Q3 2019 Earnings Call
Good morning, and good evening.
Welcome to Kangaroo Inc.'s third quarter 2019 earnings conference call.
At this time all participants are in listen only night.
This call is also being up real crossed lives on the Companys IR website.
Joining us today I missed a job you in Lynn Chief Executive Officer, I missed the young de Gaulle Chief Financial Officer, if the company.
Following managements prepared remarks, we'll conduct a question and answer session.
Before we begin I refer you to the Safe Harbor statement in the Companys earnings release.
Which also applies to the conference call today as management will make forward looking statements.
With that said I'm now turning the call I bought to Mr. Jot, you and Lynn see that's kinda Guy. Please go ahead.
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Everyone. Thank you for joining us today on can go so call it doesn't 19 Ernie cool.
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Of course, it intends other global economic slowdown continuously much around that I'm not going happen continue to rise truly global trade on escalating geopolitical tension have direct they impact is China automotive industry today, the underwhelming performance of China automotive market intend to 19 conveys increasing they did.
The code industry conditions worldwide.
The second quarter up 2018, new car sales in China have continuous they've launched with no apparent signs of recovery. If I knew cost is showing sequential improvements during September obese, yet more time is required to determine whether costs will continue owning up whats trajectory going forward.
The way the government is from introduction of policies to stimulate new cost those we have observed a certain level of confidence in the market with me. These new policies implemented in the marketplace. We expect the Chinese auto market to start turning the corner in a second Coppell Sunshine country.
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Well the auto financing market in particular, the low penetration rate of auto financing.
Still represents a promising opportunity for all future expansion, especially lower tier markets. Meanwhile, we're also exploring growth opportunities may not emerging verticals such as the market for electric vehicles. We believe that by season. These opportunities we will offset the current challenges the auto finance industry cost upon a decline of new car sales in China.
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It is important and remember that one of Chinese auto industry entering to appear rhythm transformation, we've noticed and reshaping of the auto financing market dynamics going forward, we bodies evolving market dynamics to lead to increasing industry consolidation and challenging market conditions.
Well, it's weaker companies would attack Mark Indeed, like Kendall, we sizable economies of scale high service quality and superior operating capabilities, well be able to secure additional market share.
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Our core competencies auto loans facilitation services expand on aftermarket services I think a subtle right our co approaches Apis with more core strategic partner, we once again achieved solid growth despite the challenging market conditions.
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Quarter up to 19, our total revenues increased by 23.2% during Q2 to 351 million RMB, Oh aftermarket services facilitation business, which mainly consisted of insurance related products contributed 14.7 million RMB. It is worth mentioning that totaled.
Can you with all the company in the first three quarters of 29 thing reached 1.039 billion RMB approaching the level of 1.091 going in RMB for the whole year last year.
Sure Man woman or Jones home Cushing should she so time will tell you. She Soho says how are you done to of course, all yield doesn't sound go home it definitely John shop, and you do that Youll find on single digit do whether that's why I will now provide an update on the progress we achieved this quarter exponential growth prospects of our core auto.
No facilitation business aftermarket services and strategic partner initiative.
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Jingdong, Tom would you share you couldn't go geological Chinatown Outdoorsy being towards energy first I'll call growth Stryker auto loan facilitation business continues from the low and high growth trajectory in the third quarter total amount of financing transactions facilitated reached 5.769 billion RMB with the total.
Ending balance reached 36.501 billion RMB funding side, we continue to actively engaged renegotiations for potential collaborations with multiple financially.
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Also qualified to simply shots on that so should I won't rule the woman lung machine guns as you know as I'm sure being questioned about who show you don't odds are for what's how you Hot we also maintained our market leading position as the largest auto financing service platform in China in terms of new car dealership coverage by the end of the third quarter.
We have grown our dealership now with more than 49000 Register your dealer across 353 cities nationwide. In addition to consistency expanding our geographical coverage. We've also optimize the coverage overall dealership network by the end of visit quota Allison team has established a direct coverage for 91.
