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AsiaInfo Holdings, Inc. (NASDAQ:ASIA)

Q2 2012 Earnings Call

July 30, 2012 8:00 p.m. EDT

Executives

Jimmy Xia – Head of IR

Steve Zhang – President and CEO

Michael Wu – CFO

Analysts

Scott Sutherland – Wedbush Morgan

Kun Tao – Roth Capital Partners

Qin Zhang – J.P. Morgan

Sam Li – Goldman Sachs

Clara Fan – Jefferies & Co.

Operator

Ladies and gentlemen, thank you for standing and welcome to the Q2 2012 AsiaInfo-Linkage earnings conference call. [Operator Instructions].

I must advise you that this conference is being recorded today, Tuesday, July 31, 2012. I'd now like to hand the conference over to your first presenter for today, Head of Investor Relations, Jimmy Xia. Thank you, sir, and please go ahead.

Jimmy Xia

Thank you, [Jazz]. Hello everyone and welcome to AsiaInfo-Linkage’s second quarter 2012 earnings conference call. Today, Mr. Steve Zhang, AsiaInfo-Linkage’s President and CEO, will review business highlights from the quarter and discuss company strategy. Our Chief Financial Officer, Michael Wu, will discuss financial results for the second quarter 2012 and give guidance for the third quarter.

Before we continue, please allow me to read you AsiaInfo-Linkage’s Safe Harbor Statement. Information discussed during this conference call might be forward-looking in nature and therefore 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 for 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 also in AsiaInfo-Linkage’s earnings release which has been posted under the Investor Relations section of AsiaInfo-Linkage’s website www.asiainfo-linkage.com.

Please note that the company does not intend to nor is it obligated to disclose any developments related to the receipt of non-binding "Going Private" proposals while this process is ongoing, and the company will not comment on this progress during this call. A special committee continues to work with both our financial and legal advisers in taking the best course of action for our investor base There can be no assurance that any definitive offer will be made, that any agreement 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 US dollars.

I will now turn the call over to AsiaInfo-Linkage's President and CEO, Steve Zhang. Please go ahead, Steve.

Steve Zhang

Hello, everyone, and thanks for joining us today. In the second quarter of 2012 we met both our top line and non-GAAP EPS guidance, recording net revenue of $124 million and non-GAAP EPS guidance of $0.26. That represented revenue growth of 13% year over year despite challenging macro conditions.

Demand for our services remains strong, particularly among our three main telecom customers, as developments in 3G and broadband continue to drive spending across the sector. The focus remains squarely on acquiring greater customer insights as China's carriers look to leverage and monetize their enormous experience of data traffic. We are well-positioned to help our customers do exactly that as our products can create traffic management platforms through which our clients can better understand their data flow and the user characteristics among other key verticals. Armed with such information, our clients can optimize our billing strategy.

I will now turn each of the three main carriers. For China Mobile, we signed a total of 15 NG-BOSS 3.5 upgrade contracts by the first half of this year and target to complete contract signings for three remaining provincial clients by the end of the third quarter.

We are currently working closely with China Mobile regarding NG-BOSS 4.0 functional specifications, which we plan on completing in the third quarter and expect to begin contract signings in the fourth quarter of this year. In total this will be a large project since the new upgrades will include several new functionalities. For example, NG-BOSS 4.0 will enable more efficient retail shop management, a real-time user notification, for example, when certain data thresholds are met. Moreover, most of the carrier's retail activity will be able to move from brick-and-mortar shops to its online platform.

In the second quarter we were shortlisted for new China Mobile OSS project, which should move to the Request for Proposal stage in the second half of this year. We are excited to have the opportunity to provide a broader range of high-quality services and software to China Mobile as we maintain our close business relationship with China's largest mobile phone operator.

For our China Unicom account, we continue to work on the implementation of our BSS Convergence software system upgrade for Unicom's northern six provinces projects. In the second quarter they successfully completed system implementations for two more provinces and plan to bring the remaining two provinces online by early August. This has been a significant implementation project for us and we have had a large team of engineers focused on delivery over the past year.

