Vipshop Holdings' (VIPS) CEO Eric Shen on Q3 2016 Results - Earnings Call Transcript

| About: Vipshop Holdings (VIPS)

Vipshop Holdings Limited (NYSE:VIPS)

Q3 2016 Results Earnings Conference Call

November 22, 2016 08:00 AM ET

Executives

Millicent Tu - Director, IR

Eric Shen - Co-Founder, Chairman and CEO

Donghao Yang - CFO

Analysts

Alan Hellawell - Deutsche Bank

Binnie Wong - Merrill Lynch

Jin Yoon - Mizuho Securities

Alicia Yap - Citigroup

Jialong Shi - Nomura Securities

Julia Zhu - Morgan Stanley

Monica Chen - Credit Suisse

Wendy Huang - Macquarie

Ronald Keung - Goldman Sachs

John Choi - Daiwa

Eric Wen - Blue Lotus

Operator

Ladies and gentlemen, good day everyone, and welcome to Vipshop Holdings Limited Third Quarter 2016 Earnings Conference Call.

At this point, I would like to turn the call to Ms. Millicent Tu, Vipshop’s Director of Investor Relations. Please proceed.

Millicent Tu

Thank you, Operator. Hello everyone and thank you for joining Vipshop's third quarter 2016 earnings conference call. Before we begin, I'll read the Safe Harbor statement.

During this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Vipshop Holdings Limited and its industry. All statements other than statements of historical facts we may make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipates, believes, continues, estimates, expects, intends, is/are likely to, may, plan, should, will, aim, potential, or other similar expressions. These forward-looking statements speak only as of today hereof and are subject to change at any time, and we have no obligation to update these forward-looking statements.

Joining us on today's call are Eric Shen, our Co-Founder, Chairman and CEO; and Donghao Yang, our CFO.

I would now like to turn the call over to Mr. Eric Shen, Shen-zong.

Eric Shen

Good morning and good evening everyone. Welcome and thank you for joining our third quarter 2016 earnings conference call. We are pleased to have delivered solid financial results and healthy customer growth despite a seasonally soft quarter for retail. Our third quarter results continued to shoot the power of our platform to attract and expand our customer base while retaining our loyal customers. The superior user experience led to improved user stickiness, as proven by the strong 49% year-over-year increase in repeat customers to 16.7 million. Despite macro weakness, our robust customer growth and retention is a foundation of our business model. Our active customers for past 12 months ending in September 2016 exceeded 46 million up 57% year-over-year as compared to our peers. This means that we still have a lot of room to growth in terms of customer base expansion. We are confident that our strong foundation will continue to drive our business growth and enable us to maintain our market leadership regardless of macro environment changes.

As a leading online discount retailer for brands in China, we're committed to advancing the end-to-end shopping experience with diverse products. One of our key focus areas is to use Big Data to better understanding our users. We continue to expand numbers of brands on our platform while optimizing the overall brand portfolio.

Moving onto our successful Singles’ Day this year, sales surpassed were positive RMB 100 million in the first 15 minutes, and the total GMV increased by 75% from last year event. This robust performance shows strength and the potential of our platform. Lastly, as you know, we recently announced our acquisition of Pui Fu, a third party payment license holder. This investment allows us to lower cost, improved information security, and the retained payment information for Big Data analytics. It represents important milestone in our journey to advance our platform and complete our ecosystem.

At this point, let me handover the call to our CFO, Donghao Yang, so that he may discuss our strategy in more detail, and go over our operational and financial results.

Donghao Yang

Thanks, Eric and hello everyone. We're pleased to announce solid operational and financial results for the third quarter of 2016. Consistent with our core strategy, we were able to achieve strong top line growth and market share gains while maintaining stable margins. In aggregate, [ph] we're making solid progress with cross-border business which contributed 5% to our GMV in the quarter and represented more than 50% year-over-year growth. We expect this business to grow much more as we introduce more foreign brands to our platform. As we experienced an ongoing evolution in shopping habits around China, we strive to evolve with the customers’ habits in order constantly [ph] stay in front of them and provide them with increasingly personalized merchandise. As an example of this, during the past quarter, we launched a series of contract marketing programs that enhance our customers’ shopping experience. These programs include live broadcasting channels, shopping guides with featured graphics, brand events and proprietary video shopping guide. Going forward, we will continue to explore and embrace new retail formats and technologies that help us further engage our customers and understand their preferred shopping habits.

