51Talk Online Education Group

Hello, ladies and gentlemen. Thank you for standing by for China Online Education Group's first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Judy Piao, Investor Relations for the company. Please go ahead, Judy.

Thank you. Hello, everyone, and welcome to the first quarter 2020 earnings conference call of China Online Education Group, also known as Fanwenhawk. The company's results were issued via Newswire services earlier today and are posted online. You can download the earnings press release and sign up for the company's distribution list by visiting the IR section of its website at ir.51talk.com. Mr. Jack Huang, our CEO, and Mr. Min Xu, our CFO, will begin with some prepared remarks. Following the prepared remarks, Mr. Li Min Zhang, our COO, will also join the call for our Q&A session. Before we continue, please note that today's discussion will contain forward-looking statements. made under safe harbor provision of the U.S. Private Security Replication Reform Act of 1995. Forward-looking statements involved inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding this and other results and uncertainties is included in the Company's Form 20-F and other public filings as filed with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that File 1 Talk's earnings specialist And this conference call includes discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Five on Top's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Jack Huang. Please go ahead.

Hello everyone, thank you very much for joining our earnings call today. We started 2020 with a strong 52.2% year-over-year growth in net revenues, 10% points higher than the growth rate implied by the high end of our guidance. In particular, K-12 one-on-one mass market net revenues increased 77% year-over-year to 404 million RMB. This performance was driven by, one, our continued strategic focus and successful execution of our K-12 one-on-one mass market offerings in non-tier-one cities. students taking more lessons at home during the COVID-19 outbreak. And three, an increasing awareness of both our brand and online education. Benefiting from these factors, our growth buildings grew sequentially to 597 million RMB. This growth was even more impressive in that it came versus our fourth quarter peak season. Our K-12 one-on-one mass market growth billings increased 45% year-over-year to R&D $564 million, reaching 94% of our total growth billings. Our first quarter active students increased to 286,000 from 257,000 for the last quarter, up 11% sequentially. During the virus outbreak, aside from giving out free online classes and one-on-one English lessons to K-12 students in Wuhan, and other impacted regions in China, as we previously announced. We also gave the medical supplies to the Philippines in an effort to contribute to the country's pandemic recovery efforts. Our employees, especially those in Wuhan, overcame many challenges arising from COVID-19 outbreaks. In the first quarter of 2020, almost all of our colleagues in Wuhan worked from home, while only about half of the colleagues in other regions could come to the company office. I am very proud of our employees who have made extraordinary efforts to help students maintain their study continuity through the outbreak. With these efforts, we were able to largely preserve productivity and operational efficiencies during the lockdown period. We worked closely with our Filipino teachers to ensure they could conduct classes effectively at home to meet the rising demand of our students, promoting further integration of the educational resources of China and the Philippines. These These unprecedented times have further highlighted and reinforced both the value and the natural progression of online education in China. We have seen increasing penetration of online education in non-tier 1 cities due to the COVID-19 outbreak. These, together with our strong performance in the first quarter, provide us even further confidence in our chosen pathway to sustain top-line growth and profitability, especially as we further fine-tune our products and services and continue to enhance our core business focus on K-12 one-on-one mass market offerings in non-tier-one cities. With that, I will now turn the call over to Jimmy.

