Canadian Solar Inc. (CSIQ) CEO Yan Zhuang on Q1 2019 Results - Earnings Call Transcript

About: Canadian Solar Inc. (CSIQ)
by: SA Transcripts
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Earning Call Audio

Canadian Solar Inc. (NASDAQ:CSIQ) Q1 2019 Results Earnings Conference Call May 30, 2019 8:00 AM ET

Company Participants

Mary Ma - Manager, Investor Relations

Yan Zhuang - Acting Chief Executive Officer

Huifeng Chang - Senior Vice President and Chief Financial Officer

Conference Call Participants

Brian Lee - Goldman Sachs

Philip Shen - Roth Capital Partners

Colin Rusch - Oppenheimer

Mark Strouse - J.P. Morgan


Ladies and gentlemen, thank you for standing by. And welcome to Canadian Solar's First Quarter 2019 Earnings Conference Call. My name is Albert, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mary Ma with the Canadian Solar's IR Department. Please go ahead.

Mary Ma

Thank you, operator, and welcome everyone for Canadian Solar's first quarter 2019 earnings conference call. Joining us today on the call are Yan Zhuang, our acting Chief Executive Officer; and Dr. Huifeng Chang, our Senior Vice President and Chief Financial Officer.

Before we begin, may I remind our listeners that management's prepared remarks today will contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from management's current expectations, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report on Form 20-F filed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represent management's estimates as of today's call. Canadian Solar assumes no obligation to update these projections in the future unless otherwise required by applicable law.

At this time, I would like to turn the call over to our CFO, Dr. Huifeng Chang. Huifeng, please go ahead.

Huifeng Chang

Welcome everyone to our Q1 call. Earlier we send out a press release that explained why Shawn cannot join us on this call. Shawn is resting at a rehabilitation center in Beijing from a recent physical injury. He has been in constant communication with us during this period. He asked me to tell you, he regrets about his absence. He is recovering well, and he looks forward to speaking to you soon. Shawn knows that we are all missing him. So via telephone, he hopes to speak at our Solar Future Forum to be held in New York City on June 20. He says that he appreciates your support over years, and he looks forward to speaking to you soon.

To allow Shawn and his family to focus on recovery and ensure continued operations without disruption. Our Board decided to appoint Yan as acting CEO. We're delighted to have Yan speak about our Q1 results. Many of you have met with Yan and familiar with him already. Yan has worked for Canadian Solar for over 13 years. In 2006, he served as a Director of Canadian Solar. In 2009, he became Vice President of Global Sales and Marketing, and was later promoted to Chief Commercial Officer and President of the MSS business. Yan has worked extremely close with Shawn and fully understands the operations of the company. We are in good hands during his interim period.

With that say, let's welcome Yan.

Yan Zhuang

Thank you, Huifeng. We appreciate everyone taking the time to join us today. The takeaways from Q1 are: one, we delivered module shipments, revenue and gross margin above expectations; two, our core business remains strong with demand increasing in key markets worldwide; three, ASPs have been relatively stable; and four, we remain fully on track to monetize the majority of our 3.4 gigawatt late-stage pipeline in 2020 or later.

We told you last quarter there would be a pullback in Q1 compared to Q4. This healthy pause came after we achieved close to 140% growth of net profit in 2018 from the 2017 level. There were a number of external factors that impacted our overall financial performance. These included the acceleration of some high profit project sales from 2019 to 2018. The appreciation of RMB last manufacturing days related to our ERP system upgrade and impacts of Chinese New Year on production and sales volume.

Even with headwinds, our total solar module shipments for Q1 were 1,575 megawatts with gross margin of 22.2%. Total revenue for the quarter was $484.7 million compared to 1,951 megawatts in Q4 with revenue of $901 million. In Q1, revenue from our MSS business was $453.1 million, gross margin was $21.6 million and operating income was $19.5 million. The better than expected gross margin benefited from a lower blended model manufacturing cost and stabilized average module selling price. We continue to benefit from our premium brand which helps offset some price pressure customers by reliability, quality and performance.

