steve Zhang

Steve, this is Steve Zhang from AsiaInfo. I mean, first of all, I think all the three carriers have been deploying a multiple network strategy over the past several years. For example, they have been deploying the Wi-Fi network – WLAN network for many years. So that’s nothing new to them. We have been providing the authentication authorization IT solutions to enable both China Mobile, China Unicom, and China Telecom.

Regarding the 4G deployment, as I mentioned in my earnings script, China Mobile in their early stage of running a trial network in several major cities and we are in the early stage of discussion with the IT and the marketing department in planning what kind of pricing, what kind of business, what kind of support the IT system need to provide to enable their 4G network nationwide commercial launch.

Steven Liu – Standard Chartered Bank

Okay, thank you. And the last question regarding, and I think you have still, there’s a lot of cash and do you have plans for like, buyback other potential acquisitions as we are?

Steve Zhang

I think of that being this cost at our Board level at this point and we have no further update on this news.

Steven Liu – Standard Chartered Bank

Okay, thank you. That’s the end of my question. Thank you.

Operator

And the next question comes from the line of Qin Zhang calling coming from JPMorgan. Please ask your question.

Qin Zhang – JPMorgan

Hi, good morning. Hi, I ask two questions; the first is the follow-up question on the 4G business opportunity. I noticed that in the 3G era for AsiaInfo, we actually have the higher R&D expenses heading into the 3G license issuance, then afterwards we actually have a lower R&D to sales ratio and coupled with their robust top line growth. So I’m thinking how can we look at the R&D to sales ratio trend, as well as the revenue trend heading into the 4G CapEx pack in the next two to three years?

Steve Zhang

We have been putting investment dollars into R&D at a constant reach. And for 4G network performance, we expect our R&D investment to stay still roughly around 14% to 15% of our revenue.

Qin Zhang – JPMorgan

I see. And how about...

Steve Zhang

Normal change from the previous year.

Qin Zhang – JPMorgan

Okay; and how about the revenue trend heading into the 4G CapEx cycle?

Steve Zhang

That’s too early to tell. We haven’t really seeing all three carriers 2012 CapEx planning, because normally, they won’t finalize their CapEx plan until sometime in April.

Qin Zhang – JPMorgan

Yeah. And my second question is on the operating cash flow. Could Michael talk briefly about the major drivers of the operating cash flow in the fourth quarter as well as what to expect in 2013?

Michael Wu

The operating cash flow in Q4 is significantly higher than the other quarters in the year. Number one, seasonality is continues – Q4 is typically the strongest quarter, the biggest quarter for sales order signing and collections. And the management continued efforts and initiatives to improve cash collection and AR management reflect the DSO’s improvement. So if you look at the DSO for the company, the full year DSO continue to improve compared with last year.

So the prudent AR management and the flash efforts is really the key driver of the cash flow improvement in Q4. And moving to next year, I believe our cash and AR management will be stable and we’ll continue to improve from where we are. So we hope we can maintain the healthy balance sheet that the year.

Qin Zhang – JPMorgan

Okay. That’s very clear. Thank you.

Operator

And the next question comes from the line of Joe Yang calling from Susquehanna. Please ask your question.

Joseph Yang – Susquehanna Financial Group

Hi, this is Joe Yang from Susquehanna. Thanks for taking my questions. So first question is what could be the wage inflation level for 2013?

Michael Wu

We don’t finalize that yet. We believe that wage inflation rate for next year could be lower than the previous years being 2011 and 2012.

Joseph Yang – Susquehanna Financial Group

So Michael, can you remind us what is the wage inflation for 2012?

Michael Wu

2012 is 8% to 9% wage inflations or overall wage inflation.

Joseph Yang – Susquehanna Financial Group

Okay. So in 2012, what percentage of revenue was from recurrent business including maintenance and upgrades?

Michael Wu

30% to 35% is from ongoing services including maintenance and so called recurrent business.

Joseph Yang – Susquehanna Financial Group

So the rest of are from your projects and upgrades?

Michael Wu

From upgrades, that’s correct.

Joseph Yang – Susquehanna Financial Group

Okay. So going to one follow-up question regarding 4Gs, so I mean I know it’s still too early, but I mean based on your experiences and what you will discuss with us, do you think the 4G opportunity for AsiaInfo is bigger than 3G couple of years ago or it’s less than 3G for AsiaInfo?

Steve Zhang

Joe, we are still working on the estimate, and we kind of already comment on at this point.

Joseph Yang – Susquehanna Financial Group

Okay, thanks. So last question from me, so what could we expect to the margin for the first quarter of 2013?

Steve Zhang

Is that the full year 2013 or first quarter?

Joseph Yang – Susquehanna Financial Group

Both.

Steve Zhang

The full year at this point in time as we are an ongoing work for the privatization, which performed by first meeting, so we’re not at this time, provide earning guidance for full year. Q1 as I mentioned earlier, EPS our non-GAAP basis is in a range $0.23 to $0.25, which imply to a non-GAAP operating margin within 10.5% to 12%.

