Q2 2022 Cango Inc Earnings Call
Okay.
Good morning, and good evening, everyone welcome to Kengo Incorporated's second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
This call is also being broadcast live on the company's IR website.
Joining us today are Mr value and Lynn Chief Executive Officer, and Mr. Michael Zhang Chief Financial Officer of the company.
Following management's prepared remarks, we will conduct the Q&A session.
Before we begin I refer you to the Safe Harbor statement in the company's earnings release, which also applies to the conference call today as management will make forward looking statements.
That said.
I am now turning the call over to Mr. Jaguar Lynn CEO of Con Tango. Please go ahead Sir.
Okay.
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Earnings call.
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She says she was having shellfish neutral party you on our second quarter, especially May and April knockdown from Shanghai honesty exacerbated the supply chain challenges. Despite a few results are favorable policy.
Demand in the automotive market has remained sluggish due to coffee substantial impact on automotive manufacturing logistics and retail.
As far as heightened risk aversion and weakened consumer confidence.
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Placing these headwinds we achieved total revenues of RMB 289 million in the second quarter of which revenues from our core trading transactions business accounted for 219 million or <unk>, 75.6% of our total revenues revenues from our traditional businesses business lines, including automotive fun.
<unk> seen for sanitation and after market services facilitation totaled 25.1114 million RMB in terms of revenue mix with our business model and of course fighting transaction platform with multiple monetization avenues, it's becoming more and more real time.
Sure I mean whats your own towards her Joe you can tell you. We're trying to go with two you'd go with French artist or change that yes, I'd like to share the progress of our trading platform business traditional business lines in the second quarter.
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It began with the car trading transactions platform business as a one stop platform serving car dealers nationwide kimco is committed to providing safe secure a sustained and consistent end to end professional car trading transaction services for participants in both the upstream and downstream of industry value chain well currency for both government.
Policies, including vehicle purchase tax relief and the promotion campaigns in rural areas because primary with my primary on car purchases supporting surfaces also need to be improved. So ask me truly may cost it was easier for dealers and car purchase is simpler and more enjoyable for consumers, especially at you know what's your market.
Based on transaction scenarios can go addresses the unmet needs of median times most of our students by offering an AR write off services spanning car sourcing cost supply, including cell phone cause warehousing and logistics and car financing and insurance in this way we have not only relieve the stress it says off medium or small sized deals in the lower tier.
In sourcing cars Costa Muslim funds, helping them sell cars faster, but also provide ongoing opportunities for ups and Oems to expand our market coverage to know what's your market by empowering both the upstream and downstream sides of the industry can go how true enables more efficient and effective car transactions in the lower tier market.
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Cities, Yeah, 22 self owned vehicle models. They stayed on our platform, including non carb brands on shelf car series during the second quarter, we sold a total of 2000 and 291 cost including 1300 <unk>.
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It is worth noting that following a debut novel Henkel, how true Wechat mini program at the end of last May we launched the tango, how true apps imaging to provide more powerful platform supports the theaters with Heidi aggregated features malfunction.
The end of June only two weeks after its launch over 1000 dealers had migrated to or have newly registered only.
<unk>, Oh, 30 provinces and municipalities nationwide, excluding tobacco calm town on Taiwan.
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On top of high quality hospitals, as we focus on building user stickiness by standardizing services as well as further strengthening our supply chain servicing and digital capabilities as a result, how latina activity and customer conversion rates on our platform both improved significantly in the second quarter uses DVD activity rates.
By many many 50% Codell wells of course are in the second quarter and dealer activity rate increased by nearly 70% from the previous quarter.
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Usually you know this is all in the first half of 2022 of more than 10000 car Association cartilage injuries. When they stayed on our platform in the second quarter. The average concession rights from our matching service reached the 2% and Rosemont by month in a quarter to four 6% in June compared with the industry average was around two 5%.
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Since the beginning of the year well under great pressure. We also saw a positive development in the industry.