Turning to logistics, we continue to focus on building a strong infrastructure of warehouses and logistics networks which enhance our order fulfillment capabilities. We have made initial progress in introducing customized automation in our warehouses. As of September 30, 2016, we have approximately 1.7 million square meters of warehouse capacity and are on track to reach approximately 2 million by the end of this year.

Moving on to our customer and supplier financing programs, we remain focused on investing in these efforts and continue to build on our initial success here. As of September 30, 2016, the total balance of credit outstanding to our customers was approximately RMB 1.5 billion and the total balance of credit outstanding to suppliers was RMB 525 million.

Looking forward, we will stay focused on market share gain while balancing our margins. We are big believers in building long-term sustainable relationships with the suppliers. This means that we will provide our suppliers with high value added services including data and knowledge sharing and customer profiles and shopping behaviors, third party logistics and proprietary system for inventory management to maximize sales opportunities. We are confident that we are investing in the crucial areas to enhance our ecosystem and generate sustainable value for all of our stakeholders.

Now, moving on to our quarterly financial highlights, before I get started, I would like to clarify that all the financial numbers presented today are in renminbi amounts and all the percentage changes refer to year-over-year changes unless otherwise noted.

Total net revenue for the third quarter of 2016 increased by 38.4% to RMB 12 billion, primarily attributable to a 43% year-over-year increase in the number of active customers, which grew to 20.8 million and a 34% year-over-year increase in total orders to 60.1 million.

Gross profit for the third quarter of 2016 increased by 36% to RMB 2.93 billion, primarily driven by the expanding scale of the business. Gross margin for the third quarter was 24.4% as compared with 24.9% in the prior year period. Fulfillment expenses for the third quarter of 2016 were RMB 1.03 billion as compared with RMB 778 million in the prior year period, primarily reflecting the increase in sales volumes and number of orders fulfilled. As a percentage of total net revenue, fulfillment expenses decreased to 8.5% from 9% in the prior year period, primarily reflecting the scale effect associated with our growth in total net revenue and improved fulfillment efficiency.

Marketing expenses for the third quarter of 2016 were RMB 642 million as compared with RMB 470 million in the prior year period, reflecting our strategy to drive long-term growth through sustainable investments and strengthening our brand awareness, attracting new users and expanding our market share. As a percentage of total net revenue, marketing expenses decreased to 5.3% from 5.4% in the prior year period.

Technology and content expenses for the third quarter of 2016 were RMB 374 million as compared with RMB 253 million in the prior year period, reflecting our continued efforts to invest in human capital, advanced technologies such as data analytics as well as new business opportunities including our internet finance unit. As a percentage of total net revenue, technology and content expenses were 3.1% as compared with 2.9% in the prior year period.

General and administrative expenses for the third quarter of 2016 were RMB 500.1 million as compared with RMB 297 million in the prior year period, primarily due to the build-out of our internet finance team. As a percentage of total net revenue, general and administrative expenses were 4.2% as compared with 3.4% in the prior year period.

Our income from operations increased by 21.3% to RMB 529 million for the third quarter of 2016. Operating margin was 4.4% as compared with 5% in the prior year period. Non-GAAP income from operations which excludes share-based compensation expenses and amortization of intangible assets resulting from a business acquisition, increased by 24.8% to RMB 732 million from RMB 587 million in the prior year period. Non-GAAP operating income margin was 6.1% as compared with 6.8% in the prior year period.

Our net income attributable to Vipshop's shareholders for the third quarter of 2016 increased by 8.3% to RMB 343 million from RMB 317 million in the prior year period. Net margin attributable to Vipshop's shareholders was 2.9% as compared with 3.7% in the prior year period. The decline is primarily attributable to a RMB 65.9 million impairment loss of investments. Net income per diluted ADS increased to RMB 0.58 from RMB 0.53 in the prior year period.

