Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and they'll come to you think that's caught up 19, I Didnt earnings conference call. At this time, all participants in listen only mode. After diminishment prepared remarks, there will be acute and east session. Today's conference call is being recorded if you have any objections you may disconnect at this time.
I would now like to tend to call. It didn't see so investor relations tab at the off you think fiscally heat.
Thank you operator, Hello, everyone welcome to use <unk> third quarter 29, Inc. earnings conference call today, <unk> founder and CEO I, just don't ever see affable will discuss our financial results for the third quarter fully in the prepared remark you can gain will be available to out there are questions before we start.
I would like to remind you that or statements that they will contain forward looking statements that would make under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on the <unk> management's current knowledge and assumptions about future events that's evolving.
And then secondly, which could cause actual results to differ materially from our expectations Eugene does not undertake any obligations to update any forward looking statements.
Except as required under applicable more information about the potential risks and uncertainties. Please refer to the company's filings we that with the as easy we that I will now turn the call over two hours the dk. Please.
Thank you are Nancy.
Everyone. Thank you for joined our so called or 2019 earnings Conference call.
I'm pleased to report, Saudi sorry to all the results for this quarter.
Our total revenue increased the bars. So this represents a year over year to RMB 461 million.
Exceeding the high end of our previously guided.
In particular to fee revenue recorder, another robust a year over year gross of 247%.
And it even more encouragingly, our or the just he did not loss narrowed no notable by 40% year over year under 90%.
Hopefully over quarter to RMB 268 million.
Demos treating the results from our strong commitment to control costs, you have operating efficiency and to improve margin profiles.
Looking out over to see business, you pulled or detail. We completed the over Two Q2 020, 3500, all on used car transactions during the quarter, reflecting strong year over year gross up 100 or 7%.
I'm cities and a reduced have adopted a new emission standards, China six starting from July and don't Lo Carb is lower emissions standards to register locally.
We did experis certain impact from this policy change.
Which resulted in a relatively flat quarter over quarter transaction volume.
Despite the impact.
We are very piece did that our unique value proposition and a strong monetize these usability helping to further increase our to see to create to 11.6 from 11.2 in the second quarter and a 7% a year before.
This translated into per unit to revenue.
A wrong RMB 40000 for that sort of quarter.
Oh from about RMB 13000 in the second quarter.
Looking ahead the used car market is typically hard to refined.
As more used car inventory meeting the new emissions tender becomes available on the market.
The sector will gradually that gets to the impact of from policy change.
We are also confident about we will be able to deliver strong sequential and year over year gross for online transaction volume in the upcoming year end to peak season.
Underpinned by.
Our key customer value, we believe our monetization ability. We also got school along the way.
On the front the Refranchising modal front, we continue to to penetrated into lower tier city by extending the interesting now to walk to over 1200 stores, our franchisee contribute to over 35% off total to see transaction volume for this quarter.
Moving onto other to be business, we recorded a transaction volume of over 13000, Thirtys, how they use car from a or b to b auction problem.
Although the volume decline year over year as a result to all the continue shoot two of our strategic focus toward two over to see business.
We slightly increase over to be take rate the to 4.7% in this quarter from 4.5% in the power a year period.
No as one of the most efficient to channels for dealer to source their inventory I repeat would be auction platform will continue to serve as part of our important product and the service offering to our dealer customers.
Before its own pro wise.
Deeper overview of our so called her financial details.
I'd also like to highlight the key area, we have been and we'll continue focus all in order to achieve sustainable gross over the long term.
First.
Well fleet.
Untreated <unk> <unk>.
Executing our strategic Oh, focusing all I used car transaction to drive or other already leading position as all I used car dealer.
We are focused the to maximize our key value proposition for customer reach a national wide selection of used car better price a one stop online for chassis experiments and a high quality professional sales consultant services.
We believe this value would be appreciated.
In the market and a will enable us to stay ahead of the competition.
Which in turn will further enhance our ability to monetize online used car transactions.
Second.
