Q2 2020 Kingsoft Cloud Holdings Ltd Earnings Call
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The Kingsoft cloud Swiss caught up 2020 earnings conference call. At this time like you said offense in listen only mode. Now so to speak this presentation there'll be a question and answer session to ask a question gene to session you need to put aside the number one.
Telephone please be advised that this conference is being recorded today I would now that they had confidence little bit dealers speaker today mystical Shan Investor Relations manager Kingsoft cloud. Thank you. Please go ahead.
Good operator, Hello, everyone and thank you for joining us today can sell call second called her to southern plenty earnings release, what distributing already today and is available on our outlets like I ARCT. Okay. That's why you then they'll come as well as uncle Newswire services on the cold they function. So.
Well, we have all over the old Mr. You're doing well and our sample me sort of identical.
Along we were little business operations and the company highlights followed by Mr. Hill, who will discuss spend that shows and the guidance there will be available to answer elk restaurants. During the two a <unk> session that flows.
Well, we begin I like to remind you that this conference call contains forward looking statements within a meal sections on you want to eat or does that Kirti Exchange Act of 930 fall as a mandate and that as you funded in the U.S., probably Securities Litigation Reform Act of 19 nicely.
These forward looking statements are based upon managements current expectations of current market and operating conditions I relate to events that involve known or unknown risks uncertainties and other factors Oh reach a difficult to predict and my Neil reshot beyond the company's control, which may cost of companies actually.
The performance or achievements to differ materially from dose in the forward looking statements.
Well there information regarding these other risks and uncertainties all factors I included in the company's filings with the U.S. I think you see.
The company does not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise except as required under applicable law. Finally, please note that unless otherwise stated all figures mentioned during this conference call on your own beep.
Now my pleasure to reintroduce hours deal is to really maam. Please go ahead.
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Thank you and thank you all for joining hours sitcom called her to Satcon hearing it's cool during this quarter, we continue to folks down using technological innovations to improve our operational and financial performance.
Gross of China's coal market continue to gain momentum sued by supportive governments policies, the broader digitalization trends and technology development.
According to a I didn't see report publishing in May 2020, the size of China's probably call market. Its expanded it to reach 18 pounds verified feeling U.S. dollar into something 20 up 45.5% year over year.
As a leading independent call. So is applied or we will further solidify our leading position in the industry leveraging the growing demand for closer with it and their trends towards multi cloud deployment will further far south that engine I industries, such as we deal and game and traditional.
Industries, such as public so its financial so it and health care.
With our Korean customers focused and like word to kill expansion, well well position to capture the opportunities in call. So its market.
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Now I'll show you some I'm that across our West Coast, Oh Force touch on the Internet sector. You know caught her overall usage of our public cloud so by existing customers grew steadily in terms of technical innovation. We integrate we are a cake technologies into our recently launch.
Last training solutions.
Leveraging our delivery network and cardiac live streaming technologies or one stop solution quiet, we are video encoding storage distribution and many other assumptions.
Somebody with smart HD technologies, this solution effectively lower bandwidth usage without compromising image quality and resolving significant found these cost savings we have already partner with certain while no last truebeam iPhone to improve their users we out me do experience.
Vision, we released matched me real platform in June it seems like a users actually living experience and provides further suggestions from experienced advisors through.
Through the dashboard customers can evaluate and improve image quality. The platform has been widely used but we do I did he applications.
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We continue to expand our Soho across many sectors in the in Tonight industry, including education and E Commerce.
One stop cloud solutions for E commerce enable customers to access low latency high definition and smooth audio and video. So is this during the six eight in kidney mall. The largest me your online shopping festival in China, We provided Eli capacity and the security solutions to a number of customers include.
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Showing a robust operational control any of their campaigns.
Looking sector, we accelerated business driving much of our cloud as.
How this game platform in June we signed a partnership agreement with me, we interactive entertainment like the exclusives, each ttwocandida gain tiphone at China Mobile. The partnership allows me you grew and us to Kinda index developments around call based games in terms of Fiveg technology.
Distribution channels and other areas.
So Paul will provide otherwise technologies at both past and ask levels.