So one for 94.1% of our dealers the significant penetration and ran job dealership network has enabled us to determine the needs of Adidas more precisely while improving our solutions in real time. These improvements have helped us to augment our service quality further positioning us ahead of industry.
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We continue to expand our after market market services to propel our call insurance visitation business into the net growth cycle innocent quotes are up 29 team our aftermarket services business contributed 40.71 million RMB, 11.6%, while total revenue all car insurance visitations of it is completed.
6900, and child transactions in the third quarter up 21.3% from the previous quarter.
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Today, we continue to make progress cooperation with core strategic partners as mentioned in previous quarter. We on the first auto financing service platforms to completely interface with Ibcs mill system for new car purchases. Following the completion of this system interface loan volumes makes corporation continue to increase.
Through our partnership with RBC, Andy utilization of our extensive national coverage, we have coordinated with a number of Oems to launch Oems subsidized auto financing and promotions of it is all China to replicate the success of such collaborations will also actively engaging with more Oems for future collaboration.
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Part of our partnership with DD, we completed the facilitation of 300 on 27 car purchase transactions for license.
During the third quarter. We also continue to provide any drivers with a complete suite of auto solutions, including causing auto financing insurance product and operator licensing.
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Moreover, we continue to accelerate the development of our auto transaction facilitation business by fostering closer ties with Oems our strategic partnerships.
Such collaborations we are able to leverage our extensive dealership network and strong lower tier city company penetration to expand these Oems sales channels. Moreover, we are also enable these oems to diversify that product offerings to meet the various needs of their targeted consumer demographics. Additionally, well.
Also actively exploring Allah corporation opportunities such as retail and wholesale cost sourcing following the collaboration agreements we signed with several major Oems in the previous quarter. We continue to engage inc. partnership negotiations with more domestic and foreign Oems in the third.
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Summary, despite the macroeconomic uncertainties and why for our industry deceleration. We believe that we will sustain our robust growth momentum bank by continuously refining our product offerings, enhancing our service capabilities and cultivating various forms of strategic partnerships.
Industry Rebalances amid lead turbulent market conditions, we are confident in our ability to further solidified our market leading position.
Well, John post offices, Gysle, Shellum, AOCI and I'm. The CFO Tony will you wait I got you saw Chuck almost a bunch of two that's how does shift with last I will now turn the call all that our CFO , Michael John to review, our financial performance in the quarter.
Thanks, Joe, Yes, Hello, everyone and welcome to our third quarter, two 2019 earnings call before I started to review our financials for the question. Please fill dots unless otherwise stated on numbers and be terms all percentage comparisons on a year over year basis.
In the face of macroeconomic headwinds and ongoing construction of Chinas automotive industry, we maintain our growth momentum in the so called over 2019, posting strong financial and operating performances.
Our total revenues in the so called out to southern 19 were 351.3 million, representing a year over year increase of 23.2% outperforming the hot and off all guidance by 8.1%.
The aftermarket services facilitation business also continued to ramp wrapped up as revenues grow to 40.7 billion or 11.6% Talbot total revenue so quota.
Cost of revenue here, so quarter was 125, plus 4 million all 35.7% to all of our total revenues compared to 113.5 million all 39.8% of our total revenue in the prior year period.
As a result, we expanded our gross margin to 64.3% so quarter from 60.2% in the prior year period, mainly attributable to the successful implementation of series of cost control initiatives.
The increase the leverage.
Resulting from improved economies of scale.
Sales and marketing says it in third quarter decreased by 1.9% to 47.6 million from 48.5 billion in the prior year period as a percentage of a total revenues sales and marketing expenses, so quarter decreased to 13.5% fell 17% probably.
Period this decreases.
Further illustrate our commitment to improve our sales and marketing efficiency, while maintaining a strong growth trajectory of our total revenues.
General and administrative expenses were 52.3 million or 14.9% of total revenues in the third quarter compared with 40 input.
7 million or 14.3% of total revenue in the prior prior period.
This increase was mainly driven by higher share based compensation status during the quarter.
Three research and development, especially a so called to increase was 13.2 million from 10.8 million in the prior period as we continue to expand our R&D efforts at investing product innovation I.