The development of China's automotive market everything, yes, Yoko Ono should has increased significantly and consistently gradually creating the need for pole replacement, which has not to the continuous expansion of the used car market. However, chinas used car market due in the beginning stage, particularly.
In those tier markets, where kimco has a deep presence given these wide gap with the mature markets in Europe and America Chinas used car market is tremendous growth potential at the same time used car.
An important role in boosting new car sales encouraging Ddos digital transformation, I'm quite and expanding that business group.
The more the recent release of favorable policies.
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Two niches for used cars and promote a comprehensive and a healthy development of both the new and used car markets.
Notably no removal of used car Park city transfer restrictions will increase used car supply accelerates used car replacement and advanced the development of a car trading system in time, we expect the union a unified national market for used cars.
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In view of the above plan should market developments and the end of April this year building on our successes in new car transaction facilitation, we expanded our use call matching services. Good progress has been made so far we position kinko's used car business is a smart and reliable service provider current facilitation message.
Used car transactions, such as communications via Wechat groups I reload with problems caused certain messages can be easily borrow readiness, what sort of information a spontaneous communications not always efficient in contrast, kimco has a dedicated team.
On transactions, both online and offline effectively breaking down the information barrier. We also provide product price quotes across different regions to accurate accurate they match supply against demand.
Cindy efficiency of cells. These acquisition and vehicle delivery as of June 30 is 2020 to over 1500 used car dealers have registered on our platform with increasing engagement. We will continue to explore sort of upward and downward alone industrial supply chain to attract more theaters to all.
The platform create a national delivery networks and develop standardized services.
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Going forward well continue to focus on both new and used car trading as well as we improve our platform service capabilities and dealer stickiness, specifically, we will center around standardization of our supply chain services, leveraging technology and big data analytics to provide innovative customized services to dealers on the platform so as to improve.
Taking this healthy growth in a number of register you Adidas on their platform and increasing activity well drive up the conversion rate with the continuous enhancement of our online services capabilities on supply chain service system as well as increasing synergies from our efficient integrated online offline operations I'll also on logistics.
Okay, but it was a bit it is will improve as well and eventually realizing a continuous and self propelling transaction cycle.
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I should also just your parents or you shouldn't lose that opinion by simple photo gotcha horses houses, okay before moving on to our traditional business lines based on our reading of the overall macroeconomic trends, we continue to transition our traditional business lines optimizing our business model and exploring synergies with all car trading business to develop a platform.
Our supply chain capabilities. Eventually can go will transform to an integrated platform model with.
Cool and monetizing through multiple channels, including financing insurance services in the aftermarket services sector rely on our Kendall.
So I'll focus on offering support and services for car transactions insurance service interface. Because he is about to be launched Dino Kengo Ultra Athena third quarter, all free and efficient way for deals to obtaining high quality insurance services will further unlock the potential of our car trading platform apart from that.
We will also develop customized products and services for corporate clients and continue our in depth collaborations with any of your brands to build and aftermarket service ecosystem.
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Four quarters that hiccup here I'm trying to frankly with respect to automotive financing facilitation business and one plus three plus overdue ratios increased quarter over quarter as we proactively scaled back our financing facilitation business, leading to a decline in outstanding loan balance as the denominator becomes smaller.
The overdue ratios right now we expect the overdue ratios to confound us for sometime to come. It is important to note that the new delinquencies have already reached an inflection points with further strengthening of known servicing such as collection. We are confident we can keep the overall would you still in a relatively safe way.
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We have strong expertise in financing facilitation of risk control, giving us a first mover advantage as we pursue our new model, we have not given up financing facilitation business.
By our new strategy of creating a database to transaction platform with multiple monetization avenues, including financing and insurance services, we chose to offer high quality financial services see not to see which will grow to be a key part of our platform supply chain capabilities and monetization.