Thank you, Jack. Hello, everyone. Solid first quarter financial and operating performance helped us begin 2020 on a positive note. In addition to robust growth in net revenues and growth billings, we reported another profitable quarter with non-GAAP net income of 57 million RMB, excluding the 16.9 million RMB favorable impact from the coronavirus-related relief policies, our non-GAAP net margin would have been 8.2%, compared with non-GAAP net margin of negative 19.5% for the same period last year. The improvement was due to higher lesson consumption and operating efficiency gains during the quarter. Additionally, we achieved record high operating cash flow of 172.7 million RMB to keep the company on track for sustainable growth and profitability. We have been proactively adapting our operational strategy. This has allowed us to minimize the potential business impact caused by the COVID-19 outbreak and maintain high efficiency at all levels, ultimately elevating our brand recognition as a leading and dependable online education platform in China. Now let me walk you through our first quarter financial details. Net revenues for the first quarter were 487.1 billion RMB, a 52.2% increase from 320.1 billion RMB for the same quarter last year. The increase was attributed to an increase in the number of active students as well as an increase in average revenue per active student. The number of active students in the first quarter was 287,000 a 26% increase from 227,000 for the same quarter last year. The average revenue per active student in the quarter increased by 20.7% year-over-year. Gross profit for the first quarter was 343.1 million RMB, a 60% increase from 214.3 million RMB for the same quarter last year. Gross margin for the first quarter was 70.4% compared with 67% for the same quarter last year. One-on-one offering gross margin for the first quarter was 71.2% compared with 69% for the same quarter last year. The margin expansion was mainly attributable to price increases. Five One Talk's small class offering gross margin for the first quarter was 54% compared with 45.7% for the first quarter of 2019. Total operating expenses for the first quarter were 314.9 million RMB, a 13.2% increase from 278.1 million RMB for the same quarter last year. Sales and marketing expenses for the first quarter were 228.4 million RMB, a 22.6% increase from 186.3 million RMB for the same quarter last year. Excluding share-based compensation expenses, non-GAAP sales and marketing expenses for the first quarter were 226.1 million RMB, a 21.5% increase from 186 million RMB for the same quarter last year. Non-GAAP sales and marketing expenses, excluding branding expenses, were 32.3% of the gross billing for the first quarter, compared with 34% for the same quarter last year. Product development expenses for the first quarter were 35.9 million RMB, a 11.9% decrease from 40.7 million RMB for the same quarter last year, excluding share-based compensation expenses. Non-GAAP product development expenses for the first quarter were 36 million RMB, a 10.4 percent decrease from 40.1 million RMB for the same quarter last year. G&A expenses for the first quarter were 50.7 million RMB, a 0.9 percent decrease from 51.2 million RMB for the same quarter last year. Excluding share-based compensation expenses, non-GAAP G&A expenses for the first quarter were 46.7 million RMB, a 3.0 percent decrease from 48.1 million RMB for the same quarter last year. In this quarter's income statement, we added other income line above the operating income. Other income for the first quarter was 16.8 million RMB, which included 10.3 million RMB VAT exemption and the 6.5 million RMB Super deduction. Operating income for the first quarter was 44.9 million RMB compared with operating loss of 63.8 million RMB for the same quarter last year. Non-GAAP operating income for the first quarter was 51.1 million RMB compared with non-GAAP operating loss of 59.9 million RMB for the same quarter last year. Excluding 16.9 million RMB positive impact from the coronavirus related relief policies, non-GAAP operating income for the quarter would have been 34.2 million RMB representing 7.0% non-GAAP operating margin. Net income for the first quarter was 50.8 million RMB compared with a net loss of 66.2 million RMB for the same quarter last year. Non-GAAP net income for the first quarter was 57 million RMB compared with a non-GAAP net loss of 62.4 million RMB for the same quarter last year. Exclusively favorable impact of 16.9 million RMB from the coronavirus-related relief policies Non-GAAP net income for the first quarter would have been 40.1 million RMB, representing 8.2% net margin. Diluted EPS for the first quarter was 2.26 RMB, compared with EPS of negative 3.25 RMB for the same quarter last year. Each of our ADS represents 15 Class A ordinary shares. Non-GAAP diluted EPS for the first quarter was 2.54 RMB, compared with EPS of negative 3.06 RMB for the same quarter last year. As of March 31, 2020, the company has total cash, cash equivalent, time deposits, and short-term investments of 1.21 billion RMB, compared with 1.05 billion RMB as of December 31, 2019. The company had advances from students of 2.26 million RMB as of March 31st, 2020 compared with 2.19 billion RMB as of December 31st, 2019. Now let's talk about outlook. We cannot predict whether the coronavirus related impact we're experiencing in the first quarter will continue or to what extent during the remainder of 2020. However, based on the latest information available, we currently expect Q2 net revenues to be between 460 million to 470 million RMB, which would represent 30.5% to 33.3% year-over-year growth from 352.6 million RMB for the same quarter last year. The above outlook is based on the current market condition and reflects the company's current and preliminary estimates of marketing and operating conditions and customer demand, which are all subject to change. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you withdraw your question, press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will please pause to assemble the roster. And the first question comes from Vincent Yu with Needham & Company.

Thank you, management. Thank you for taking my question. My first question is, one, have we seen any changes in class-taking behavior, especially for these new students we gained in first quarter as more schools have reopened and students have to not only go to school but also take classes after normal class time and in the weekends? My second question is what kind of initiatives or methods we are going to take to maximize the students we gain in our first quarter on our platform going forward. Thank you.