As a percentage of total revenue our R&D expenses remained stable at 3.8% in this quarter.
As a result of our strong revenue grows at a successful optimization of cost structures. Our income from operations. So quarter increased by 17.8% to 89.7 billion from 76.2 million in the prior period, our net income into so quarter was wahid.
22.1 million, increasing 14.9% from 106.3 million in the prior period, our non-GAAP adjusted net income, which excludes the impact of share based compensation expenses increased by 21.5% to 146 Lilly to circle.
Yeah.
On a per share basis, our diluted net income for Ats, what Ivy 0.78, and how it diluted non-GAAP adjusted net income for Adas, what I can be zero point now for the so called out 2019.
Moving onto our balance sheet as of September 32019, we had cash cash equivalents of 1800.
51.2 million compared with what other six 600.
9.6 million as of June 32019.
Looking forward to the fourth quarter 2019, we expect our total revenue to be between 3000 380 million and a 400 million.
Please note that this forecast with that reflects our current and preliminary view a marketed operational conditions, which are subject to change.
This concludes our prepared remarks, operator were now ready to take questions.
Thank you.
We will now begin a question and answer session.
To ask the question you May Press Star then one on your touch time fine.
If you are using his speakerphone, please pick up your headset before asking your question.
If anytime a question has been addressed and you would like to withdraw your question. Please press Star then too.
We off.
Please ask your question first in Chinese then or pay in English.
At this time, we will pause momentarily to assemble our roster.
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The first question comes from John Psi with Morgan Stanley . Please go ahead.
Thanks, Glenn its own thoughtful consideration.
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Thank you management for taking my questions Ive two questions. The first questions is boundaries I see that the over deal ratios has been increased.
Sequentially just wonder.
Was that impacted by the.
Regulatory type and then on collections on this out Oh I'm sad tires.
How do you see the trend of diesel for the region.
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I'm trying to tighten the commercial banks from than two Oh, no facilitation platforms, just wondered how would that impact kind of.
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That's helpful. Thank you for your question, let me take your first question that he's the changes in the overview right well actually we've already talked about as usual during the quarter name quarterly analyst meeting as we all know knocks the yes, the regulatory environment over connection age of changing and so as early as these I I mean, I think the early apart.
We've already taken we have already taken measures to control and zero and also and one overdue ratios and we're stepping up our connection.
Methodology, especially telemarketing based connection methodology to control, please oh and almost I mean, I'm zero and won over duration and you look at the end of Q3 numbers, yes. Indeed, the over durations has only oney increase and I think the main reason is there.
To the long holidays during the September and October for example, during September and October we have the OTA early Autumn Festival mid Autumn Festival endorsing the National day.
Basketball, so because of these uh huh [laughter] because of the holidays and that we'd be collection efforts have led to some extent is being impacted and so that's why at the end of fun September we I think the rising and one operating ratio of bad we have been following the utterance very closely in October and those that you know.
And we can see like our national.
Especially our control measures are taking effect.
We look at the changes and one after the.
Holiday you can see laptop.
Thanks to our assets B M. One has been not only ratio has been going down and each testifies to the fact of all come true.
And three we all know not see it's partly impacted by the year changes and one and it's a rolling fat. So as we so we've got lots in the next quarter, the and one ratio at what three ratio well remain.
People and also we well I, we believe that Saudi I could well be some improvement over the ratios.
Hi, Jon Wolff weight on the telco and teachers acquire Gen. One to the Union Joe.
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All right I will answer your question on the impact of regulatory changes, so now let business, especially our partnerships with the bank actually we have consulting with our legal department and also we have consultants the legal opinion from de a major partner and banks as well in fact, though I mean.
In fact based on all thanks, finding condos <unk> partnership model with the banks are fully in line with the regulatory requirements in fact, since the adult annually and the regulatory policies.
Were published in more Bang.
Actually more major banks are coming to cancun looking for partnerships with us so when they come to us we often especially these banks are illegal copy apartment, if there will be any trouble with compliance is.