Non-GAAP net income attributable to Vipshop's shareholders, which excludes share-based compensation expenses, impairment loss of investment, and amortization of intangible assets resulting from a business acquisition and equity method investments, increased by 31.5% to RMB 595 million from RMB 453 million in the prior year period. Non-GAAP net margin attributable to Vipshop's shareholders was 5% as compared with 5.2% in the prior year period. Non-GAAP net income per diluted ADS increased to RMB 1 from RMB 0.76 in the prior year period.

As of September 30, 2016, our Company had cash and cash equivalents and restricted cash of RMB 4.94 billion and held-to-maturity securities of RMB 71.3 million. For the third quarter of 2016, net cash from operating activities was RMB 0.65 billion.

Looking at our business outlook for the fourth quarter of 2016, we expect our total net revenue to be between RMB 18 billion and RMB 18.5 billion, representing a year-over-year growth rate of approximately 30% to 33%.

With that, I would now like to open the call for Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Alan Hellawell with Deutsche Bank. Please ask your question.

Alan Hellawell

Great, thank you very much. Just with that seasonal and sequential decline in active users and new users in the third quarter, how should we think about these trends going into the fourth quarter? Also, I think new user acquisition cost rose in the third quarter. And similarly where do you expect that to head in this quarter? And then, finally, more of a big picture question, regarding visibility going into 2017, what specifically might you point to that drives your confidence in growth next year? Thank you very much.

Eric Shen

[Foreign Language]

Millicent Tu

So, Alan, to quickly summarize what Eric just said, so obviously Q3 is the low season. And in terms of the slower growth on new users during the quarter, Eric mentioned that we have done something to optimize the new user quality to balance between the growth of the new users and the quality of the new users.

Alan, in the third quarter the new user acquisition cost increase was due to one-off pre-committed marketing or branding related expenses which we do not have that much in the fourth quarter. And in the third quarter, we spent some money on something in content which is called China Gold, [ph] and that is one-off. And looking into the fourth quarter and even 2017, we believe the new user acquisition cost is going to be largely stable.

So, we are still very confident of our growth in 2017. And that kind of commitment is largely deriving from the good foundations that we have laid out over the years, in particular in 2016 and also the prospects of the new user growth into 2017. In China, there's a big population for online shopping and we still have a lot of room to grow in terms of customer base expansion.

Operator

The next question comes from the line of Binnie Wong of Merrill Lynch. Please ask your question.

Binnie Wong

The question on the personalization technologies, as our business grow bigger and bigger, we being able to do more targeted personalization becoming more important. Can you just share with us your latest update on the strategy and also any key metrics that you can say maybe in your conversion rate, how that has been improving quarter-on-quarter? And then, can you also talk about your internet financing strategy? How are we going to manage the customer default risk? Thank you.

Eric Shen

[Foreign Language]

Millicent Tu

So, Binnie, in terms of personalization and Big Data, we have invested a lot of human capital, technology and resources to explore ways and means to improve that. So, obviously, during the second quarter, we shared with investors that in terms of improvement to sales, it’s more than 17%. And the good news is that in the third quarter that improvement is even bigger compared to that in the second quarter. And we have also tried to utilize a lot of resources and data to understand different customers, each profile, their gender, their shopping habits, the search function and the mobile application et cetera. So, we believe that there is a lot of room to improve that going forward. So, to answer your question, which is concerning the conversion rate, we have seen some meaningful improvement year-over-year and the conversion actually improved by more than 10% in the third quarter compared to that in the same period last year.

Donghao Yang

Okay. Thanks for your question, let me take your question about our internet finance unit. Our internet finance business is growing healthily and in an orderly fashion. The goal is to strengthen supplier relationships and improve our user stickiness. The total outstanding balance for supplier financing at the end of third quarter 2016 was approximately RMB 525 million and RMB 1.47 billion for consumer financing, respectively.

Internet finance business, of course the Vipshop is still in its infancy and not yet profitable. How do we control risk? We have very good and seasoned team of experts responsible for our monitoring fraud, analyzing default behaviors and with the help of Big Data, adjusting credit approval metrics accordingly. And also, members of the team come from professional backgrounds in the fields of credit cards, banks and information services with an average relevant experience of seven years. And also recently we’ve hired a Chief Risk Officer for our internet finance unit who has got over 20 years of financial risk control experience in the banking and credit card industries.

Operator

Your next question comes from the line of Jin Yoon of Mizuho Securities. Please ask your question.