In addition at originally how 2020 <unk> content delivery conference, our advanced Ash computing technology wind up at Ash Computing platform Awards.
Leveraging fusco of ice network and scheduling management capabilities.
Our ash computing technology provides customers with efficient and stable computing services and has the recognition of customers and the eight apacs CB and industrial lines.
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In relation to financial service sector, we launched dedicated call solutions. They data solutions and distributed database solutions to me that it's just hard station demands in the sector. During the second quarter, we successfully in flight hour glasses that qual system for July downhole Joel commercial.
Thank you.
If you have the bank rapidly deploy cloud solutions to user management and network security management.
Providing the bank with flexibility and scalability that matches the performance of public cloud solutions.
We also entered into a strategic agreement with class shot back a leading bank with a total assets of RMB 3.0 trailing to be a German light, our big data and data base production will be incubated and deploy I sat back.
Now moving to the public sector, we continue to be in lighting that sector and executed our flagship projects.
In March 2020, we collaborate with May Joel you spoke government quantum problem is to kick off the construction of cloud based industrial Internet platform.
In May the secondary note for Jack employees Ivy resolution system launched successfully.
System focused on file applications, including device management.
Hi, Richard applications Big data analytics is collaborating office and the robotics.
Have helping enterprises to transform to intelligent manufacturing.
In addition, we went to this fall to central means.
He is strictly projects in error of artificial intelligence.
Further demonstrating our technology and the service capabilities.
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Two sufficiently need the growing demand for cloud based services, we continue to upgrade our infrastructure in the second quarter, we got approval on the energy consumption attention government for our own data center, the new datacenter and his team is robust and the national a level standards and has.
Capacity of up to 6006 Sandra Rex.
We should will supplement our direct results in Beijing.
Rainfall, we will continue to Fox on public service financial service and house carry industries.
Any enhance our technology and human resources to develop malinda solutions.
We will further optimize our technology and expert has in cloud computing to pull at high quality services to our customers.
And continue to improve operational efficiency to achieve sustainable gross.
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Susan.
I will now has to the call for two hours therefore hurry to go over our financials of the quarter. Thank you.
Thank you layer centennial.
Hello, everyone I will now discuss our financial performance of the second quarter. Please be reminded all the numbers quarter here I RMB. Please also be refer to our earnings release for a detailed financial results.
I would like to highlight a falling three points first of all our previous guidance for the second quarter Ranch from RMB 1.5 billion to RMB 1.54 billion. The total revenues during the quarter coming at the top end of the previous guidance at one point.
535 data RMB, representing an increase of 64.1% year over year, our enterprise cloud service revenue for 246.1 million RMB. Despite the impact of the second wave of the pandemic in June.
Last call service revenue achieved a significant growth over 259.3% on a year over year basis, and a 35.5% our quarter over quarter basis [noise].
Second we generated a positive growth profit for the fourth consecutive quarter and our adjusted gross margin has now improved for eight quarters in a row in particular, the adjusted gross margin increased from an active 1.8% in Q2, 2019% to 5.5% things.
Due to 2020, representing an improvement of 7.3 percentage points.
Third.
Excluding the onetime IPO related expenses, our normalized adjusted EBITDA margin increased from that kept 12.6% in Q2 2019 to an active 1.7% in Q2, two twentytwenty, representing an improvement of 10.9 percentage point.
Adjusted EBITDA margin has now started to improve for eight consecutive quarters.
Despite uncertainties in the market economy, we're pleased to see that we're consistently delivering faster revenue growth than the general public cloud market in China, and a continued to improve the bottom line performance.
As we are achieving great economics of scale it demonstrates our ability to provide a quality services to our customers.
Even in a very challenging market conditions.
Now I will go through the detailed financial results.
Our public cloud service revenue increased by 48.6% year over year to 1.287 billion RMB, although people return to work in the second quarter. The usage of our public cloud customers kept growing the performance of our print customer space remained very strong Anna we expanded.
To online education E commerce, and the remote work verticals.
Enterprise Cloud service revenues accounted for 16% of our total revenue in the second quarter up from 7.3% in the same period of 2019.