Okay, thank you. Let me answer the first question first. Then I can briefly talk about the activity of these students in April and May. First of all, from April and May, the average number of students will definitely be lower than February and March, when the epidemic is at its peak. But we saw that the same period as last year, We believe that from now on, we are very confident that the new users we acquired in the first quarter of Q1 will be as active as the users we acquired in other quarters. Here, we can also share that in the past, in terms of the activity of the users, Actually, we can see that we will check a very important indicator internally, which is called the actual class consumption of the students who are active in the quarter. So the actual number of active students in this quarter, in fact, before the epidemic, in the fourth quarter of 2019, compared to the fourth quarter of 2018, we have an average growth. Because each active student has a growth of about 8%. So during the Q1 of 2020, the activity rate has increased by about 30%. In fact, we believe that in 2020, we will still see these active students, even without the epidemic, their activity is very high.

Okay, so thank you for the question. So let's briefly talk about the general trends of student engagement we see in April and May. So number one, the lesson consumption per active student in Q2 obviously will be lower than Q1, but is still much higher than previous quarters. We are also very confident that new students we acquired in Q1 will be as active as any new students acquired in previous quarters. Also, we track one very important metrics, which is the lessons taken by our quarterly active students. And what we see, this number, you know, in the previous quarter, actually in Q4, has grown year over year by 8%. And in Q1, that growth has surged to 30 percent. So, you know, obviously in the future quarters, the growth of that matrix will not be as high as 30 percent, but it will certainly, you know, be probably, you know, be above the previous we mentioned 8 percent level.

The improvement of the average number of active students is one of the reasons why we value this kind of indicator, because we believe that in English learning, there is a very important theory in the field of second language learning, that is, the key to learning English is the frequency of actual contact with this language. So this frequency is actually a very important indicator related to results. So the reason why we believe it is very important to improve the lesson consumption of our students is that we believe

The key to study a language is actually the frequency you practice that language. That's why we put a lot of emphasis on encouraging our students to take more lessons and to practice more. We believe that the lesson consumption of our students is actually double the lesson consumption of our peers who are mainly focused on using North American teachers. Hey Vincent, can you repeat your second question?

Okay, my second question is actually similar to something you have already mentioned, basically asking how can we maintain these students on our platform. I think you mentioned sound frequency, yeah.

Yeah. Yeah. Yeah. Yeah. Yeah. We spent a lot of effort to improve our service and the overall service system of our assistant teachers. All of these will help us a lot, including the dynamic course system that we launched last year in the first class in the industry. All of these will help us to improve the activity of our students.

Okay, so in addition to what we have mentioned to improve the engagement of our students, in the past year we have actually done a lot of projects trying to improve the students' learning experience on our platform. For example, we're trying to improve the ratings the students are doing for our teachers. We're improving the QA system for both the teachers and also our service people. We're trying to find ways to further improve our services. And also, we came up with, we actually kind of shipped our dynamic courses that's very interactive, that's H5 based, which can really attract a lot of our younger age students. So we're doing all this to improve their learning experience and to improve our customer satisfaction.

Okay, thank you. Thank you, Vince.

Thank you. And the next question comes from Fang Zhang with Benchmark.

Hey, Jack. Hey, Paul. Hey, congrats on a very strong quarter. My question is actually regarding your sales marketing, I think, efficiency. I think, Jack, you mentioned that the strong performance in first quarter was largely driven by an accommodation of lower tier penetration plus a strengthened branding. I just wonder, just given the current strong user and traffic profile, what is any strategic shift in terms of where you spend your marketing dollar? What is the further on the new user acquisition or incrementally more orienting the current user that's going to your platform? How should we think about the efficiency down the road, whether for the rest of the year or like in the long term? And also any commentary around your strong probability in the first quarter, how should we look at the probability profile for the rest of the year?

OK, thank you. I can quickly answer your question. First of all, the proportion of new graduate students from non-tier 1 cities in this quarter should be the highest in the past few quarters, which is about 75%. In fact, this is a very important strategy in the past two to three years. Everyone knows that we focus on non-one-line cities. The reason why we focus on non-one-line cities is that the cost of acquisition of customers from non-one-line cities is lower, and the willingness of the user to reintroduce is stronger. We even see that the whole retention will be better.