Jin Yoon

Hi, good evening guys. Just a couple of questions from me. First of all, can you just talk about your double-11 sales in 2016? I know that GMV I think in 2015 grew north of 200%. If you could give us an update on what happened on 2016 that would be great. And then second of all, Donghao, in your prepared remarks, you mentioned that you guys are going to be working more closely with international brands. If so, is there a balance sheet risk to that where you have to actually carry inventory on a more so than your traditional products, as well as potentially cash flow, given the fact that you may have to pay them at a faster rate, any insights there? Thanks guys.

Eric Shen

[Foreign Language]

Millicent Tu

So, Jin, for this Singles’ Day, we recorded more than 75% of year-over-year growth in GMV.

Donghao Yang

Well, let me take your second question about the inventory risks in our business with international brands. I think if you're talking about the international brands, most of them are actually doing business in China, so we take the inventory within the country and most of the business is on consignment basis. So, we do not carry much inventory risks. But if you were talking about our cross-border business, then, we do carry -- we do have to purchase some of the inventory from our overseas suppliers, upfront. But for most of our cross-border business, the SKUs that we carry are for the standardized products, for example, cosmetics and healthcare and mom and baby products. And a lot of them tend to move really fast, so the inventory risk is very, very low.

Operator

[Operator Instructions] Thank you. Your next question comes from the line of Alicia Yap of Citigroup. Please ask your question.

Alicia Yap

I have questions regarding your customer metrics and also the orders number. So, we're seeing that the repeat customer percentage and also the orders from repeat customer actually improved, slightly higher this quarter. So, does this imply that the new and younger customers that you acquired in the second quarter did not return to buy in the third quarter? And do you think these young customers would come back in the fourth quarter and future quarters?

Eric Shen

[Foreign Language]

Millicent Tu

Alicia, yes, actually for the third quarter, repeat purchase was historic high. This is very good for our foundation. In the second quarter, yes, we added a quite a lot of new users and some of the new users may not return in the first quarter but likely to return in the fourth quarter, even in the future. The question that we are thinking is on one hand it’s important to grow the user quantities but on the other hand, we do want to make sure that the quality of the new users that we added to our platform is optimized. So, we continue to make more effort on this regard to make sure that we are not only eager to grow our new users but on the other hand, our existing users are able to increase their repeat repurchase and on our platforms going down the road.

Operator

Your next question comes from the line of Jialong Shi of Nomura Securities. Please ask your question.

Jialong Shi

I have a question about your internet finance business. We learned that some of your peers like JD decided to dispose of its internet finance business in order to enable the internet finance subsidiary to conduct more license finance business and the new model [ph] to build the strength on the parent company’s cash flow and the margins. And for your Company, we also saw internet finance business had quite meaningful pressure on your margin for Q3. So, I just wonder how much loss this internet finance business calls in Q3 and how much you will invest in this business for next year? And lastly, just wonder if Shen-zong may consider following way [ph] of your peers like JD to restructure your internet finance business as well. Let me translate the question myself. [Foreign Language]

Eric Shen

[Foreign Language]

Millicent Tu

Okay. Jialong, the main purpose of our internet finance business is to help our core retail business. The function is to facilitate credit to our existing customers who help them increase their ARPU and spending on our website over time. And actually we have some early numbers, early share with investors to how internet financing is helping our existing customers. And that down the road will probably increase our customer penetration for this business. In terms of [indiscernible], currently we do not have plans yet.

Donghao Yang

Jialong, thank you very much for your questions and let me take care of second one. Well, we have two major business lines within our internet finance unit, one is the supplier financing, the other one is consumer financing. Actually, we've been doing our supplier financing for almost three years and the business itself has already turned profitable. Consumer financing was just started for about a year, and currently it's not profitable but the loss is very, very small because the default rate is very low, it's between 0.2% to 0.5%. So, as you can see in our income statement, our G&A expenses have gone up, slightly as a percent of revenue. And one main reason behind that increase in our G&A expenses is actually because we've hired key people for our internet finance unit. And going forward in 2017, we'll continue to make investments in that unit. And I think most of the investment will go to the hiring these key people, building a strong capable team. And in terms of business risk, we'll continue to be very, very conservative, very, very careful in terms of risk control. So, that I believe the total loss on our internet finance unit will be well under control.