We're also pleased with interest in our high efficiency modules such as by HiKu and HiDM. As we announced yesterday, we signed a multiyear module supply agreement with EDF renewable North America to deliver 1.8 gigawatts of our efficiency by HiKu and HiKu modules to EDF projects in the U.S., Canada and Mexico. This is the largest single module supply agreement in our company's 18 years of history. Our high efficiency products continue to gain popularity with customers due to the higher ROI. This is important to Canadian Solar because we prefer to sell as the quality solution, which tariffs an ASP premium.

We also continue to carefully invest in R&D and capacity to make sure we have the higher efficiency solutions customers want. This is another competitive advantage for us. We have to scale to support our R&D roadmap even in the softer period.

We remain on track to convert all of our cell capacity both poly and mono into the PERC technology by the end of this year. In addition, we are pleased with the progress of our P4 cells, i.e. cells with casted mono, sorry, P5 cells i.e. cells with casted mono technology that can have close to mono efficiency whilst you enjoy the cost advantage. We set a new world record of 22.28% for the conversion efficiency for our p-type multi-crystalline P5 cells, one tested in April.

Further, we're also pleased with our progress with our EPC business and O&M business. We now have 966 megawatts of EPC projects under execution and the growing O&M portfolio for up over 2.6 gigawatts, contracted project globally.

Our energy business also continues to make solid progress despite the timing of project sales, I noted earlier. To give you a few examples, during Q1, we sold a 10-megawatt solar power plant in China, and 4-megawatt solar power plant in Japan. In April, we entered into agreement to sell 80% interest in our 482.6 megawatts late-stage portfolio in Brazil, and we expect to close the sales in coming months. In May, we completed the sale of the 134-megawatts Mustang solar power plant in the U.S. And the sale of our 68-megawatts solar power project in Mexico.

As you know, we take a long-term view on our business. We're working to close project sales and manage our module business. At the same time, our strategy relies on successfully recycling our capital to replenish our late stage project pipeline. We continue to use strict criteria to help us ensure higher ROI projects. To give you a few examples, in March, we signed a power purchase agreement on the 280-megawatts project in Texas and 20-years 35-megawatts PPA on the Slate project in California. We also signed PPAs in Canada and Israel among others.

Our portfolio of late-stage utility-scale solar power project as of April 30, 2019, including those under construction, was approximately 3.4 gigawatts. Our projects in operation as of April 30, 2019 total 984 megawatts. We then estimated resell value of approximately $1.2 billion. Our goal is to build and sell these projects at COD or to sell them before COD either at MTP or before MTP, based on the market conditions.

Due to the typical development cycle we expect to realize sales for the majority of our current 3.4 gigawatts late-stage project pipeline in 2020 or later.

Now let me comment on our guidance for Q2 2019. We currently expect total Q2 margin shipment to be in the range of approximately 1.95 gigawatts to 2.05 gigawatts, including 50 megawatts of shipments to our own utility-scale solar projects. We expect the revenue for the second quarter of 2019 to be in the range of $970 million to $1.01 billion. We expect the gross margin for Q2 to be between13% to 15%. This gross margin reflects a higher contribution of lower margin project sales. Overall, our fundamental business remains strong, lead by healthy demand and stable price. We view Q1 2019 as a onetime bump in our near spotless record -- nearly spotless record of consistently delivering profitable results in both up and down markets.

We are working to achieve improving results through 2019 and longer-term. And we are actually very optimized about the rest of the year. And we think we have very good chance to meet and even beat the previous four years module shipment guidance.

In our MFS business, we're currently running at about 50% to 60% of our long-term capacity booked. We have historically left some capacity to meet the needs of higher margin near-term sales. This has been a very successful strategy and remains an important element of our planning, execution and track record of success.

Let me now turn the call back to our CFO Huifeng Chang for more detailed review of our results for the first quarter. Huifeng, please go ahead.

Huifeng Chang

Thank you, Yan. Our results for the first quarter were above our expectations. We achieved better than expected total margin shipments, gross margin and revenue was on the high end of our guidance. Although Q1 net income was impacted by issues, Yan mentioned earlier, issues like lost manufacturing days from ERP system upgrade, will not repeat in Q2. We also expect Q2 to benefit from increased product sales, higher volume of module sales and the depreciation of RMB.