Cost of revenue increased by 52.2% year over year to 1.454 billion RMB.
If the cost increased by 31.6% year over year to 978 point Formula RMB.
But as a percentage of total revenue decreased from 79.5% during the Q2 last year to 63.8% in the second quarter. This year.
Depreciation and amortization costs increased by 59.1% year over year to RMB 217.5 million RMB as a percentage of total revenue DNA costs decreased from 14.6% during the same period last year to 14.2% in the second.
Quarter of 2020.
Other cost consist of third party software purchased outsourcing costs on a channel costs associated with both public cloud enterprise cloud as well as other equipment costs in relation to enterprise services. Other costs were 244.9 million RMB and the staffing costs well 13.2.
Miller RMB.
As we continue to improve efficiency of the IP resources, we expect ITC and the DNA cost as a percentage of total revenue will gradually defined.
Our adjusted gross profit was 83.8 million RMB compared with adjusted gross loss of 16.5 million RMB in the same quarter of 2019. The adjusted gross margin began to breakeven from the third quarter of 2019 and now.
Due to improved to 5.5% and the second quarter this year.
Thanks to economic scale and operating leverage we are pleased to see that our profitability improved.
Total operating expenses increased to 511 million RMB up 80.4% from the same period 2019. The increase was mainly due to onetime IPO related share based compensation expenses.
Total share based compensation in operating expenses was 172.1 million RMB, representing a 289.7% increase year over year, our share based compensation help us retain and attract talent.
Excluding the impact of share based compensation operating expenses as a percentage of total revenue continued to decline from 25.6% in Q2 last year to 22.1% of this quarter, our our operational efficiency continue to improve excluding share based compensation adjust.
R&D expenses as a percentage of revenue decline from 13.5% of last year Q2, 212.3% this quarter adjusted selling and marketing expenses as a percentage of revenue decreased from 6.8% for the same period last year to 5.1% this quarter adjusted agenda expand.
This as a percentage of revenue decreased by 5.3% for the same period last year to 4.8% this quarter.
Excluding the onetime IPO related expenses and other non-GAAP adjustments, our normalized adjusted EBITDA reached negative 26.8 million RMB compared with not a 117.6 million RMB in the same period of 2019.
Normalized the adjusted EBITDA margins also improved the sadly roofing active 1.7 battalion seven quarter last year.
From negative 12.6% in the same period of 2019.
As of June Thirtyth 2020, we had cash cash equivalents and the short term investments of 5.76 billion RMB. We will continue to be very prudent in managing capital expenditures and maintaining a healthy balance sheets. During this quarter capital expenditure our 430.
The 2.2 million RMB. In addition were granted 750 million RMB line of credits by a page in commercial bank and other backs.
Moving to our outlook. We're currently expecting net revenue for the third quarter of 2020 to be between 1.67 billion RMB and 1.74 billion RMB, representing a year will be or increase of 67% to 74.
Present.
However, this outlook is based on a car market conditions and the reflect the company's preliminary estimates which are subject to change as we all understand the uncertainties as a result upcoming linking our SKU in effect.
Yes.
This concludes our paramax satisfy our attention now happy to take no question. Operator. Please go ahead.
Thank you.
Gentlemen, I'll begin my question and answer session. If you wish to ask your question. Please press star one telephone and waiting to be announced if you wish to catchy request. Please.
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Once again please.
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So far so toward Doug has your thought on or should you know what does your funding shop I think commencement for taking my question I have a two questions number one is the regarding the second half revenue outlook.
Based on your revenue guidance for third quarter revenue growth rate.
Operator versus the second quarter I'm wondering if the key driver the leading to the acceleration in topline growth second question regarding the development of so called gaming in China.
In your view or what are used to development stage of cloud gaming in China, or what have you done to position yourself in the industry developments in the last week when do you expect.
Commercial commercial ability of a cloud gaming will keep the inflection point in China. Thank you.
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Feeling R&D and we also said some seasonality our revenue growth.
Although quarter on quarter revenue increase we are very consistent during the past our called hurt.
We also see detailed number of last lumpier. The so called out last year it legal base load. So we grow from.