Also for China Unicom, we are working with their head office to centralize all of their IT systems to allow for more management of their retail channels, including all their third-party channels at the headquarter level. Starting in the third quarter we expect to sign billing and CRM upgrade contracts to satisfy new headquarter-mandated upgrade in this area. We are also in the trial stage to develop China Unicom's OSS systems, specifically broadband and fixed line services. This is a new initiative and represents a market area that we plan to invest more as we continue to expand our business with China's three telecom carriers.

For our China Telecom account, we continue to roll out Billing 2.8 and CRM 2.0 contracts in the second quarter. We also secured a consolidated headquarters BI project to help China Telecom understand its operational efficiencies. We recently won a cloud management software project with China Telecom that we plan to develop in the second half of this year. While the project itself is not large in terms of revenue, the nature of the solution is important since it represents our first cloud infrastructure project for China Telecom.

In addition to our core businesses of serving China's three carriers, we successfully migrated over 5 million cable customers from our cable to our software solutions. I hope to leverage this achievement for greater market share in the cable market. And over this front, we continue to implement projects in Malaysia and in Nepal, also our Singapore sales office, and our newly-opened UK office will continue in their business development efforts.

Lastly, before turning the call over to Michael, I would like to note that our considerable ramp-up in total headcount over the last year, particularly with respect to engineers, stabilized in the first half of 2012. This reflects our ability to pinpoint our implementation R&D requirements and the need of our clients as we execute over our strategy of product standardization.

Michael will now discuss our financial results in greater detail.

Michael Wu

Thank you, Steve, and hello to everyone on the call. Please note that all the numbers I will discuss today are in US dollars unless otherwise noted.

Meeting guidance, our non-GAAP net revenue for the second quarter of 2012 was $124 million, an increase of 13% year over year and an increase of 3% sequentially. The year-over-year increase was primarily the result of continued investments in IT software from China's telecom carriers and the sequential increase was mainly due to the online delivery of China Mobile's previously started projects and the phase one delivery of Malaysia U Mobile contract.

Non-GAAP gross margin of net revenue was 44% in the second quarter of 2012 compared to 50% in the year-ago period and 45% in the previous quarter. The year-over-year decrease in gross margin was primarily attributable to the increase in employee compensation which was mainly due to increased headcount of implementation engineers and increased share-based compensation expenses. And the slight sequential decrease in gross margin was primarily due to the increase in implementation incurred in -- implementation costs incurred in this quarter after the end of China lunar new year holiday in the first quarter.

Sales and marketing expenses for the second quarter of 2012 decreased 4% year over year and 9% sequentially to $18 million. The year-over-year decrease in sales and marketing expenses was driven by the fact that certain intangible assets related to the Linkage acquisition as of June 30, 2011 has been fully amortized in the previous year -- in the prior year, which saw a decrease of sales and marketing expenses of $3 million. Excluding the effects of the amortization of intangible assets, sales and marketing expenses saw an increase of 15% due to wage inflation. And the sequential decrease was mainly due to a decrease in sales and marketing activities in the period.

G&A expenses for the second quarter of 2012 increased to 39% year over year and increased 5% sequentially to $8 million. The year-over-year increase was mainly attributable to an additional accrual of allowance for doubtful accounts of $300,000 which was incurred in the second quarter of 2012 and an increase in wage inflation. And headcount increased by 36 administrative professionals for the second quarter of 2012, resulting in the increase in overall compensation. The sequential increase was mainly the result of additional accrual of allowance for the same doubtful accounts of $300,000 as mentioned above.

R&D expenses for the second quarter of 2012 increased 72% year over year and increased 13% sequentially to $20 million. The year-over-year increase in R&D expenses reflected an increase in compensation which resulted from wage inflation and the addition of 321 R&D engineers between the second quarter of 2011 and the second quarter of 2012. The sequential increase in R&D was mainly due to an increase in overtime and travel-related expenses of $1 million which saw an increase in R&D activity incurred in the second quarter after end of China lunar new year holiday in the first quarter.

Total operating expenses for the second quarter of 2012 increased to 35% year over year and 2% sequentially to $47 million. The year-over-year increase was primarily attributable to the increase in the company's R&D expenses to develop products for current and anticipated contract opportunities and to support product standardization and to achieve delivery improvement initiatives. The sequential increase in operating expenses was primarily attributable to increased R&D expenses and offset by a decrease in sales and marketing expenses.