We're committed to continuing to enhance operating efficiency, we have be and we'll continue to.
Streamline our business, our praetors operations across the board.
To highlight a few of our ongoing initiated a view this eris.
In terms of inspection, we continue to improve the inspection to south conversion.
We choose to sell more used car will keeping the number of current use pack to stable or even reduce to some extent.
We have been continuously optimizing the inventory mix inspected and listed on our platform by selecting the inventory, which meets our customers prefer is and has desirable cost the prefers.
For example, we focus more.
He's pack the car, which meet our target price range and up there cater to our customers demographic.
We also prioritize the inspection.
Those.
Which meets a certain price to prefer to performance.
Our turia all freezing action on those which we already have up.
Quite a a enough after you available for the moment.
This mix of a real time inventory essentially getting more exposure and to become more marketable.
Which in turn thieves Arbor inspection result, and to effectively increase productivity.
In terms of fulfillment we.
We are able to continuously enhance logistic a penny as our transaction volume in growing a much larger scale.
Then previously.
With more used car sold and delivered a through our network, we have not only again a stronger bargaining power.
Got it better terms.
When.
Uh huh.
Negotiating with the car shipping company, but also become better positioned to optimize the wrote that to make sure each deliver trucks can be loaded as full as possible for car transportation.
This has effectively lower eyewear per unit to deliver cost.
In terms off of traffic our production.
We continue to optimize our traffic offers action channel mix by allocating more resources to this generating high quality and a more cost effective south leave.
With our he has the sales productivity and expanding the Salesforce is team impose our direct to end the franchisee model.
We are confident about so we will gradually increase the these who sells conversion going forward as we drive a higher the transaction volume without having to invest more in traffic Rpas action that our current level.
Oh those efforts in cost control and efficiency measures contributed to the improved gross margin and a narrow loss.
In this quarter.
With respect to to the near term as we continue to excuse to the execute this top priorities.
We are confident is out to we will be able to drive topline growth improved margin and an error loss as this year concluded.
And with respect to to the long term, we are committed to building the best it doesn't patient for customer to buying used car online China.
We believe it or getting traction from our target customers.
Coupled with our effort to to effect to the Effectivity Mad.
Manager our business.
We all translate into our long term sustainable growth and profitability in the coming years, which in turn will create long term value to our shareholders. We've got I would like to turn the call over to our CFO to go over the financial some cases.
Okay.
Thanks, Okay, Hello, everyone. Thanks for joining us today.
STK highlighted we're very pleased to reported a solid for the quarter building, which over a gross margins for the improved and operating losses.
Differently now.
In addition to the cost control and the efficiency efforts decommission.
We have also streamlined our headquarter related operations such as the odd to me the street, the management and R&D processes by optimizing internal online business management system.
Moving forward proven to cost control and operating efficiency will be a ongoing focus area for us we're confident that.
Our coupled with our superior monetization ability will how to further narrow alber losses towards the end of this year.
I don't think time, we're confident that our businesses while support for the by Albert card cash position first divesting the loan book on patient relative business will significantly lower overcast requirement.
Second we believe over losses will continue.
Sure pursuant to the other stuff invasive agreements, we enter into with Golden Pacer. The working capital associated with you asked about the loan for Colocation business that we had about two thirds and financing partners on behalf of Golden Pacer during the third quarter will be returned to back.
In due course, when the transaction is closed.
For the expects to receive aggregate cash consideration of U.S. $100 million after the closing off the perfection.
All of this will contribute to our cash position and a couple other ways Oliver continuous efforts, who to enhance our monetization capability and operating efficiency. We believe we can buda more sustainable and profitable business over the long run.
Now, let me walk you through our financial details for the third quarter. Please note that the financial impact off the Proposa about future has already been reflected in our third quarter results in all I discussed relative.
To continuing operations only all numbers are you RMB unless otherwise stated also please note that some numbers I referred to you. Our non-GAAP numbers you can find a reconciliation of this number of earnings release.