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We've noted that policy stimuli, such as vehicle purchase tax relief aimed at boosting automotive consumption did not lead immediately a major rebound in them automotive market. Furthermore, uncertainty stemming from supply chain challenges chip shortages coffee research on this and are complex.
Total environment continue to weigh on the market and the automotive industry value chain. Therefore, we redeemed we remain prudent and cautious and we will continue to strengthen risk controls across the board.
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Despite these uncertainties, we remain positive about China, and U V and used car market, China has become the world's largest EV market with any of your penetration rate exceeding 20% in the first half of 2022, having undergone significant growth in production ourselves and easy is undoubtedly a new growth.
From a high quality development of China's automotive industry for Kengo N E vs. I've always been a key component of our business development, we are well positioned to capitalize on the market potential.
Can go how truly an EV penetration rate is already above 50% far above the national average as for youth costume superbowl policies are already being implemented.
All of those first 2022 with the removal of restrictions on used car Park city transfer other than Beijing use cost can be traded nationwide.
Any views on used cars into a new development stage of Fox and large scale growth and benefits from policy initiatives designed to stimulate market activities. We will make ongoing investments in these two areas to elevate our platform's capabilities don't realize all go building.
Tech enabled car trading platform, where we place equal emphasis on new and used car trading and monetizing all financing insurance services through multiple channels.
Jeremy This is Joe here with the CFO Tony.
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Chief Financial Officer, Michael John for a review of the company's financial performance.
Thanks, Joe Hello, everyone and welcome to our second quarter 2020 to 22 earnings call.
Before I started to review our financials. Please note that unless otherwise stated all numbers I RMB terms and all percentage comparisons are on a year over year basis.
During the quarter.
Macro headwinds going away about COVID-19 resurgence across China post ongoing challenges to the domestic auto industry monitor.
I'm also economy related disruptions significantly impede our business.
Resulting in total revenue of $289 2 million in the second quarter.
Our car trading transaction division, which delivered revenue itself.
$218 6 million steel plate.
And essential role in our transformation to a platform model.
Now, let's move onto our cost and expenses during the quarter.
Total operating costs and expenses in the second quarter of 2022, or $643 3 million compared with $933 5 million in the same period 2021.
Cost of revenue in the second quarter of 2022 decreased to $272 7 million.
697, 8 million in the same period 2021.
As a percentage of total revenues cost of revenue in the second quarter of 2022 was 94, 3% compared with 73, 7% in the same period of 2021. The change was primarily due to an increase in car trading transactions share of total revenues.
Car trading transaction normally present, a higher cost revenue ratio, thus push up the overall ratio.
Sales and marketing expenses in the second quarter of 2022 were $41 8 million compared with $60 9 million in the same period of 2021.
As a percentage of total revenues sales and marketing expenses in the second quarter 2022 was 14, 5% compared with six 4% in the same period 2021.
General and administrative expenses in the second quarter of 2022, well $124 7 million compared with $64 7 million in the same period of 2021.
As a percentage of total revenues general and administrative expenses in the second quarter of 2022 was 43, 1% compared with six or 8% in the same period 2021. This change was mainly due to the expenses arising from 12 million class a ordinary shares auction.
Why don't you to the company's chairman, Mr charging down at our CEO , Mick Jagger and late in the second quarter.
These care options are grounded in consideration of Mr. Zhang and Mr. <unk> wrote in guarding kangols profitable profitable investment in the auto.
Provider of new energy passenger vehicles in China.
Research out of expenses in the second quarter 2022 were $12 9 million compared with $15 6 million in the same period of 2021.
Percentage of total revenue research and development expenses in second quarter 2022 was four 4% compared with one 7% in the same period 2021.
Net loss, our risk assurance liabilities in the second quarter of 2022 was $53 1 million compared with $35 9 million in the same period of 2021 net loss on risk assurance liabilities was mainly due to a sequential increase default rates since 221.
2021.