Non-GAAP operating margin of net revenue for the second quarter of 2012 was 12% compared to 27% in the year-ago period and 13% in the previous quarter. The year-over-year decrease was mainly attributable to the increase in cost of sales and R&D expenses. The sequential decrease was primarily due to increase in G&A and R&D expenses.

Other income for the second quarter, which represents interest income and expenses, foreign exchange gain and loss and short-term investments, was $4 million compared to $1 million the year-ago quarter and $4 million in the previous quarter. The year-over-year increase was primarily due to improved return from bank deposits and a $1 million gain from sales of short-term investments in the second quarter of 2012.

GAAP net income was $6 million or $0.09 per basic share compared with $33 million or $0.45 per basic share in the year-ago period and $6 million or $0.09 per basic share in the previous quarter. As a result of the qualification as a High and New Technology Enterprise of the company's Nanjing subsidiary, Linkage-AsiaInfo Technology Nanjing, Inc., which is called Linkage Nanjing below and the current expectations for renewing the status going forward, the tax rate applicable to Linkage Nanjing was reduced from the previous rate of 25% to a 15% tax rate in the second quarter of 2011.

This effect resulted in a $20.6 million reduction in the deferred tax liability related to Linkage Nanjing's intangible assets, amortization and $2.3 million in the deferred tax assets related to welfare approval, both of which were previously calculated at a tax rate of 25%. Total effect of the tax benefit in the second quarter of last year was $18.3 million or $0.25 per basic share.

Other effects of year-over-year decrease in net income attributable to AsiaInfo-Linkage, Inc. was due to an increase in employee compensation and stock option expenses, resulting from the stock option plan granted in December 2011, and the increase of headcount of implementation engineers and R&D engineers, resulting in increased cost of sales and R&D expenses. The sequential decrease was primarily the result of increased G&A and R&D expenses.

The effective tax rate for the six months ending June 30, 2012 was 16%, which excludes the Key Software Enterprise tax status. We await for the approval of Key Software Enterprise determination which we expect by the end of this year. Such approval is normally granted [earlier], but that process has been delayed by China's tax authorities this year and it's affecting all companies in China.

Non-GAAP net income in the second quarter was $19 million or $0.26 per basic share versus $29 million or $0.40 per basic share in the year-ago quarter and $19 million or $0.27 per basic share in the previous quarter. Non-GAAP income decreased approximately 36% year over year and 4% sequentially mainly due to an increase in employee compensation, increase of headcount of implementation engineers and R&D engineers, resulting in increased cost of sales and R&D expenses. The sequential decrease was primarily the result of increased G&A and R&D expenses.

We continue to maintain a strong balance sheet. As of June 30, 2012, AsiaInfo-Linkage had cash and cash equivalents and restricted cash totaling $269 million and short-term investment totaling $20 million. Operating cash flow in the second quarter of 2012 was a net outflow of $31 million which was primarily due to the bonus payouts for the previous year. As of June 2012, the company had gross accounts receivable or AR of $307 million.

Gross AR includes agent agreements with IBM for its distributors and a few other hardware companies. Since these agreements typically consist of back-to-back payments for certain products sold to AsiaInfo-Linkage customers, there's no impact on the company's cash flow or days of sales outstanding. Net AR, which excludes IBM-type arrangements, was $223 million as of June 30, 2012 compared to $222 million as of March 31, 2012 and $221 million as of June 30, 2011 and $204 million as of December 31, 2011.

The combined effect of net revenue and AR trends, including lower down-payments from certain customers as part of the business expansion initiatives resulted in the company's DSO being 154 days as of June 30, 2012 compared to 155 days as of March 31, 2012, and 159 days as of June 30, 2011 and 147 days as of December 31, 2011. The sequential and year-over-year decrease in DSO were the results of management initiatives of prudent AR management and improved cash collection, and we were pleased to report this improvement in our DSO.

And looking now to the third quarter guidance, we expect non-GAAP net revenue for AsiaInfo-Linkage in the third quarter of 2012 to be in the range of $125 million to $131 million, and net income attributable to AsiaInfo-Linkage, Inc. per basic share non-GAAP basis to be in the range of $0.22 to $0.25. The non-GAAP EPS guidance does not reflect the potential tax benefit that the Key Software Enterprise determination was providing.