In the third quarter total revenues increased by 33% to RMB 461 million from RMB 346 million in the prior year period.
The increase was primarily due to the increases in the to see transaction volume CMB Commission rate and the value added take rate.
Drilling down to our business with yours in terms of or to see business.
Total to see revenue was RMB 328 million, representing an increase all the 247% year over year from RMB 94 million in the prior year period.
Oh I used car transaction volume increased by 107% year over year to 23566 units.
And it's cool responding GMB increased by 110% year over year to RMB 2820 8 million.
Moving onto more details commission revenue was RMB 176 million, representing an increase of 193% from RMB 60 million in the same period last year.
Primarily due to the increases in the transaction volume CMV in commission rate.
Benefiting from our stronger value proposition to consumers improve the user experience and higher pricing. However, the commission rate increased to 6.2% from 4.5 person in the same period last year.
Better at a service revenue was RMB 151 million, representing an increase of 342%.
From RMB 34 million in the same period last year, primarily due to the increases in the transaction volume GMB and to be absolutely take rate.
Yeah to create the increased to four or 5.4% from 2.5 person in the same period last year due to our higher pricing power for all by Alber optimized and diversify the services.
In terms of hover to be business.
To be transaction for Colocation revenue was RMB 72 million, representing a decrease of 63% year over year.
Never take rate for to be production facilitation slightly increased to 4.7% from 4.5% in the prior year period.
Cost of revenues increased by 10% year over year to RMB 207 billion.
The increase was primarily due to the increases in the salaries and benefits of employees engaged the car inspection quality control customer service and after sales service.
That's why I ask the increase in the fulfillment costs, which was the corresponding driven by the increase in the transaction volume.
Gross profit increased by 61% to RMB 255 million from RMB 158 million in the prior year period gross margin increased to 55% in this quarter compared to 46% in the prior year period.
Driven by better economy of scale and optimize the cost structure.
Total operating expenses was RMB.
510 million non-GAAP operating expenses, excluding the impact of a share based compensation were RMB 511 million.
Sales and marketing expenses decreased by 26% year over year RMB 330 units. This decline reflects oliver continuous efforts to enhance operating efficiency.
Susan and marketing expenses, excluding the share based compensation expenses.
Off near.
At the percentage of total revenue decreased to 72% during the quarter from 130% in the prior year period.
Jim <unk> expenses decreased by 24% to RMB 126 million.
The decrease was primarily attributable to the pricing of share based compensation expenses.
General expenses, excluding share based compensation expenses was RMB 126 million, representing 27% all the total revenues in the quarter relatively flat compared to the prior year period.
R&D expenses.
Increased by 58% to RMB 54 million.
In the increase was primarily due to the increasing the salaries and employee benefit expenses.
R&D expenses, excluding the impact on the share based compensation expenses was RMB 55 million, representing 12% of total revenues in the quota.
Compared to 10% in the prior year period.
Loss from continuing operation was RMB 253 million a decrease from RMB 490 million in the prior year period.
non-GAAP loss from continuing operations, which if through the impact of share based compensation, which was RMB 254 million a decrease from RMB 418 million in the prior year period.
non-GAAP loss from continuing operations at the percentage of total revenues work what 55%.
Significant decreased from 121 person in the prior year period.
Now loss from continuing operations.
Was RMB 257 million.
Decreased from RMB 500 to some 10 million in the prior year period.
The narrow now loss was primary due to the better economy of scale and the greater operating leverage your January to the from our continuous effort to streamline business operation and the enhanced operating efficiency.
non-GAAP net loss from continuing operations, which exclude the impact of share based compensation was RMB 268 million in a quarter.
Decreased from RMB 445 million unit prior year period.
non-GAAP net loss from continuing operation as a percentage off the total revenue was up 58% decreasing significantly from 129% in the prior year period.
Turning to our cash position as of September Thirtyth, 20 nights, and we had cash cash equivalents RMB 627 million.
Moving onto the guidance.