I'm personally low pay into.
Into those are called her next year.
And we believe the up revenue growth will come in well maintain stable quarter over.
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Our revenue growth ameli contribute to cloud market.
Elements and also thanks to our women customer focus and does like Hey, laxity industry focus we believe we can deliver higher than a higher revenue growth. The other players in this industry and for your second question, we believe himself well our.
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However, we think the commercial lives they show their cloud it again it still takes time, we were thinking generally takes six to 18 months to make.
And available to them how plate so Paul Knight you.
Again, we think you Andrew research and view.
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However, the cloud based gaming industry, it's growing from a marketing low base. So the growth rate is why ray fast.
And we think that a big scale all cloud based.
James milled coming up her a longer time I'll say thank you.
Thank you.
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Should we expect some impact from coded on your third quarter guidance.
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Oh for the first question always tended to probably even had no new racking power with the business as we haven't carbon with take probably America business. However, we'll keep now after the last week.
Ah geopolitical issues to see if there will be furthering our potential or see opportunities.
Oh and for the second quarter, we have for the second question, we have talked about.
Last quarter I always think the dynamic has felt good a trend for our online business as people spend more time at home video.
Assumption and E commerce.
It's a wishes to our public clouds.
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Business, there's still some impact on their own business.
Doug Digitalization trend is a huge however, there is some hadn't got answered series secondly, we indeed secondly, how does that make in Beijing Lea County name or some of the project acquire Oh Airfone now we haven't seen meaningful impact all where our.
Nothing this quarter.
Oh, Oh, the macroeconomic trends you see there will be direct impact.
Oh by the pandemic. Thank you.
Thank you.
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Cool so yeah, my two questions that changed and because we also expect around 20 to 30 Hmm tie ins.
Just to two adding a quota but currently identified that how much is actually and the price our life on the public Hall, and which was a change I think the fast girls and the second question is about the multi cloud strategy that we see this I can more popular and how much of that new clients actually.
From the multi cloud.
Not that already using my Ali colleges and Com thoughtful portfolio night, new customer again.
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Thank you can't Alpha question Im happy to address our first regarding the first question about the indeed the print custom strategy were pleased to see though were very robustly continue to execute our premier customer strategy. Although you understand that we are not standing to disclose a number of that can cause and on a quarterly.
Phases phase, our internal management counts, we're happy to see that on.
Year over year basis, as well as on a quarter over quarter basis, the number of the printing Kosmos from both public cloud as well as enterprise cloud has.
Continue to improve and I would say probably in terms of the quantity or maybe the number of and customers is increasing to a kind of probably greater level.
Compared with a number you just mentioned so in addition, when we track our net dollar retention number as well as the attrition number I think there's two important internal KBR to measure how the upper end customer perform on both quarterly and year over year basis has been robust improving as well.
The second question regarding the verticals RC, especially in our prepared remarks, we mentioned that in the public cloud market, we have seen the great potential in the all education.
Remote walk collaboration as well as the different diversified E commerce space in those verticals. These other three major verticals were tracking a new branded customers as well.
So to your second question.
So to your second question regarding the automotive cloud as you know that's a few verticals I just mentioned they had been caught up according very very attractive rate in the past few years as you can expect that many of our customer there have been working with different players in the public health space and that away.
Agent went down as not only were engaging them as a new printing customers, but also we continue to expand our wallet share into those customers, which means that we are one of the multi cloud provider into those printing customers.
And I think especially when you look at upper end customer many of them they already as a top tier clients in their own verticals, which means that technology requirements and that technology. We're communicating the stability data security also pretty high in their own measure. So that's why the multi cloud provider very natural routes for them to resolve.
After technology is standard and deliver the business performance they require.
So I.
I think thats, probably the fuel color for for the question you asked thank you can.
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Yeah.
Thank you.
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Okay.
I will translate by myself I have two questions here. My first question is about the market condition. We noticed some smaller players in the market also started to expand their cloud neither so they.
Well deep putting pressure on pricing.
And what's the GP margin level for our delivery business segment right now in our future strategy on the segment. My second question is a week in regard to be Capex pain or DCH, because we noted the company had planned to do that.