Now allow me to go over the details in the financial numbers. Net revenue for Q1 was $484.7 million, down 46.2% sequentially from Q4, and down 66% compared to year ago period. Net revenue for Q1 was comprised of $453.1 million from our MSS business, and a $31.6 million from our Energy business. This reflects the pull in of products into Q4 from Q1.

Gross profit in Q1 was $107.4 million compared to $271.3 million in Q4 and $143.9 million in Q1 last year. Gross margin in Q1 was 22.2% compared to 30.1%, including the benefit of the CVD reversal of $16.1 million in Q4, or 28.3%, excluding the CVD reversal benefit, and 10.1% in Q1 last year.

Total operating expenses were $100.8 million in Q1 compared to $134.7 million in Q4 and $65.7 million in Q1 of the prior year. The sequential decrease was mainly driven by bad debt reversal and lower sales commission. The year-over-year increase was due to less contribution of other operating income related to the product sales.

Income from operations was $6.6 million in Q1 compared to $136.6 million in Q4 and $78.2 million in Q1 of last year. Operating margin was 1.4% in Q1 compare to 15.2% in Q4 and a 5.5% in Q1 of the prior year. Foreign exchange loss in Q1 was $12.6 million compared to a gain of $7.3 million in Q4 and a loss of $8.5 million in Q1 of the prior year.

We recorded a loss on change in fair value of the derivatives of $1.3 million in Q1 compared to a loss of $7.3 million in Q4, and a gain of $4.5 million in the first quarter of 2018. Income tax benefit in Q1 was $7.5 million compared to income tax expense of $36.7 million in Q4 and income tax expense of $4.1 million in Q1 of the prior year.

Net loss attributable to Canadian Solar shareholders for Q1 was $17.2 million, or $0.29 per diluted share compared to net income of $111.6 million or $1.81 per diluted share in Q4 2018, and a net income of $43.4 million, or $0.72 per diluted share in the first quarter of 2018. This is the first year loss for the company in five years.

We reported a loss higher due to a government error that was later reversed. Back we view Q1 as a bumped in our near spotless record of delivering profitable results in the up and down markets. And as Yan noted in the outlook, we expect to achieve great improvements moving through 2019.

Now moving on to the balance sheet. At the end of Q1, our balance sheet of cash and cash equivalents were $370.2 million compared to $444.3 million at the end of Q4. Our restricted cash balance was $542.2 million at the end of Q1 compared to $496.7 million at the end of Q4. Inventories at the end of Q1 were $385.1 million compared to $262 million at the end of Q4. Inventory turnover was 81 days in Q1 compared to 44 days in Q4.

Short-term borrowings and current portion of long-term borrowings on project assets at the end of Q1 totaled $1.4 billion compared to $1.3 billion at the end of Q4. Long-term borrowings at the end Q1 were $433.5 million compared to $393.6 million at the end of Q4. Total debt at the end of Q1 was approximately $1.92 billion of which $765.6 million was non-recourse and short-term borrowings and long-term borrowings directly related to utility-scale projects, which include a $475.9 million of non-recourse borrowings totaled $735 million at the end of Q1 compared to $735.1 million at the end of Q4.

Finally, we repaid the entire $127.5 million outstanding balance of our senior convertible notes in February 2019.

Overall, we exited Q1 in a strong business and financial position. We will continue to carefully manage our pipeline in order to secure the highest return from our assets. We remain focused on driving profitability and building value for our shareholders.

With that, I now would like to open the call to your questions. Operator?

Question-and-Answer Session


Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Brian Lee from Goldman Sachs. You may now ask the question.

Brian Lee

Maybe first on the gross margin in the quarter, quite a good result, 22% guidance, I know is lower here for the second quarter even excluding the project impact. But as you mentioned you have a view of increasing profitability through the year. I know you're probably talking about the EPS line. But what should we think about in terms of the gross margin trend as we move through the second half of the results you're seeing here in a good Q1 and a slight down in the 2Q?