Factoring the divestiture of our loan facilitation relative to the business to Golden Pacer, we back the total revenue for the fourth quarter of 2019 to be in a range of RMB 540 million to RMB 560 million.
As we focused on cost control and efficiency measures to Butte, a more sustainable and profitable business. Laura will also provide guidance on near term operating profit expectations going forward, we expect a non-GAAP adjusted loss from continuing operations to be.
In a range of RMB 150 million to RMB 100, something new and for the fourth quarter of 29.
This forecast reflects the company's current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks.
Thank you Mr. don't offer that we like to open the call for questions now thank you.
Ladies and gentlemen.
Our next question. Please press star one.
Ladies and gentlemen, and now if you wish they can say yoga class. Please press the pound all heskey.
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The first question comes from the line of Eddie Wong from Morgan Stanley . Please ask your question.
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But oh I have a two questions. The first is about ASP.
So with this starts at the yes.
Oh the to see been is actually has been increased Pos recorders.
So into sort of quarter I think the ASP is almost a richer around the 120 saw the non <unk>, which is almost the same level as a.
In China.
What do think of the trend of <unk>.
The next few years, and how ballast ASP versus the transaction volume and what do you think you know implied.
Can you.
Revenue per units.
Oh level.
And is launching several questions about the competition.
Yes, we have a cheap.
No loss.
You know in this quarter and guidance also implies that for the no loss in the next quarter. So I think you know the overall.
Cross regional.
Transaction business model has been proven so that's why I think.
A major competitors.
So long to disclose region.
Actual business.
Have you have you.
Feud any direct competition.
Competitors.
The thing that similar business.
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Yeah. So our our platform will actually provide a mile married to a price range for cars from austerity fell 30000 R&D to up to one.
So our current yes. He is like you said is around the world 120000, R&D. So I think mainly comes from two reasons that first land.
Regarding to the.
Definitely higher car prices range, it's up more the with tight younger car age or so.
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Sure. Yes. So if we look has a much more market the U.S. like comex all cabana for common their average selling price is about such to solve them. They got daughter for Karbala itself out.
So then the U.S. dollar Buffalo, if one looks had the alarm market in the U.S. the average selling price as about only 10.
10000, a U.S. dollar well. So this is quite similar to tie to a market condition. So oh, we feel very encouraged as that.
Well I'm very encouraged by our current asked me because Oh wait we can't sell all like 5000, R&D yours higher or a 100 attendees tightly salvage just talk about the talking card is quite similar regarding the Bakken hot or Delevering.
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The while we are all the other the all current focus as more to maximize our rather fail and a healthy and sustainable profitability about comes along with its hot probably rather.
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On the warm Debbie I know you book, where you see some even this usually like to show our shell pool done fusion wouldn't leave side enjoy done with them, John who should that I cushioning me, but yeah. Yeah. So our revenue per units valley increased its actually as evidence of consumer to wrap up the nation about our values brought by all the Ali.
Okay. That's all part of offering so we will drive the volume by compromising per unit profitability is bad weather aside the bottom relative as we continue to you have our allies used car collection services and the more consumers naturally I will be attracted to buy cars online from out.
We believe this will have to reach a sustainable profit probability in the longer.
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Observed Sam on here in the market I covering all.
Our allies hard time, that's a model at takes a lot. So this is actually a slot. So that's the way did the right thing two years ago to choose a such benefits.
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So we believe all else car collections is definitely definitely the field trips and so we believe.
The market is still a little ocean market.
Sure enough to have a second player.
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Hi, fire smoking a company's ability to organize operate under managed the business in a highly efficient manner. So under the abilities to provide high quality customer services as well as to operate a highly efficient and stable right. So I look for a first mover in the market we have assumed.
It's a matter of know how I'm expertise and up due to strong competitive advantage. It here so were very confident to windows combinations.
Hi, this is here today to.
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[noise]. Thank you. Your next question comes from the line all from going up Gill from Goldman Sachs. Please ask your question.
Thank you.
CK, Michael and Nancy so.