So for your first question, this quarter, the new students we acquired from Our non-tier one city actually is getting to a very high level, close to 75%. In the past two to three years, we have consistently focused on the non-tier one city. One of the key reasons we focus on that market is that the customer acquisition cost for that market is actually relatively low. And the customers in that market, you know, have a strong, you know, intention to refer new students, refer their friends to our platform. And they also have better retention. So that is why we continue to focus on the non-tier one cities. And that actually is one of the crucial factors that leads to higher sales and marketing efficiencies.

uh uh On the one hand, it is because our students' engagement is increasing. This is what I just mentioned. On the other hand, we will also see more students coming from Non-Tier One City, which will also increase their ability to transfer. On the other hand, I would like to add that in the first quarter, generally speaking, our brand ads are posted in the first quarter and the third quarter of each year. So in the first quarter, we also have some of our normal brand ads posted. So in the first quarter, from the brand,

So in terms of our customer acquisition channels, number one, the referral percentage of our new students actually is close to 65%. This is due to the better student engagement, and also we're focusing more on non-tier one cities, so people are more willing to refer their friends to our platforms. And the second, the Q1 and Q3 are typical quarters that we will spend more on branding. So we're seeing more students coming to our platform because of our TV ads and other ads.

Finally, I would like to talk about the growth of Profitability in 2020. In the first quarter of this year, we achieved a large-scale profit. This is also the second quarter of our company. The second consecutive quarter of our company achieved a total non-GAAP profit. This is also our company's one-to-one business for three consecutive quarters.

Q1 is our second profitable quarter and also the third profitable quarter for our one-on-one business. This is the first quarter we achieved more than 10 million profit. And so we're confident that we will continue to be profitable for the rest of the quarters in 2020.

那么除了就是non-GAAP的利润之外呢,我们在第一季度呢还获得了1.73亿的这个正向的经营性的现金流。 这也是我们继去年全年吧,我们大概将近4亿的正向现金流之后呢,我们 So besides the net income, we also achieved quite impressive operating cash flow of $173 million.

And so that's after a strong operating cash flow of close to 400 million in 2019. And so looking forward to 2020, we should see, you know, a quite nice growth from that 2019 number.

We would like to share with you our strategy for future profits and growth. First of all, at this stage, we have no intention of pursuing a high profit rate. So for us this year, our goal is a small profit. So we will be more willing to put our focus on getting more positive cash flow and faster user numbers.

I also want to take this chance to share our strategy and our view on the balance between probability and growth. It is our company's view that our strategy is to maintain a very small profit and we will put the excess profit back into product development, GNA, and sales marketing to drive further growth. to generate more new students and to attract more students to our platform. It is also very important for us to maintain a strong operating cash flow.

Because we think, as we have said before, because indeed we see that after this epidemic, it actually greatly promoted, objectively promoted the entire online education in low-end cities. So our strategy is to quickly grow in low-end cities. So we think this will be a good opportunity to acquire a larger market share. So we will increase the number of users this year. ah, Our entire one-to-one, our entire one-to-one business's new users, compared to the new paid users, the new paid users of this positive price, compared to the same period last year, then it is about a 41% growth year-to-year, and the season-to-season is about a 21% season-to-season growth. If we look at our K-12 Philippine Foreign Trade 1-to-1 business, then our annual growth is 49%. Our G-to-G growth is 30%. So this is a very big growth compared to the previous quarter. And we estimate that this user growth rate may continue in the second quarter. And we hope that in the future, we can further improve

So, you know, it is the coronavirus lockdown actually really kind of improved the online education penetration in the non-tier one cities. and we take this as an opportunity to really expand our market share. So our focus will be increasing the number of students. So if we look at our one-on-one business, our one-on-one business new paying students actually grew 41% year over year and 21% quarter over quarter in Q1. And if we look further, deeper into our core business of K-12 101 mass market new paying students, the number actually grew 49% year over year and 30% quarter over quarter in Q1. So this is a very strong growth in terms of new paying students number and we hope this trend will continue and we look forward to attracting more students to our platform and gaining more market share.

Thank you. And the next question comes from Beaupier with Oppenheimer.

Good evening, Manager Chen. Thank you for the question. And I think there are two questions. The first question is about our summer vacation. Now there are a lot of places that have announced that they may postpone it. And then we should, according to the current data and the current situation of some students' registration, how should we look at the impact of the summer vacation? The second is, due to the impact of the pandemic and the post-pandemic era, is our current marketing strategy to increase the market share rate as soon as possible, or do we take this advantage to improve our profits? So I'm going to translate myself. So my first question is about some of the regions in China already announced the summer break will be delayed for this year, and then what is our opinion on the impact to our business? My second question is about after this COVID-19 impact, are we going to focus on gaining market share with a relatively more aggressive sales and marketing spending, or we take this advantage to improve our profitability? Thanks.