We recorded a loss from operations of $354 1 million in the second quarter of 2022, compared with an income of $13 2 million in the same period of 2021.
Net loss in the second quarter of 2022 was $285 8 million non-GAAP adjusted net loss in the second quarter of 2022 was $189 6 million.
On a per share basis diluted net loss per ads in the second quarter of 2022 was 2.08 and diluted non-GAAP adjusted net loss per ads in the same period. It was $1 38.
Moving onto all about it.
As of June 32002, we had cash and cash equivalents of $1 3 billion compared with $2 1 billion as of March 31st 2022.
As of June 32022, the company had a short term investment of $2 1 billion compared with $1 9 billion as of March 31st 2022.
Looking ahead to.
Third quarter of 2022, we are now predicting our total revenues to be between 350 million and $400 million.
Please note that this forecast reflects our current and preliminary view on market and operational conditions, which are subject to change.
This concludes our prepared remarks, operator, we are now ready to take questions.
Thank you Sir.
We will now begin the question and answer session.
So that's a question you May press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up the handset before pressing the keys.
Suddenly camera question has been addressed and you'd like to withdraw your question. Please press Star then two.
Again. It is star then one to ask a question at this time, we'll just pause momentarily to assemble our roster.
Okay.
The first question, we have will come from selling Wang of Morgan Stanley .
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Morning, I have Sharon from Morgan Stanley I have three questions. The first question is that could you give us more information only indeed only independent App that you mentioned earlier for example, the position of the App and target customer base as well as what kind of services.
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My second question is about car trading transaction business could.
Could you tell us more about the take rates is it has there been any improvement in the taste and the third question is also about car trading transactions casualty transaction business. So what size you would get back to the car trading transaction business to reach.
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Thank you Shannon and I will take your three questions well.
First question first.
<unk> is the foundation of the country's need companies out there is to build a car transaction services platform and represent a comprehensive upgrade of our original Wechat Mini program and the App is a one stop ETB transaction service platform for theaters across the country, providing a secure sustained and consistent supply.
Our services with a powerful thing financial insurance services and other non causal thing supply chain sales management and sales path optimization tools. In addition, the offers a complete set of management tools for the upstream and downstream of the automotive industry train them get them home.
Comprehensive fee empowering dealers and enabling those who partner with kimco to enhance their competitive advantages.
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Just two weeks ago more like 1000 car dealers I mean, Rochester Cardinals have migrated to or have been registered on the up covering 30 provinces and cities nationwide, excluding Tibet, Hong Kong, Macau and Taiwan.
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As a result of our consistent but we have seen continuous improvement in car dealer activity and conversion rates on the platform conversion rates from our matching services have reached four 5% in June well above industry average of two 5%.
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Why is that going and therefore of course will depend on me going on work going forward. In addition to ensuring high quality car supply will further increase our user engagement and stickiness for them because they're standardizing on our services and strengthen our supply chain service and digital capabilities.
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As for your second question on take rate, while so far our car trading transaction business has maintained a gross margin of about 1%.
Our business model features centralized procurement of vehicles from Oems before selling to small and medium sized theaters without any control over the production process. Our gross margin is relatively low our industry peers have also.
You know the around 1%. So we believe this level of course margin will continue for some time.
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And if I'm trying to encourage more dealers to join our platform, we offer sufficient profitability for Adidas to ensure their activity on stickiness with economies of scale, our bargaining power with both upstream and downstream dealers will improve and when that happens all worth margin well well pardon me.
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So the car trading transaction business yourself was a driver, but we've also increased our profit in our matching business as well as revenues from our ancillary financial services such as insurance of this for cell phone call.
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So of course, you know as you all know circle, so you're warm window moved houses Jean corner in that country shattering system, that's really helpful.
As for your third question the size the expected size of all car trading transaction business, while China is the world's largest oh, Tom consumption market with new car sales totaling Continental unit said, yeah, perhaps a used car a market of similar size that would take lower tier cities kangols traditional strong hold as an example.