Two questions and then also translates into Chinese, especially it's on the industry as you mentioned the a global portfolio that.
Has impacted sort of in the industry growth. This year not only new caused also used car you see any signs of this fall something or do we built what load this impacts to kind of drag on for a few more quarters, they've always see any potential uptick and within that the growth in this quarter can you share just how the lower tier city growth has been.
This is high tier city, so let's see how growth has been trending for these markets particular, you mentioned about this rail.
Volumes from the franchisees and my second question would be given that the a golden pace or restructuring is mostly behind us and you should just how the current management team Dk and that's a feel how are you spending your your latest focus in time into with the finest this is no no it's not long.
So with the group.
What are you focusing on in certainly in the in the cost side.
And end user experience is going ahead.
The management team.
Is doing it in the latest a.
Restructured.
So entity no no a phase out and Ah Ah. So do you guys on he's not going into the holiday in he took over 1 million sell a senior end up seeing Toyota Gainesville, Oh. So could you just don't sell those who the seventies element to the Hong it's also to like [laughter], So take the whole Glenda.
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Yeah, so when we see that you'll Carmarthen, it's exciting and it's working now so the used car market also to some ahead.
For the used car market specifically.
Slow the growth rate, it's up slowly mainly because of two reasons why it's Alex is that is a really nice and staggered adopted it you know if the rate is like kind of south Georgia. Power's also they are outbound don't province, so far it's affected about 75% of our so theres a lot.
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Market will be picking up show up mostly because there will be more used car inventory, making venue emission standard will be available on the market.
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On your automakers, passing a couple via a new car prices to boot sales. So this will put some short term pressure over the used car market because it's a fact about price to publish a lot of the guest house.
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Oh, I think the new carpet price cuts has already.
Bottom to some sense. So the impact from you come back is it will be minimizing overtime over into next year.
They're not piece in terms of the true you only on say Q son, who are keeping contribution box featured on you mean women's conventional real when it comes out that goes into Im sure for these engines should those should say.
To me that would you know machines and a decent who should I would tell you don't elements on keep him. This this oil.
So that's how that's a lot of our passable.
From the lowest fare Cds in Q3 was basically flat to our Q2 level about 40% of all our total volume I look relatively between high tier cities and electric power platform also are pretty similar.
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Analytics to improve our humans the mix available on Apple So to talk at the most fiscal humans Ray we can actually downsized the number of car basket. So you can see this year. We actually is back is less parts of that lucky, but the collecting a lot of it's actually quite higher than last year.
So this will help us to reduce the per unit.
I can copy and though we can also help consumers to back out either identified the better price to flow performance cars are Pavel.
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Yes, so that can actually I would take is oh, we have the customer satisfaction in terms of about fulfillment such has about 10 minutes up delivery and that the consistency of by the car condition between consumer see the video is back to import all right under the actual car they see when they seem to.
So they will Chris does that this action actually help.
Lower our heart rate currently is that.
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Yeah, so buying cars Elias about creating a very new way so our sales consultant.
To be fully prepared to convert the consumer to buy cars online. So we're also upgraded our CRM system by leveraging the.
Technology. So we have badger recommend the cars through our secured and Ah. We also build out they are very high how do you faced effective dose consultant. So this is based on two you have the professionalism of our if those reps. So this will also you have our customer satisfaction under the color right.
Yes.
Now to what you're going to hold onto should that Julie the Houston woman, though will lead Oh no limit that you don't want a museum in a woman hinged upon your level of venture will Kevin if I'm not sure dominant as I mentioned, we will do not basket golar content wouldn't that John mentioned that doesn't which I mean I don't have notion.
Good how will the autonomy to Gulf if I'm increased Giambi can you just don't hold me with the.
The microphone in Atlanta, Qumu will show the institution woman the single able to some national yes. So therefore for area is that all logistics. So we optimize our logistics planning by upgrading the former too hard logistics to third party logistics, a we created a portion of the main.
Right that the Brotherhood. So currently the major accounts for about 60% of our total logistic services.