We are they partner with can go and actually based on our legal opinion, our partnership models with these banks definitely not.
Extend attempt the regulatory requirements. So we don't have any concerns compliance watts.
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Yeah.
I'd like to add to be worth the midpoint reason state we have notice that the senior official from CBR see a you know talked about the regulators position owned no facilitation business and those facilitation platform and according to these senior official actually the regulator holds an open minded approach to.
Loan facilitation business and the regulators actually a very much.
Labour off or at least that loan facilitation business and they always code is open mindset to what Andy So no facilitation business and actually the publication of series of New regulatory documentation in fact helps right the especially that was off lease alone the facilitation a industry and we play.
If not we hire thresholds to enter into at least this industry asked with changing market dynamics.
Uh Huh, we believe lastly, well help facilitates a healthy development companies industry, because it means that the whole markets, while become better regulated and also well be more concentrated and we believe lots and all these new things that are in fact stays in favor of their long term growth of the industry cheers.
Thank you.
[noise]. Thank you.
Again, if you wish to ask a question. Please press Star then one.
Our next question comes from at Lucy Lee with Goldman Sachs. Please go ahead.
Hi, This is comes online.
And then you don't panic I'd say I deal with your traditional at Goldman Sachs Canaccord Shannon two questions actually again now.
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The first question is on that.
I could be he and the contribution from I speak of later loans.
I would like to know in the past a quota also how much volume mix contributed by at this channel I know what about a fee rate.
Going forward in the next year or two.
What do we expect I could be.
I could be channel what would bring back in terms of folks for loan volume and the margin.
Then the best Nice and didn't go as expected or what would be down main challenges.
The second question is on that.
The financial statement, yes, two items one is that the interest income on the other one is.
The other income and I like to not.
The may make a reason for the quarterly fluctuations. Thank you.
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All right I'll take your questions about the first question I actually our business with IC PC studies to grow considerably I think so Jim I think it popped a few months or actually we've been focusing in our partnership with I CBC among all yen subsidize the product packaging, though what's your market in China. So you can.
No ticker right has not changed very much over the past the feel a month and the main reason is like I said early on is it mostly non OEM subsidize their product category and full I'd be our partnership with high CBC Youre, you'll also see that in a cost of funding for right. It's relatively now and that lease out say no.
Ex yard and also very stable margin for us so.
You can see that they take a right compared with a with Alitalia I mean, you take a rate of leased part out compared with other types of products. We don't see any significant decrease as he has been very stable and these are this trend has also being reflected in our financial data and in a future income south that Oems that's it.
The product counter calibrate waste that no margin to go no and to undertake because the take rate today's indeed, I know a for Oems subsidize the product and that's we talked before Oh, yes, subsidize the product sale Uni prices relatively high ads b.
Vehicles, a month paragraph margin if of course impacted by these kind of a characteristic of this product category and so that also intend has any Pat I'll now take right. So you can see lots of because of the higher.
A unit price than the in our financial statements those the gross margin on the net profit margin well I stand at the very good level and because you know cost structure or we have a higher level higher levels of fixed costs. So for so we don't really see any negative impact intense outlook Cosmo.
So in terms of on gross margin and also I know I'm working on a net margin up into India, I Cbcs up some OEM subsidize the product category no negative impact.
Joe go how Yoshida lets on one or just analytics or maybe you had that you're seeing some that to me yeah were down the harder and harder time busybodies ours the offshore.
In terms of contribution of our from RBC. Your partnership well if you look at new business metrics and then every three months then it's about 20% to 25% contribution for new business every month. So it took a high so the guidance you got to see go say OEM tissue that Johnny good okay, but that again.
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Major appeal off of your Dan you want to go see good so people do that Johnnie Walker.
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On your second question changes into items in our financial statements first of all our income I didn't come mainly includes yet tax incentive for our look from the government. So it's a kind of a government grant item. That's why we have a quite big changes quarter over quarter [noise].
So do you think already showed up on that you surging ticket you do this you should assume longer proven that you don't know Honolulu JV income from Honda down the English all of the Honda a top goes to digest the balance that took US again, it's going to sounds you do you guys see cheapen shipping that.