As mentioned in last quarter's call, in line of the ongoing evaluation of privatization proposals and other strategic alternatives by the company's special committee, we will not provide earnings guidance regarding the outlook for the full-year 2012 at this time.

I will now open the call to questions. And as a reminder, we're not going to comment on privatization proposal or any other potential transactions involving the company at this time. With that, we're happy to take questions. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions].

And your first question will come from the line of Scott Sutherland of Wedbush Morgan. Please ask your question.

Scott Sutherland – Wedbush Morgan

Great. Thank you. A couple of questions here. First of all, I think you've mentioned in the past, on July 1 you'd be doing some wage increases. Can you talk about if you did those and how much those were?

Steve Zhang

Scott, this is Steve. I didn’t hear your question clearly. You were asking a question on wage inflation or on the tax rate?

Scott Sutherland – Wedbush Morgan

No. If you have given any wage increases as of July 1?

Steve Zhang

Actually this year we have a total budget for wage increases, and we are spreading out the wage increase over the three quarters. We started wage adjustments in the second quarter. So it's not we are giving a one big salary increase in the Q3. But we do see that the majority of our salary adjustments will -- some of them already happened in the Q2, and I think over 50% of our total budget will be probably used in Q3, and the remaining ones will be used in Q4.

Michael Wu

Scott, the guidance I provided already include wage inflation, salary increase impact in the Q3.

Scott Sutherland – Wedbush Morgan

Yeah, I kind of noticed from the margins. What was the revenue mix between your three key customers?

Michael Wu

In the last quarter, Q2, China Mobile is approximately 53% and China Unicom 26%, China Telecom 18%, and the rest, 3%, from cable and overseas business.

Scott Sutherland – Wedbush Morgan

Okay, great. And lastly, can you talk about some of the new software that you were developing last quarter, some of the analytics and where you are with that, and pipeline of customers you might have for that?

Steve Zhang

Sure. We are seeing -- I think this phenomena is global. We are seeing that given the high adoption rate of smartphone, they're seeing, the carriers are extremely seeing a huge data traffic jump. But their challenges, they're seeing major data traffic growth but the related revenue are now coming in.

So we are jointly working with our China Mobile, China Unicom customers to have a new IT solution to be put into place to analyze their data traffic, to understand exactly what kind of apps, what kind of application their customers are using, and so that they can design a more refined data pricing plans to try to convert the data traffic growth into revenue growth.

And this solution has two parts in it. One is to accumulate and collect a lot of the detail data traffic information by leveraging something we call deep pocket inspection. The second part is analytical part based on the information we have -- we collected from their [DTSN], our data traffic network, and we view a lot of data models and try to come out with the results to understand their customers' data usage pattern.

And so far we have already secured three provincial customers from China Mobile. Right now we are in the process talking with eight to ten other provincial customers for potentially deploying this kind of solution.

Scott Sutherland – Wedbush Morgan

Okay, great. Thank you.

Steve Zhang

Thank you.

Operator

Thank you. Your next question comes from the line of Kun Tao of Roth Capital Partners. Please ask your question.

Kun Tao – Roth Capital Partners

Hey. Thank you for taking my questions. First question, Steve, you mentioned that you're also targeting OSS for China Mobile. Wondering, how many provinces we are talking about and how big of the contracts they are?

Steve Zhang

I think we have already secured Jiangsu Mobile at the trial stage, and that's the first one in China Mobile. And we are still talking with China Mobile whether they are going to be -- roll out the solution to all their 31 provinces over the next two years, or they do this in two phases. The first phase will be roughly 16 provinces this year. That's not entirely clear yet, but for sure this new OSS solution will be rolled out to all the provinces in the next two years.

I cannot comment on the exact contract size per province at this point because it's still early in the RFP process. Kun Tao?

Kun Tao – Roth Capital Partners

Okay. Michael, in your guidance, what is the implied operating margin for Q3?

Michael Wu

On a non-GAAP basis, Kun Tao, it's 12%, 13% -- 12% to 13%.

Kun Tao – Roth Capital Partners

Okay. And then your -- you gave the EPS guidance, does that include any one-time gain on short-term investments?

Michael Wu

No, does not include -- the main item that I mentioned is really the Key Software Enterprise approval, so the guidance does not include that credit and does not include any specific one-time non-recurring items.