And this market segments, new car sales exceed 8 million units a year equivalent so the new car sales of Germany Britain, France, and Russia combined I'll go is to capture a considerable market share in a new low tier market.
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Here's though our development plan well in the initial stages.
Pending all the team on a larger scale, we will hone our business model.
In small incremental steps well gradually improving car supply them product services.
Establishing a validating our profitable and replicable business model and its supporting technology based platform and thereafter, we can rollout Sim model rapidly on a national scale. Therefore looking forward over the next five years business scale, well remain well be relatively steady in the first two years with fast expansion. In later, yes, we were.
We'll find you and adjust our business plan based on the progress of our business development.
<unk>.
Thank you.
Yeah.
And next we have Sofia Xu of Goldman Sachs.
Hey, guys you go out and talk to your child, what's are your stronger ones you can attach and Dr. Jack Let me talk.
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Right.
Thank you Sylvia from Goldman Sachs I have three questions. So the first question is could you give us more kind of on the company's plan for the used car business. So could you describe to us the.
Competition dynamics.
Market segment and the second question is could you give us more details on your cost control measure and a surplus.
What about your collaboration with E V O, Yes, I mean, how oh.
Could you tell us more about you know what kind of collaboration so you'll have.
Yes.
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Okay I will take your first question on used car market well. It leaves the AR increase with increasing new car ownership, we see more demand for car replacement and this is becoming more and more evident and lease demand actually will meet to the continuous expansion of the used car.
The more the reason regime. So people go policies, while accelerating the development of the used car market as well. So we are optimistic about the future for used car market, especially in terms of when you piece, we think we see great potential.
But particularly in the lower tier markets.
The 10 men do we say like a treat or the suite, how Chen known so far doesn't change you also told here. It is time to go through the door to phase out you did a system.
However, you know a huge market potential and no strong development prospects always attracts a lot of players into the used car market. So the market is always I'm seeing a very fierce competition.
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I'll also touch all European car towards as the adult use entre wishing Joe for all children told me he built a powerful tool, which enhances Jacobs com.
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During the Lockdown, we thought is to try and be a used car matching surface on our platform.
We have seen good progress so far well.
This call services, we provide combined functions and features for our users and and actually we borrow all expertise from our new car surface platform such as logistics services. So and of course all these services are provided in view of.
Especially with the characteristics of used cars. So we are now trying to expand our business in a car market, both along be up side in the upstream and downstream of the Oh.
And we are expanding our business in a targeted way and right now we are building a dedicated used car trading platform.
And we well with all athletes.
So that's they built a national delivery network offering uniform on standardized services well based on the results. So far are we believe the used car platform actually will be more well be more active than the new car platform.
Oh, great theoretical one to sort of piggyback.
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The second question is on cost control cost control measures well to achieve our.
Should go off building a car trading transaction platform, we have taken.
But downsize our staff and restructure our organization and Inc. We integrate in a company of human resources, so as to maximize our <unk>.
Two our focus on the goal of building and automotive to trading of these platforms.
That's also one month that she tells us that our total cause that.
To the old cloth built or what the total junkie luxury genes in but.
At the same time, we have increased our investment in our I T systems, so as to automate and standardize our operations and reduce our person human resource costs and as well as operating costs.
You want me as I sit down talk to gene will find work with Dzhokhar junk D ruble.
At the same time, we have also taken steps to.
Flatten our funds uses and we have also a lot.
Our payback some knowns, so as to reduce our Napa law for borrowing.
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Jim towards a Bossier well there also.
So it's really just does that touch all of Sudan from Chi Tung awesome to have Peter.
The third question pharma collaboration with and E V O, Yes, well right now our collaboration suite and E V O M path of both new cars and used car market. So.
In the new car Sacramento, we cover new car purchases. Our first operated retail finance collaborations that smelters and insurance services for new cars are for used cars. We are exploring the possibility of a mass procurement of used cars directly from old town Oh, yes.