Their self operated I.E. PNG district and also.
You'd you'd be a U.S. and China attention.
We'll be a company change the sell their capex team for this year next year. Thank you.
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Who is now on to occurrences.
Are you able to drive future holder you, though they look toward that I'm sure, we'll generate value robotic closer to analyze what will the youre shooting.
Selling lifestyle, we will travel cocoa Homer's watercolor eliminations were trying to build value should the whole showed up there to come with Hana Motors for Tom could you saw from the people use onto your high sure device. Obviously, it was almost regardless to handle woman the tanker how we're doing the job losses prices on Libbeys our deal.
I hope to other your talks on to that one density the take or leaving the take or someone that this is bill how long this is.
So I'm wondering what I noted that it which in turn that ties into too much nicer, maybe from about a bill.
No Darwin Galante Dougherty.
In the illegal capacity Coleman, who should be comes in and one of the total number to Taiwan Amanda.
Geological honestly to decide ingenuity freedoms in the Isagen showed vertical our capital at all over someone that whole engaging with our London, England, which I know they lets you might decide.
Oh, you sound quite well today, when I don't want a moot Shen behind you retire.
Hello Foods here, though there is only im trying to utilize your THL or.
No sorry, I could be Dol concomitantly for you know has gone through the two major agenda due to wants you to use a Tom with is a couple of would see because on one the human gender Oh, you get on zero can go on the high Miro controller for more.
Until after a whole woman, who desire taper Jimmy one grew by me kind Saudis opened the terms of goodwill. So yes. There are only why value they are well known Q our vertical.
From a year, although there is a fundamentally alter woman to grow.
So you don't seem to be realized you, though is that if you want better part of it will go down Mississippian as to how we loaded Windows Ginger Jones Act on the two women no time will focus on contractual foolish well from a pet Alabama.
Yes.
We have no you some small cloud service providers, there how much their IPO Oh.
However, as you may have already being a topical Oh, Oh cloud service providers of qualified our politicians in terms of the scale warehouse.
As relations.
Luckily impact from the small players in the market and leasing the prior 12 hours again.
Oh, sorry, a stable in the recent years.
For the top cloud service provider. They are they all have considered here for volatility it no listen called hurt and while we're on we have de lever, our alpro profitable profitability improvement as always gathering.
Ill.
And for the second quarter, our opinion, they haven't heard have been quiet for a while and the you asked me I'll sort of though kept for capital expenditure has been.
Albert budget and follow the server.
I mean, how I see a significant impact from the geopolitical issues and the supply chain Oh, we will keep an eye on the policy is to see if there will be further impact Howard isn't it.
In this quarter as they'll probably classes with increased a very fast we house, which it most of our system, we like basketball have.
You can see.
Meaningfully had our financial.
We still delivered results as with schedule.
Thank you.
Next question from your line of L.C. Chang.
Thanks.
That's your question.
Ah Shibani 10, actually hinkle equals today, it's about how would you cannot just you know when she apple facilities.
What's your kind of tweak up sell into that because you can help meet your family history chilling you see our machine tend to come in if I can see how intangible netsol ask pass digital tenant leasing I kind of class sensing content and then just you got from County, you teach the Nick.
No mixtapes, which sounds like how many outlook I think if I can just yet.
Our ticket classless translate.
Thank you mentioned for taking my question and just to follow up on the on in terms of a project categories.
If we look into the us and pass products can management share a little bit more color and to step into the revenue mix change and I'm looking to space. Thank you.
Oh harder to sure I'm hopeful about I put on the work to coding lots in part because it was a copy of abuse, our full year with high school cohort you own a possible too much an attack the Oklahoma in 2014 goes so ships, meaning Michelle.
Oh, sorry, Yeah, Oh. This is about say those European demand do you look at Harvard entrepreneurial going from County, DARBU guarantees what I think you will not come really is a possibility to deal with the you'll note that you talked about on how much you want to on the ground items.
And then which I know you've got Seymour LTT classical popular to Gen 10 at home.
Luckily not below their outside legal for you put them on how you're going to handle tissue COO washer and all.