Huifeng Chang

First of all, this guidance for Q2 gross margin includes both the module business and the product business. And then now, already two months have passed in Q2, and the last two months we closed the significant size of project Mustang, which actually -- we have a public announcement so to your firm Goldman Asset Management. And that project is sold at total enterprise value, which means the size of the transaction is our cash equity, plus tax equity and plus the debt. So in that case, the denominator is huge and the profit, the numerator is unchanged. So that transaction pulled down the guided Q2 profit margin significantly. But in the meantime, we also closed the project in Mexico, which is also a COD sale. And also, in that case, the denominator is the entire value of the project asset, and then, of course, the numerator is a profit. So those two transactions have a significant impact on the post margin in the guidance. But overall, the module business, at least that is -- till this point, two-thirds of Q2 have passed. I think here we are making good healthy profit. And not only the ASP price has remained strong, but also, on the cost side, we did a good job in lower the cost. And then maybe later on, Yan can talk about this view in -- for the second half of 2019 for the module business. Thank you, Brian.


The next question comes from the line of Philip Shen from Roth Capital Partners. You may know ask the question.

Philip Shen

First one is on the context and situation around Shawn. I was wondering if you guys might be able to provide a little bit more color on what happened. And also, perhaps some sense of timing as to when you could return? It seems like he's still maybe recuperating through much of June giving your comments about him calling in to a conference. So any more contexts there would be great. Thanks.

Huifeng Chang

We can discuss with you here about Shawn's abilities related to his CEO function, but there is a respecter for the privacy for the family. I can tell you that I went to the rehab center last week and talked to Shawn. And he is in good shape. I was told that throughout the process from the day that the accident happened until today, Shawn has never lost the consciousness. He's always clear what is happening and communicating with people. And then he is recovering very fast. Actually, he can -- I talked to him almost every day in the last 10 days. The only issue is that his voice, the quality of the voice is host or cracked or fruity. So he prefer to stay and resting at the rehab center in Beijing instead of joining our call today. But I was told that any day he can be on the phone with you guys. And also he has the capability of reading and responding some simple e-mails. But I think for Shawn and for the family, at this point, the priority is recovery. And I'm sure that in the very near future, especially, he told me that he hopes to speak to you guys over the phone for our solar forum -- solar future forum to be held in New York on June 20. So we are confident that Shawn will be back with us very soon.

Philip Shen

Well, we wish him best and fast recovery. Shifting gears to ASPs. We calculated a rough modular ASP in Q1 of about maybe $0.26 or $0.27. Can you talk to us about -- is that what was the ASP in Q1? And what the expectations are for Q2 and the back half of the year? Thanks.

Huifeng Chang

Well, for Q1, actually our ASP was around $0.30. Safe price, contract price ASPs around $0.30. For Q2, we have margin guidance. ASP wise is lower than Q1, but still maintains strong. That's all I can tell you. So as I mentioned that the ASP has been stabilized with -- I will say, stable decline, but stable.

Philip Shen

And then as it relates to the outlook for China demand, do you expect a ramp up of activity in Q3, and then shrink in Q4? And just give us your view on when do you think MD&A will provide a greater clarity on the project list for subsidies for the back half of the year? And then how demand should evolve?

Huifeng Chang

Well actually -- we have both the grid parity projects. And the subsidized building projects policy also just came out today. So now we have clarity. So according to our analysis, the rooftop -- residential rooftop is around 3 gigawatts for this year. And the 2019, we're talking about the subsidy projects is 11.5 gigawatts and also there's something about 2020 projects 20 gigawatts. And we have this -- sorry, this is 2020. Sorry. It's around 3 gigawatts of residential. Then we have this subsidized utility-scale project, which is 37.5 gigawatts, but we have to assume that a significant portion of that will be drag -- slip into next year. As always, we know China, that's always a great spirit when people cannot connect on time they slip into next year. So we also have this poverty alleviation projects, we have these top running projects, so also national grid parity projects. So also something more is the self-consumption projects without the necessary of premise and subsidy. So that also has a pretty big gigawatts level of demand. So to the total it's like 50 gigawatt, but if you take a discount module supply. So we come up with around 40 gigawatt of the total demand for 2019. So this is our number. So since we only in stock until now, 7 gigawatts in stock. So we believe in Q3 and Q4, the demand should be high. At a certain point, there could be a shortage that which would drive up the price by, like 10%, something like that, it's very possible. So not too strong when the -- not too sure when the rush will start, maybe September, maybe October, we don't know. But we're closely monitoring the situation. And Canadian Solar has been very good at monitoring and controlling our pace for order closer and the price guidance, so to maximize our profits. So we've been keeping very close monitoring for -- of the situation.