Kun Tao – Roth Capital Partners

Okay. Well, the last question is, what's the total headcount on new hires in Q2?

Michael Wu

As of end of last quarter, our headcount is 10,419. So it's roughly 100 people additional from last quarter.

Kun Tao – Roth Capital Partners

Okay. Thank you.

Operator

And your next question comes from the line of Qin Zhang of J.P. Morgan. Please ask your question.

Qin Zhang – J.P. Morgan

Hi, good morning, Steve and Michael and Jimmy. I have three questions. The first one is about our project in Thailand. Could you give us some updates on the progress?

Steve Zhang

[At this juncture], that contract we are still working on the delivery stage and at this point in time we do not disclose specific contract details to the public. So we're not able to make a detailed discussion on this call.

Qin Zhang – J.P. Morgan

I see, I see. Okay. And my second question is relating to the slow pace of CapEx spending at the carriers. We know that a number of telecom equipment vendors actually reported very weak revenue growth numbers for the first half due to the spending delays at the carriers. But I am -- I think it's a positive surprise that we managed to maintain this 12% to 13% revenue growth for the second quarter. So my question is relating to the second half CapEx outlook and also its impact on AsiaInfo's revenue outlook for that period, particularly at China Unicom because there are concerns that they might not achieve their announced CapEx target for 2012, primarily due to their weak 3G revenue. Do you think that's a concern for AsiaInfo?

Steve Zhang

We've also seen from the report from this year as well as other network equipment providers. First of all, I think the macro-economy does put a lot of pressure on the carrier because we are already seeing the revenue growth rates are slowing down in some of the carriers. And this put the pressure on meeting their operating numbers, especially on the profit side.

However, for us, I think given our long-term relationship with the customer, a lot of the projects we have been delivering, we are basically in the third quarter and the fourth quarter this year, we are already in contract negotiation phase, because those -- the work we have been doing, we are not doing -- we are doing without a contract. So we do not see those contracts to be terminated because the projects we deliver are already in production.

So I think, you know, we are reasonably optimistic about our second half growth.

Qin Zhang – J.P. Morgan

That's great. Thank you, Steve. And my last question is relating to the China broadband strategy. We understand that it has been in the making for a while. And although it hasn't been officially announced and also China Mobile hasn't got an official broadband, fixed broadband license, we already know that the carrier actually started to push in for broadband services nationwide. And do you see that as a long-term driver to your revenue growth? Thanks.

Steve Zhang

I think broadband definitely is a key revenue stream for all three carriers. I mean, for China Telecom and China Unicom, they see this as part of their revenue they don't have to compete on price because they have a very large market share in either southern part of China for China Telecom or for China Unicom's northern part of China. For China Mobile, I mean they are definitely -- want to get into this area because they feel they're being -- they are under a lot of pressure on the mobile side and they feel they want to attack their components -- they want to attack their opponents in the broadband sector.

So I think if the competition in the broadband sector gets intense, they do need a lot of sufficient IT solutions to help them to manage the customer growth. So we'll see.

Qin Zhang – J.P. Morgan

I see. Just a follow-up on this, does China Mobile have the fixed mobile convergence solution currently?

Steve Zhang

What do you mean by China Mobile has six mobile convergence solution?

Qin Zhang – J.P. Morgan

Yes. So basically my opinion is that for billing, China Telecom already has the fixed mobile --

Steve Zhang

Oh, fixed mobile, okay.

Qin Zhang – J.P. Morgan

Yeah, yeah.

Steve Zhang

Yeah, I think China Mobile main business is still on the mobile side, but in some part of their territory, they already are providing the broadband operation. For the fixed line, they're mostly still leveraging the real-time fixed line business.

Qin Zhang – J.P. Morgan

So their billing systems are not integrated at this moment?

Steve Zhang

Not yet.

Qin Zhang – J.P. Morgan

I see. Okay, thank you.

Operator

And your next question comes from the line of Sam Li of Goldman Sachs. Please ask your question.

Sam Li – Goldman Sachs

Hi, Steve and Michael. Thanks for taking my questions. My first question is about the third quarter guidance. The midpoint of the guidance seems to imply a single digit year-on-year growth. So it seems a little bit low compared with double-digit growth in the previous quarters. So, is that just a seasonal issue in your view or do we see any other reasons behind the guidance? Thanks.