So it will effectively lowered the per unit elaborate talk and also.
We increased the full load the rate.
And also make sure that car can be delivered to the consumer stuff. That's a that's possible yeah, you know how many men.
Oh, so as you sit here and.
You guys here every day.
Thank you once again, if you wish to ask question. Please press star one I just had a fun and what's your name and house.
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Cash.
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Thats management for taking my questions.
Question.
[noise] users.
Acceptance.
Online car patches without without seeing the cards offline.
There any user metrics that could be shared.
Second question is on the cash position, how much receivables have from Golden pacing for Q.
Given the half made some deposits on behalf of.
And also what what's our plan on the use of cash together with the 100 million U.S.C. proceeds from the transaction. Thank you.
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You mean thanked him go traditionally you go to utilize retention, though you don't go to function none of that out I think a c. wonder I you know I show, you, Jim who equal shoe the Giuliano shoes about whom to go to the secret. She would you do I know machines are using doesn't go through.
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Good to see utilization are you going to she's its wootton. Good Jinyan you deal Tivo, showing how visual options element pool. That's you know what's actually in Lycoming no material young as you know you assuming thanks, you engines or how should you be will be encino, yeah. So it's true that still there are many consumer.
Go offline to catch the car I'm by the car Oh, well buy cars online is a totally new experience for consumers. So it will take some time for consumers to a ship there they're shopping habits thought Oh, what we do see is out there I increasing.
Number of block consumer buying cars online from here. So this year well is that a 100000.
I like how collections from our platform. So we post to the same number of consumers actually sat there that well.
Let me shows into him go to keeping should turn girl Hum years, not sure you mean facing go to the Yoshida San geometrical because either.
The not tell me that they can take a gold mine introduction to Oh, Gee by though Boise and how they finish out now you may tool use it doesn't go to eliminate them and yeah. I know you should it according to them, but nobody in the mortgage salvage about that I look a little jackup, a whole new which on a five countries had you not blueshirt warming you've done stirred up beautiful.
Cool My if you don't really nice you should not be put on the giant should you. If he can cope with that and the trend pulling up eagle here.
So quite hard to online is that mostly the filter trend a show up by its hard to all I also have the no comparable to the mortgages offer over probably also so we can provide a much wider collection of used cars from nationwide and also because we don't have all fixed huh.
Oh, Bob Oh glass doors that we can offer better prices still consumers. So we are able to also provide a one stop solution a align to consumers, which cannot be providing to buy the offline stores. So the convenience we can dealers with consumer also Uh huh.
Paul.
Okay. Thanks actually I'll address your second quick question, sorry, hi, more likely to Oh give you. The overall cash position off of our current theaters. So I think over business is well supported by over current cash position.
First of all divesting the alone facilitation business has significantly lower our cash requirements.
We no longer need to put cash deposit as restricted cash with the financing partner or buybacks is defaulted loans. So both well lift to the pressure Oliver working capital. So second is say, we'd also loan facilitation business under the Lisko, our bottom line will be reasonable.
Oh indicator of our cash flow performance.
We continue to take cost control matter and the enhanced efficiency. We believe we can keep now rain due to losses and minimizing the cash outflow in this sense.
And address your question per the definitely have agreements we enter into Wisco wouldn't pacer. This quarter, we yeah, we view it as some working capital associated with the other divestiture. After the transaction is closed.
A portion of the cash will be returned back to us in due course.
A lot. We also expect to receive a aggregated cash consideration of U.S.
Well hunger.
The only in US dollars are associated with the Divesture after the closing.
So collectively all of this will contribute to our cash position again with our focus on that he hasn't.
Monetization ability and operating efficiency, we believe all well contribute to over long term sustainable gross.
Thank you Ashley.
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Thank you.
You have raised and off question I, just fashion I would now like the head the conference that did not see for closing remarks.
Thank you everyone for joining todays fall and apply a continuous affordable usually I look forward to listen to you again in the near future. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.