Philip Shen

Why is on the policy that you think the rush would start so late in September, October. Why would it not start earlier?

Yan Zhuang

Well, first of all, that's my only personal judgment that they may start September around there, because the effective date of the reverse auction bidding, the policy effective date is July 1st. So, people would need a little bit time to prepare until they need module. So it's not all the projects are ready to be built right away. So that's why I believe that people will still need a couple of months before actually they need margin to be shipped.

Philip Shen

One last housekeeping question. You didn't mention officially the full year guidance that you gave last quarter. Is that reiterated for in this quarter so you still are keeping that guidance for the year?

Yan Zhuang

Yes, we're keeping the guidance for the year with confidence.

Philip Shen

Great. Okay. Thank you very much, Chang. And I'll past it on.

Yan Zhuang

And we are also optimistic about the second half demand. Thank you.


Your next question comes from the line of Colin Rusch of Oppenheimer. Please ask a question.

Colin Rusch

Can you talk a little bit about the shifting dynamics with your customer base? What's happening there? It seems like you may be seeing some larger customers. But I would love to get a sense of what the customer base is starting to look like and what it looks like going forward if you're going to be dealing with a fewer number of larger customers? And then if you comment a little bit about some of the geographic exposure as you're going to 2Q and 3Q, what sort of next year looking at into the U.S. versus Europe?

Yan Zhuang

Well, that's a good question. Actually, we have been over time, over a number of years, we've been trying to develop our channel strategy. So we try to be more selective and more efficient on the margin, on the channel side. So in all the mature markets, we have a separate direct selling team that are selling small volume orders to smaller customers bypassing the channels to achieve premium prices. So that alone, actually, today -- so we have that in U.S., Europe, in Brazil, in China, and also in Australia and Japan. So the direct channel worldwide gives us like 30% of our total shipping volume. These are significant price premium of -- I can't give you too much detail, but it's a significant price premium. And so that's -- on top of that we also have priority allocation of our capacity to higher priced markets like Japan, like Australia, like Europe, U.S. and even Brazil. It's also our premium market. So that also has incremental volume that enjoys a healthy pricing. And also as you know we have our own project team. So our own project needs module. And on top of that, we also have our -- starting from end of last year, we have a significant -- we have made a significant progress on setting up our own turn-key EPC business. So as I mentioned, we have closed 1-gigawatt projects that are under execution on turn-key EPC. That actually alone, also all the modules we shift to those projects -- has also very healthy pricing. So if you put -- add up all those volume, whatever left is the capacity that we will have to compete in the competitive market. So we have the luxury to be more selective who to sell those capacities. This is one important strategy for the company to maximize our profits. But having said that, of course, we need to balance between just as profit with also cash flow, right? Payment terms is also important like India is up from LC. China, for us, is all up from pay. And also the shipping time, which is the inventory turnover. So we need just have to balance all the factors to optimize our business in terms of profits and cash flow.

Colin Rusch

Just turning to the balance sheet, are there adjustments that you guys would like to make in terms of optimizing the capital structure for the company, reducing debt expense? Are there opportunities for that as you look through the balance of 2019?

Huifeng Chang

Colin, this is Huifeng. Overall, compared to 12 months ago or even 24 months ago, our balance sheet is in much, much better shape. And that's the result of almost over $2 billion worth of solar assets monetization. And then we paid off the convertible and also a $150 million loan to a Chinese bank early this year in Q1. So now talking about debt asset ratio, I think we are now in the lower 70%. However, on the cash flow side, we also doing better than probably 24 months ago, recently, we finally received the tax refund from the U.S. federal government IRS, which is a significant number. However, with that said, we have more project opportunities in the pipeline and also in the market available for us to bid. I can tell you that our teams in different regions, they compete for the limited capital we have at the corporate. They want -- everyone wanted more projects, do more business in their markets. But we have to optimize at the corporate level. And so for that, we are open to find the people in the form of either partnership or loan whatever, so that we can do more projects. The project, obviously, continue to be healthy. And then Q1 this year, 2019, is the season of drought. You guys can see the number. But for Q2, we started picking up in project sales and then Q3, Q4, we will be much higher. Now there is news out there in the market that we are selling projects in the U.S., selling projects in Japan, et cetera, et cetera. I mean, we are not confirming this news. But that's our business model. We already shifted from COD sales to NTP sales. And it seems like things are getting better and better. We are doing more projects, every major market in the world. Thank you.