Michael Wu

This quarter we're providing bigger range of the guidance because a number of project that we've already started the service, the implementation, delivery type of work but wait for the contract signing. Due to the internal -- customer side's internal process, the contract is likely to be granted between the end of Q3 or beginning of Q4. So without the contract signing that we make, we cannot take revenue recognition, then the revenue could be stay in the lower end. Or if we can get the contract move in this quarter, then we'll reach the high end of the quarter. So it's just a matter of the uncertainty of timing of contracts signed for a number of contracts, including more than six provinces which China Unicom.

Sam Li – Goldman Sachs

Okay. So it's not any macro issue or the CapEx plan change?

Michael Wu

No.

Sam Li – Goldman Sachs

Okay, thank you. And my second question is, as Steve mentioned, that the headcount ramp-up is over in the first quarter of this year. Does that mean our total headcount will keep at the 10,000 level in the incoming quarter or even maybe come down a little bit as we finish the big project with China Unicom? Thanks.

Michael Wu

Given the demand on customer side will be continued and we are seeing the opportunity and -- opportunities on the key markets, we'll consider to add in approximately 400 people in this quarter. So the headcount base will continue to grow, but not ramp up very quickly. So it will be a 300, 400 new headcount in this quarter.

Sam Li – Goldman Sachs

Okay, 400 in the third quarter.

Michael Wu

Correct.

Sam Li – Goldman Sachs

Okay, thanks. That's it for me. Thanks.

Operator

Thank you. And your next question comes from the line of Clara Fan of Jefferies. Please ask your question.

Clara Fan – Jefferies & Co.

Hi. Thank you for taking my questions. I have two questions. Firstly, do you see any slowdown in your overseas business with the slowdown in macro-economy? And do we still expect around $7 million to $8 million revenue for full year for overseas revenue?

And secondly, what is the guidance for the non-GAAP gross margins for third quarter 2012?

And lastly, in relation to China Telecom, about the Billing 2.8 and CRM 2.0 contracts, how many provinces have been signed and what do we expect in the second half this year?

Steve Zhang

I will first answer your overseas question. Number one, we are continuing to deliver the projects for the contracts we already signed. So basically we are seeing the revenue in the second half for the contracts we already signed should actually be higher than the first half.

And then for the new order booking, we do see some slowdown in overseas regions. I mean, number one, for APAC region, given the -- from the international politics, we are seeing slowdowns in countries like Philippines, Vietnam, because those countries are involved in the South China Sea conflict.

We haven't started our sales effort in Europe yet, so we cannot really much comment on that.

What's your second question again for China Mobile -- I missed your second part of your question.

Michael Wu

Gross margin, non-GAAP -- you said non-GAAP gross margin, non-GAAP operating margin percentage?

Clara Fan – Jefferies & Co.

Non-GAAP gross margin.

Michael Wu

Non-GAAP gross margin. The implied non-GAAP gross margin will be in the range 43% to 45%.

Clara Fan – Jefferies & Co.

Okay.

Michael Wu

And --

Steve Zhang

What's the third question?

Michael Wu

It's a question regarding the China Telecom's 2.8 upgrade.

Steve Zhang

Clara, can you repeat the third part of your question?

Clara Fan – Jefferies & Co.

The third part of my question is about China Telecom's Billing 2.8 and CRM 2.0 contracts, how many provinces have been signed and what do we expect in second half this year. Thank you.

Steve Zhang

I think we had signed most of the provinces already, and probably there are only two or three remaining. We are right now in the process of rolling out and delivering those solutions in the second half this year. I think we have roughly 14 provinces for our Billing and CRM. I think that we have signed probably majority of them already, and there are probably only two or three remaining provinces to be closed in the second half of this year.

Clara Fan – Jefferies & Co.

Thank you.

Operator

Thank you. There are no further questions at this time. I'd now like to hand the call over to Mr. Jimmy Xia for closing remarks. Thank you and please go ahead.

Jimmy Xia

Thank you, [Jazz]. Ladies and gentlemen, this concludes our second quarter earnings conference call. If there's any additional questions, please feel free to reach out to us. Have a good day.

Operator

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

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