The only way you have your dog addresses a wholly owned cenci balance OIBDA Douglas Szeliga, you were woman. So its agenda yours gorgeous punching quarter. You got you could you go popular time, she can cite sungy to changing that the food so im not sure you're not doing.
During the show so doing the hard to go down kinship I should do you consider shoulder washing portadown they've got a.
I mean before Giordano Johnnie Walker He got you show.
And the second mines and interest income while 40 quota actually consists of a two Todd. The first is the bank deposit about 14 million and so you can see lot is relatively stable quarter over quarter and the second part is at 27 million from the payment of a structural products have a a five oh.
And we'll probably if I mean or minerals tracked. So you can see that's why we have with some changes because only the second part.
Sure. Thank you.
Thank you.
You have a follow up question from John side from Morgan Stanley . Please go ahead.
[noise] [noise] Hello, John .
Hi, expires in the consistency of any them that thinking what you're doing it seems like or Charles how when its cost of revenue, which has helped by to shoot kinda parts on judicial who love each I'm not sure. Let's say two years has had on dollar century, we didn't see opposite come on to draw somebody is already made these oh, so they'll come in.
Hi, Jay will mitigate the ability to fund the that's in quality and see tissue.
Sounds good ownership.
20000 tons tick up a whole jungle, how either litigants incumbent sure bound to short term, especially Bahama woman's energy, though it would have I mean the.
Another thing Paul I'm happy to defend it had been its engine, we should be in but been being the dollar has been solid institution.
Good cost control initiatives from a woman's Americans.
When I when I did see the cost of revenue change alumina beauty, Oh, no hidden fees [noise].
And then Benjamin for taking my questions. My questions is about the cost of revenue as a percentage of total revenue. These number decline to Iran. Studies. This person. So you can you.
So just wonder in particular, the commission's repaid two car dealerships or what's the ratio at the moment and I'm up part of the commencement comments on the competition landscape. So on the sector. Obviously the auto sounds is under pressure so in terms of Islam facilitation competitions.
With the.
The competition is getting more intense off.
Or otherwise and Oh, how should we look at these.
Cost efficiencies.
Going forward and then there's also mentioned that off our cost control initiatives is there any more details I'll comment on that thank you.
Sure John went up with only the ones you.
Oh, Joseph Joe take the time go close up sells to take a you've got your go to your goal, but I think people how to kind of on our may have lunch with all things, whether you've got a deserves a cost of revenue.
I'm.
Yeah, I think of Dominion or sorry, the Philadelphia No hard you said it earlier, what's happened to fund are gonna toss the whatsoever.
Inks was what also though you go to find the do it again don't move I, just don't jump variable cost as we prefer the tape and apologize we ought to doing you called out your daughter things you guys. Just how you would you know susana tourism quantum dot genius and user Dodson got to visit Duszynski, rather take a auto financing their journey because she furthering you don't know she says genes and.
Good to jump you call. It was a true yet you see all leading the harmful limited go down Gonna Hunches Youre targeting goes to the you've got a huge on your he or she said.
Well, Jim Blondo, Johnny's, yet <unk> E. G. So you've got your don't machine or John the share a Boeing subaye so to answer that young they.
Just on the giant Eagle can do so that it seems pretty challenging.
The first followed us down the share bulk wish on to go a long time bulk which are you I know they should how does your tone sounds uniform and she says you all material to US is Yamana Jewish Isos, Firstenergy Jones, who need that John These uses Oh Gee you go try you use what I've seen sort of do we charge and they will not without you switching generally to a use of huh.
No findings I wasn't TJ telxon floating on the good for you wanted to go Commission integration can kinda Honda was with other CECO wins, only or Germany, Germany could you were talking we don't want to visit Shinyo Hunches, Jintao qualifies NHS usual, which we shake or did I see the horses, where you would do the whether you are you able to show you what took a SIGA.
Do you come up in the future him to warm up which we shouldn't Jonny Jones, it's always always all ill jump in Virginia, and Atlanta will provide you John the towards June Bucketing farm in a Jonny Jones.