Operator

The next question comes from the line of Julia Zhu of Morgan Stanley. Please ask your question.

Julia Zhu

I have two questions here. We note that overall internet user, online shopper and industry GMV has been decelerating this year with the expectation also being reset. Could management share with us how we should look at the future generation industry-wise or Company specifically, like how to maintain a faster than industry average growth rate? Could you also give us more colors on some social ecommerce initiatives underway? And I'll have a follow-up question later. [Foreign Language]

Eric Shen

[Foreign Language]

Millicent Tu

So, Julia, just for the benefit of others, I will quickly translate that. So for your first question, Eric’s response is, yes, overall the ecommerce growth rate is not as strong compared to that in the past but don’t forget that China’s online shopping population base is actually quite sizeable. So, we don’t see the slowing [ph] for our growth. We will continue to use our entry barriers, which is the substantial discount campaign, discount retail and differentiation to gaining market share from our peers. And in terms of engagement with our users, so obviously, in the past, was a purely on display functions but now we are pursuing more explored, more ways and means to engage with our customers that include content driven, include live streaming and broadcasting and imaging and data reading et cetera. So, we continue to explore and be open-minded to pursue different ways and means and to increase the engagement from our customers.

Operator

Your next question comes from the line of Monica Chen with Credit Suisse. Please ask your question.

Monica Chen

I have one question regarding our fulfillment expense. So, we continue to see very strong fulfillment leverage in this quarter. So, as a percentage of revenue, it’s 8.5 last quarter which is a continuous decrease from the past quarters. So, we just want to understand how should we think about this trend in the future. Can we maintain this strong fulfillment leverage going forward? Thank you.

Donghao Yang

Okay. Well, thanks for the question, let me take this one. We’ve done quite a lot of things to try to lower our fulfillment expenses as a percent of revenue. One, we’re building massive warehouses to achieve the kind of scales. By the end of this year, we’re expecting to have about 2 million square meters in total warehouse space. And secondly, we’re making huge investments in the automation systems in the warehouses. The first automation system was implemented in our Tianjin warehouse about a year ago. The automation system has helped us improve efficiency, reduce labor costs and achieve economies of scales in our warehouses. And thirdly, we've always been trying to increase our average ticket size. So that as a percentage of revenue, the fulfillment cost will continue to go down.

Going forward, I believe that we can maintain our fulfillment cost at a low and stable level. But whether or not we can further lower the fulfillment expenses really depends on a few things; and one of which is actually out of our control. The labor cost in our warehouse operations is a significant part of total costs. And as you know, labor cost in China has been going up very rapidly in the last five years. Although we're trying very hard, working very hard to improve efficiency and lower costs in our warehouses but again, the general trend of labor cost going up may offset some of our, if not all of our efforts, going forward.

Operator

Next question is from the line of Ms. Wendy Huang of Macquarie. Please ask your question.

Wendy Huang

Thank you. I have a few housekeeping questions. First, can you give update around the cosmetics sales and also cross-border sales GMV data? And also secondly, on the internet finance side, you just mentioned about balance [ph] of the consumer credit and supply credit. How about -- to the low amount for this internet finance business respectively? And lastly, on the operating cash flow, we noted there were a little bit of scale back from last quarter’s RMB 1.2 billion to RMB 800 million this quarter. Was this due to seasonality or is there any other reason affecting this? And also, free cash flow also seems decreased sequentially; besides CapEx increase, is there any other reasons affecting the cash flow?

Eric Shen

[Foreign Language]

Millicent Tu

So, in the third quarter, the cross-border contributed 5% to our total GMV and we recorded substantial growth year-over-year. Eric believes that the cross-border business, the market is quite sizeable. So, we’ll continue to invest more in this business to obtain more growth down the road.

Donghao Yang

Okay. Well, let me take the second question about cash flow. I think our cash flow has been quite healthy and stable. I think you were probably talking about the fluctuations in our past expenditure in Q3 versus Q2 or a year ago. But it's very normal because we're building massive warehouses and spending massive amount of money every quarter. And the capital expenditures could fluctuate according to the construction schedules or payment schedules. So, overall, as we look at our cash flow in the past few quarters, it has been quite similar, and pretty confident going forward our cash flows, operating cash flows or free cash flows will remain in a healthy situation.