Joseph Yang – Susquehanna Financial Group

So, it’s kind of little bit softer compared to year ago, is that correct?

Steve Zhang

Is slightly lower than Q1 last year is similar to Q2 and higher than Q3 last year.

Joseph Yang – Susquehanna Financial Group

Okay, gotcha. Okay, thanks, Mike, thanks, Steve.

Operator

And the next question comes from the line of Leping Huang calling from Nomura. Please ask you question.

Leping Huang – Nomura International

Can you hear me? Hello?

Steve Zhang

Yes.

Leping Huang – Nomura International

Yeah, thank you. I have two questions; one question is about the VAT tax. Could you help us understand how the VAT tax will change the – operate as CapEx or how I mean VAT tax will change your revenue model whether it was improved on both AR ratio? This is the first questions. And the second question is – yeah…

Steve Zhang

Let me first try to answer your question. As you know that the carriers are also looking to adopt the VAT tax gaming in 2013. And this is actually a big change for them, because in all their customer facing channels, they need to be able to issue the new VAT tax receipts.

Also, in the billing and accounting system, major changes and upgrades need to be adopted to be able to support this VAT tax launch. So this VAT adoptions will provide more opportunity for us for our sales order booking and going into 2013.

Michael Wu

And the second part of the question is one is that VAT will form impact to our revenue model in our business. Right now more than 70% of our revenue in the contracts has been already applied through the VAT. So the change from business tax of VAT all impacts small portion of our business, which we tried to manage for – continue to work with the government and tax authorities for the tax refund program. So the impact to our revenue model is very limited.

Leping Huang – Nomura International

Okay. The operator need to issue the VAT receipt to both the end customer, like the mobile phone subscriber and the supplier to them like you and the ZTE, Huawei are these equipment vendors or this will change their three month system, or you only need to change the path exactly – it seems their value there, so they also need to change for the suppliers and not fully aware which part it will be changed?

Steve Zhang

I think both are in the process of being discussed, that’s only for the suppliers, and there will be changes. For their end customers and we are being involved in discussing all the detailed work that needs to be done to enable them to launch on the full scale tax reform.

Leping Huang – Nomura International

Okay. Thank you. And the second question is about the Mobile Virtual Network Operator or maybe that you mentioned that 60% of your CDR record is coming from data traffic already. So I mean changing your business model abilities and be with operator, I think there are a lot of I mean hope on the street about the MVNO will generate new revenue stream for billing or generating a lot. Are you engaging any discussion with clients for this business model or what you expect MVNO will generate new revenue stream for year?

Michael Wu

Zhang?

Steve Zhang

There are two parts of your question. Number one, explosive growth in mobile broadband data traffic has any impact on our balances and definitely yes. I mean we have been working with our customers over the last two years, and making incremental upgrade to our billing system supportive kind of explosive growth. That’s number one question.

Number two, in terms of Mobile Virtual Network Operator licenses, you are probably aware as we do mostly from the news releases from [NIIT], but the Chinese government now looking at this issue and they have already published some job documents, the mobile virtual number operator licenses. And it’s still very early stage; we do see – there are a lot of interest from the traditional retail companies eagerly participating in the mobile (inaudible) launch. I think insurance opportunity – I mean we see the opportunities are coming from two different areas. One from traditional – the existing three carriers, definitely we need to provide a whole sale billing settlement system to support this whole sale business.

And there are a lot – going to be a lot of interface working to be done between the existing various IT systems with and old IT systems. Remember, there might be new opportunities, new customers for us meaning we are going to provide It solution to enable this new license fees to be able to run their business.

Steve Zhang

Operator.

Michael Wu

Hello…

Operator

(Operator Instructions)

Steve Zhang

We can take the next call then.

Operator

And the next call comes from the line of Clara Fan calling from Jefferies. Please ask your question.

Clara Fan – Jefferies & Company, Inc.

Hi, hello. Thank you for taking my question. I have two questions, firstly, what are hiring plans for 2013? And secondly, do you have any updates on the overseas business such as any new contracts signed and where would we expect it for FY13? Thank you.

Steve Zhang

In 2013, we will plan to hire probably 400 to 500 people in R&D and delivery organization. And for the overseas plan, we’re working for the time plan and think, we will have the opportunity to deliver complete our system project in the Southeast Asian countries and we’re looking for the breakthrough in the new marketplace.

Clara Fan – Jefferies & Company, Inc.

Just one follow-up question, is the overseas business still loss-making at the moment?

Michael Wu

Yes.

Clara Fan – Jefferies & Company, Inc.

Thank you.

Operator

And we have no further questions in queue. And that concludes our conference for today. Thank you for participating. You may all disconnect.

Steve Zhang

Thank you.

Michael Wu

Thank you.

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