Your next question comes from the line of Mark Strouse of JP Morgan. Your line is now open.

Mark Strouse

And we'd also like to wish Shawn a speedy recovery. So most of our questions have been asked already, but I think just wanted to start about your project sales, the majority of which you said are scheduled for 2020 or later. Can you just talk about the willingness or the appetite to set to sell those on earlier in the process perhaps at NTP versus at COD? And just kind of trying to get a rough sense of what your expectations are that's bake into 2019 guidance? Thank you.

Yan Zhuang

I guess, this probably -- either you are second or first participating into our earnings call. I look forward to see you in person in New York. To answer your question, let me talk about two sides, from us, the seller side and also the other side, the buyer side, and also different markets. Overall, from us, the better use of our capital still in the development stage, not to own the assets, because a lot of people in the world that their capital cost is much lower than ours. So we want to take more development opportunities instead of owning those assets with our limited capital. But also, there is another reason of cash flow management, because a lot of projects when you started construction during the project life, it eats up lots, lots of capital. And we want to avoid that and we want to get investors in earlier so that they pay for all the costs in the construction period.

And then from the buyer side, in the past, especially when we were selling the six huge projects in the U.S., they were mostly in California. And then we had a public auction. And then many of our partners, the buyers, they pay the hefty professional fees. But at the end, they didn't win the bid and then which created some kind of awkward situation. So we have been many times told by our buyers that they wish that they can move in earlier in the project stage. So that, in other way, they also can make a higher IR return on the project that is to be developed versus the COD projects. And for us, as usually even now we do NTP sales, but when we sign contracts to sell the PSA with the buyer, and at the same time we sign a module supply agreement, we sign the EPC. So we still get the benefits to run the project and to supply the modules, such as our project in Mexico, a typical example, and also another project in Argentina. So we become more and more supply our own module to our projects all around the world. It's the perfect synergy between the project business and the module business. And overall, in terms of valuation, as you can see that the 10-year U.S. Treasury interest rates actually are trending ahead and again to the downside. Now, I guess, it's about 2.2% to 2.3%. A year ago, when it was around 3%, the people were talking about may go back to 5%, obviously, if that's the case, that's a negative factor for our asset value. But now long-term interest rates keep coming down, and there are a lot of money in the world of pension funds, insurance company, even the investor banks on Wall Street such as Goldman, such as Deutsche Bank, Morgan Stanley, JPMorgan, they all have formed internal solar asset management group and they become our clients. And then the traditional energy companies such as Duke, such as AES, et cetera, they are also moving into the renewable space, and how they do that? They start first by buying solar projects. So the demand is there. I think it will be there for at least the next 5 years to 10 years. Not a problem. So in that sense, our project business, we will continue to enhance putting more investment and make the team stronger. And now we have gained a lot of more experience in the emerging markets. And we are now looking into new opportunities in the market such as South East Asia like the Philippines, Sri Lanka, Thailand, the Vietnam. But also now, we have a huge pipeline in Australia. So 2019 is really big year for another cycle of growing our projects business. We have significant projects to be delivered in 2020 and 2021. And that is published in our press release. If you have more questions, I'm coming back to New York the week after, after the SNEC Conference in Shanghai. And I will be happy to see you in the office.


Thank you. [Operator Instructions] Your next question comes from the line of Alex Liu from UBS. You may now ask question. Hello Alex Liu, your line is now open [Operator Instructions] There are no further questions at this time. I would now turn the call over to the management. Thank you.

Huifeng Chang

Well, we thank you for your continued support. If you have any further follow-up questions, please contact our Investor Relations. Have a great day.

Yan Zhuang

Have a great day. See you guys in New York.


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