Don't watch on do you guys will.
<unk> was up you also so its indeed I don't do on the commission that down degree in China, I suppose to deal with them and that's really adults you didn't lose on that sort of 1 million got a cost of sales that you got some between leading the charge you took us its own compared on something the job to county.
Well I can I just saw a maturing we thought the cost cells downs are highly bullish.
Labour cost producer woman doing very well modality God send people in core local that's we show the whole body to Prefund the Johnny's your labor cost.
GGR you like a hunches woman due to that and go to in June that you've got two short years, it's all legal fees huh.
Just a younger the Johnny Oklahoma, So sizzle swizzle them you have done that sentence arches. One because you guys or are you end up to go way more buckled David.
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So why not yes, the woman negotiations with our foundation.
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Oh, you saw volumes would have shown on chart going home.
She don't element on God, I think Oh, and got a good wishes real shoulder real time by the Johnson.
Okay. Thank you very much I will take your questions. The first question is about the changes in our cost of sales and intent.
I still is seeing a you know I I want to explain to you why the cost of sales has reduced the overall intense and also I won't talk about you'll have the structure of our cost of sales I stay low cost of revenue as a percentage has said dropped a significant they as you pointed out and we can break it down into too.
But in terms of the cost of revenue. The first one is that variable costs and that did not.
That includes of course, the your commission that we pay attune Adidas and don't have to cat, Yes auto financing. So that is for new car lease Mark is that coming in that mid market segment. We are seeing that much luck fierce competition compare with last yet there are several reasons for this of course, including changing dynamics in the auto market.
Regulatory changes as well as the markets liquidity.
So I don't even if you look carefully you will see lots in the new car market segment. Some internet platforms and also it's more a medium size I play if they actually are accelerating from Lisa market segment of the attorney towards the second hand market on a comp on them. So its market so and that's why.
In the a new car segment, we have seen that competition I left in the previous yes.
A lot of course has helped to maintain the stable level of a commission commissions for dealers and in fact, we are seeing lower commission rate of four deal is because over the fact is I just mentioned and lots yet for example, we often so some market some marketing action styka quarterly or monthly.
Our promotional programs all campaign and Lithia. However, we have seen very few or even know such a marketing initiatives and this trend has a very good a positive impact on our commission rate and that has that contributed to the reduction in cost of sales or revenue and the second to affect a.
The cost structure is the cost of labor cost, we have well labor costs include no underwriting and also loan collection as well that philosophy thing and things that are the big Yeah. We have stepped up our performance management programs for the control of all these labor cost items as well.
Our business grows in fact, we have not seen you know linear increase in now a acumen caused document resources costs as well, that's a headcount and that has a very good impact on the positive impact to the yet the cap that.
The burden.
So and that's why our business grow we out if in fact see more benefit only operating leverage wise. So these are the two reasons why the cost of sales for core business has dropped in the last quarter.
Well, Matt a conduit thoughts on good that's the only a good to go so Tom could you the bill how the two straight years ahead, you don't go to utility onto the to show. So we'll either through goes how would you need Gulf we.
She does the on the go far Scialla are tied to go courts and don't always into higher you got to booking Ziva double Michel machine, that's a good quarter loans or mostly the yield on that into a woman the goal, but so you've got a bigger hospitality.
Marty coaching you have the geography.
And to the market dynamics are changing and we are seeing definitely higher concentration level in the open a hole in coal industry in and that's a three to five yes. So that's one of the market need as Kendall definite stay well be in a very good position to maintain our margin and all net profit as our business growth.
Sure. Thank you.
Thank you.
Once again, if you wish to ask a question. Please press Star then one.
Thanks.
There are no further questions at this time. This does conclude our question and answer session I would like to turn the call back over to management for any closing remarks.
Oh sure John John Toggle that essentially two type off where you are to the Chuck Digital woman. There you go how the yet you guys you I know you're watching tied up with auto equation.
Thank you for joining us today, and I look forward to more discussions with you I would definitely bring you more good news in consulting business performance.
Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.