To further to go on T., though as a core part for the functional lie.
With our cone border and all you could come teachers. Your bonder offer like touches of lighting fuel would be on mogens entre into I'll do that see room on your side to reopen ela on year above what our newly opportunity to cope with handover T. Boone Usher woman. She wants Buena you got computers, which is a party for Isis.
Okay. No. Other hospice is about right now putting the higher together as a copy of the usual him I forgot about Susan.
Oh for that I sent hot so it says if and when codes have different.
T shirt offering internet industry.
As we had mentioned I you know video sectors to me, how a lunch hour VR and a hey technologies also auren coating technology, it's very popular and lastly use power customers.
As we also mentioned that outcomes using has been recognized sped up.
Oh at Alliance City Alliance and our customers for other cats.
Oh the performance is maintained at a normal level they use it keeps increasing but keeping increasing oh absolutely.
That's all other effects it a other sectors.
Yes, I'm not quite fighting to pass and lateral we provide our one stop solution to the petsmart, especially no financial service Secretary and internationally.
Thats very nice sector and help.
The thing they integrate most of our.
That's right technology.
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Got it thank you very much.
Thank you.
Next question is from the line of Gen. One Gen. One of Macquarie. Please go ahead.
Hey, Chris your body's homes just hold it should know will go into those are sold and she will hold should ultimately, though just all juices hotel today as you all at Tds like to go toward huts would you go to the business or thereabout, let's say that holds all parties hopefully.
I don't usually put out a bit satellite those requests.
Has there been done I got the could you go to go so what was your workloads Wallace shirts ago liquidity should hold she does your user <unk> conditions of like how did you see hotel. The didn't do you take off to the gym to those who don't see.
That you could you go to go cover but I know the RFP and also notice I just want to go.
Put up they get your.
This autumn and doubles, what do you put up a little cotwo. So those are you buy job.
I'd also like you you'd be sold them collected all the.
So I can tell you.
You homeless multicore local Yoshida there.
Through the Philadelphia, CBD, though that will well just cadiz when the me.
Okay equal.
Maybe you could type.
No what to do I use.
So thanks management for taking my questions. First question is so we heard the fight else is actually using GDS for their own the sellers.
Do men do management I expect any negative impact from the move all of your largest clients.
Secondly, can management share some colors on Oh, which subsectors is gonna be provide them. Most majority of that you see customers.
You know when your forward. Thanks.
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Oh, we don't see holidays. According to the has it been though I do see the Oh suitable island. The table. So did you drew low 30, 30, but I'd say goodbye.
Trajectories overtime, hopefully that answers I feel good that hunted I do see me and though so you're talking open Guy you called out or do you see the one so typically go what that you're going to focus on there was a medium sized problem with Jane and although it's a woman to.
So just wanted article on external close like second Gen onto his equal I wouldn't be Tigers is going into the other two gokul auto or to the food out and put them on your to do the three was to go from others in our new woman since I may order to trigger to proceed on the new appeal was able to the type of whom I don't know to the future growth.
I heard some good I kind of parties I could not do somebody you go highly dosing cohort the from yeah, I do I should be dominicana. It took us who took on the warm up with a country now we're gonna titanium bouncing up with you on document with the Mcrobie other vehicles to sure about high quality on them because they were kind of in publishing would avail. Two times, we'll talk to us.
Oh for that based on stage.
It has always have their own a energy corporation, they have ransom computing services.
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So there is no a direction.
Operation.
That's as our largest customers we have maintained.
In relation with over a long time and by our second question, we Oh, we haven't disclosed their numbers of customers in different sectors over all sectors have helped deliver good performance.
The number of customer has increased.
Sadly.
Well it is so small numbers the Iwear annual report as.
To sum up there is no significant change in does that hurt that was applications like.
Thank you.
So two questions at this time.
The conference that studies to finish discontinued.
I think I was thinking about Michelle This concludes our conference call you next time.
Hi. This is yes is it adapts to Jeff thank everyone.
[noise]. Thank you ladies and gentlemen. This concludes today's conference call. Thank you for meeting you may now disconnect.
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Mm Hmm.
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