So what you can totally change or to treat other human doses.
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Walter Pinto surround the human intuition told me he's talking about vendor.
How old you are walking gingerly.
And China has become the world's largest nev market in our first off for this year and you see penetration rate exceeded 70% given our significant growth in both production and sales volumes and UV I E. D's undoubtedly represent a new growth driver for our high quality developments of the China's.
Total industry, who can go AZ has always being nine potent focus for our business development and so fall, Iowa and E V. OEM, Brian partners include Buick Sky worth them, So I don't know.
The new shaft, and Maple Postop geometry, Roy and Sean Pong and modest on a can go home to a platform hanging fees have a penetration rate of over 50% are above the national average.
Once you have a warm winter you should she talked about human European presence under the facility is that charter until cecile woman jumped from there to work with.
We are currently negotiating strategic partnerships with more <unk>, Brian , which we will disclose in due course.
Yeah.
Oh sure sure sure.
Again as a reminder, if you'd like to participate in today's Q&A. Please press Star then one on your Touchtone phone again. It is star then one to ask a question again, we will just pause momentarily.
Tomorrow roster.
Yeah.
Yeah.
Well it appears that we have.
Actually I do apologize I ever want it looks like we I do have an additional question and it comes from Brian left here of Zacks.
Yeah.
Good evening, everyone. Thank you for taking my question.
Yeah like maybe severe got a copy of my notes because she asked pretty much everything I was going to ask but the one thing.
Wondering if maybe you could clear up for me would be the the increase in non current liabilities are on balance sheet.
And.
And then everything else I think I I think I.
And then I guess, if I can.
Correct in assuming that you have roughly $70 million open still on these stock repurchase agreement, okay, but two things I just want to clarify that.
Good.
Oh I see.
Uh huh.
With that I'm going to say that people want to go myself here should we just kind of what does that mean, you know I hope you all went to Lin TV shouldn't put too much out the window that that's you know, what's really going out listen I went through I think Ronny attempt on women's I challenge the team so that when she knows you're going to do that I think there's room for that Appleton data Wednesday, and I'm gonna in juices that bonus yeah sure you sat down with LNG nausea quickly Oh, and then kind of a doctor.
And once we're able to just to say that as you went through it would've called Cowboy Gaucher tend not to go it's difficult to say and I'm going by what my Hershey ease out.
Well, it's a good time, we want to choose jeweler, let's see if what we're telling you we luckily that so far is a technical question.
To our CFO Michael Zhang.
It's usually around that with you.
Our non core liability that you're on the call center tickets, rather Ganesh trigger that you called town shoes, Oh, it's a straight shot.
Telling me, but truly are achievable with al I'll take a current liability.
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Changyou a woman needs to change so that would be the thing that you guys are doing so quite a huge cash at all.
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Yeah.
Thank you Brian for your question. So I'll take your two questions first of all about the increase in the non current liabilities. It is because we recognize the long term tax item on our balance sheet sheets under the heading of non current assets and we thought he tax item will be realized in two to three years' time. So that's my.
In response to your first question. The second question as for the balance of about 71 million worth of AR.
She had repurchase authorization as of June <unk>.
So that is well based on our previous Oh based on last B O D meetings authorization a these are leased.
At least authorization will actually about two minutes by August 26, and so so actually last year last August authorization terminates well terminates.
I'll have terminated by August of this year, so for the full authorization starting from leaf August Andy.
The size of the repurchase program for the first half of 'twenty to 'twenty, two will be about 50 million.
Yes.
Great. Thank you.
Well, we have no further questions at this time I will now hand, the conference back over to management for any closing remarks.
Okay.
Yeah.
How should you thought you want to fill.
Halfway through a tissue and thank you for joining us and disclose these these oney school.
And thank you for your time today again the conference call has now concluded at this time you may disconnect. Your lines. Thank you take care and have a great day everyone.
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