Operator

The next question comes from the line of Ronald Keung with Goldman Sachs. Please ask your question.

Ronald Keung

Just a question on the customer background and behavior. Can you share with us the demographics of post 90s split between top and lower tier cities female and male? And most importantly, just want to know the time spent. Do you have any data about the time that they spend on the app of the Big Data? And just lastly on the customer side is, we’ve seen a stabilization of ticket sizes or GMV per order. What is your expectation of that as we head into next year and also with internet financing; is that boosting your overall ticket size, may actually begin to grow -- to increase? Thank you.

Eric Shen

[Foreign Language]

Millicent Tu

So, the first question first, in terms of different tier cities contributions, the Tier 1 cities is actually 14%; 38% for Tier 2; 25% for Tier 3 and the remaining 23 from Tier 4 and below.

In the third quarter, actually more than 50% of our new users were coming from the post 90s and their percentage has been going up quite steadily over the past few quarters.

So, we are actually quite optimistic in terms of the improvement and the optimization of the ARPU going forward. So, as you can imagine, the increase in number of new users that are younger on our platform, so in the near-term the ARPU decline which is inevitable. But as you can see in the first quarter and second quarter versus the third quarter that decline has been actually narrowed. So, as we are continuing to optimizing the balance of quantity and quality of new users, we believe that there's still a lot of room to improve the ARPU going forward.

Operator

The next question comes from the line of John Choi of Daiwa. Please ask your question.

John Choi

Just a quick follow-up on the optimizing the quality of new users. Could you elaborate a bit more on here, and what exactly you're doing different to achieve this? Does this mean that you guys will be less focusing on younger generation and perhaps the user retention rate will go up further? And secondly, just quickly on the G&A expense, I mean 3% [ph] for this quarter sequentially is up by 70 basis points. I remember Donghao, you just mentioned it's mainly because of internet finance business unit hiring. Is this going to be the new norm going forward? Thank you.

Eric Shen

[Foreign Language]

Millicent Tu

So, John, we have different web pages for new users. In the past, we have -- using different ways and means to improve the conversion rate by offering coupon and perhaps more SKUs that have lower average ticket size. However, we found that and actually overall the new user quality is less ideal. So, what we've done here is we've built a little bit of a balance between the categories that we offer to our new customers and also the FP [ph] that we offer to them, so less standardized categories. So, as we continue to do this, we believe that this is actually quite beneficial to optimize and balance the overall quality and growth rate of our new users.

Donghao Yang

Well, let me take your second question about our investment in our internet finance unit. Well, in order to build a strong capable team, we've been hiring very good people for internet finance unit in last few quarters. So, as you can see in our financial statements, our G&A expenses as a percent of revenue have gone up. For the near-term, for the next several quarters, I think you may see similar patterns and slightly increase in our G&A expenses. But I do believe in a long term, as our top line continues to grow and as our internet finance team continues to mature, the G&A expenses as a percentage of our total revenue will go down.

Operator

And last question comes from the line of Eric Wen of Blue Lotus. Please ask your question.

Eric Wen

Can management give us some color on the preparation to the December 8th anniversary sale in terms of inventory stocking and brand recruiting? And also last year, I remember our Q4 and Q1 result was impacted by the warm weather. And how do you see the weather shaping up this year and how would it impact our revenue growth in these two quarters? [Foreign Language]

Eric Shen

[Foreign Language]

Millicent Tu

So, Eric, as everyone knows that December the 8th is the single biggest promotion that we do every year. We have already invested a lot of energy, time, resources, and have a lot of high hopes for that particular promotion. And obviously our goal would be to surpass what we did last year. We internally have target for our sales, GMV and our new users. We are still pretty confident in terms of what we can achieve out of this promotion. And weather-wise, this year honestly Q4 is generally speaking a little bit a colder compared to last year. However, weather, it is nothing that we have in control of. We will adjust our plans and our categories accordingly.

Operator

At this time, I would now like to hand the conference to Mr. Donghao Yang for the closing remarks.

Donghao Yang

Thank you all for taking the time to join us. And we look forward to speaking with you next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for participating and you may all disconnect.

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