OK, thank you. Let me answer your first question, which is about the summer holidays. Based on the policies announced by local governments, many places say that the summer holidays will be in mid-June, and some places say that it will be at the end of July. In fact, this is better than what we originally predicted. Then we we think that this year's summer vacation will certainly be a little weaker than the previous year, but This is because we do not have other traditional K12 hardware companies in this season. So we have confidence in these customers of Q3 this year. Because as we just said, we are now Okay, so many regions have announced that they're going to start the summer break around mid-July, and some regions announced that they will start the summer end of July.

This is already better than our previous expectations. We do understand this means that the summer of 2020 will be softer than previous years, but we're very different from other large class size or more test focused education companies. And our lesson consumption is actually not much different. And also, as we mentioned before, we already have better engagement from our students. So we believe even though the summer break could be shortened and lead to softer demands, but we believe Our strong new students, new paying students number as well as the improved student engagement, you know, will more than compensate the potential negative impact.

好,那么回答您的第二个问题,我们这个,我们在接下来呢,会首先呢,我们会这个优先于去扩大我们的市场份额。 Because the reason is what I just said. The first is that we think that after the epidemic, the market of online education will accelerate in low-end cities. In addition, we believe that this trend will allow the headquarter to get a chance to grow quickly. We, We Are Talk, have been in this field for nine years. Today is our ninth year. As one of the most well-known brands in this field, we think we have a very good chance. Um, uh,另外呢,就是,嗯,这个提到这个盈利能力呀,就是说,啊,我们其实对我们自己的盈利能力呢,是非常有信心的。 In fact, if you look at our cash flow, we had 17.3 billion cash flow in the first quarter of this year. In fact, from the trend of our previous year, the positive cash flow in the first quarter was relatively less in the previous year. So even from what we talked about before, from these cash income contributions, which is to take your cash income into account, from the point of view of a single economy, we also have nearly 20% of cash profit in this quarter. Although we have not reached the maturity period of profit on GAAP yet, we still have a long way to go So

To answer your second question, we put priority on gaining market share. So we mentioned earlier that the non-tier one city penetration for online education will likely accelerate in the coming quarters and years. The leaders in this space actually have the best opportunity to benefit from the trend. We already have nine years operating history and have one of the best brands in the world in the space, and so we will put all our resources trying to take advantage of this opportunity and gain more market share. So in terms of the probability, and we're very confident that we will be able to achieve probability at the same time we aggressively invest in the sales and marketing. So, you can see that our cash flow is quite strong. Our operating cash flow in Q4 is 173 million RMB and despite Q1 is a normally soft season. It is our capability to make money also showing up on the gross billing contribution we mentioned earlier, which is you take the gross billing times gross margin and minus all the non-GAAP expenses. In this quarter, we're getting gross billing contribution margin of close to 20%. So even though as of now the gap net margin, there's still a gap between the gap P&L net margin versus the gross bidding contribution margin, but we do believe in the future we have the capability to reach that kind of operating margin. And as you can see that Q1, as soon as you see more lessened consumptions, you immediately see a quite sizable profit. So that's an indication of our capability to make more profit in the future.

Got it. Got it. Thank you.

Thank you.

Thank you. And the next question comes from Roger Perotti with Silver Health.

Hey, Roger.

Hello, Jack. Hello, Shimin. Can you hear me?

Yes.

Congratulations for the outstanding quarter. You already answered some of the questions that I had, so let me add one. You mentioned that the Wuhan team is a big part of your sales team. And obviously they were in adverse circumstances how they had to conduct the business during the lockdown. So when you would assume that all of your sales team would have been at full, would have been fully operational, how much additional, you know, let me ask differently, what is the impact, the negative impact that you had that a big part of your sales team actually have to work under adverse circumstances. That's the first question. The second question is when you now will invest in more growth, who do you mostly compete against? Is it other online education companies? Or do you mostly try to get students from offline companies to try to convert them online?

Okay. Okay. You can see, you know, I mean, uh, you know, I mean, you know, I mean, you know, I mean, you know, I mean, you know, I mean, you know, I mean, . . . . . . Then because we were in that period, a lot of these teams, including our team in Wuhan, were all in remote work. So in this, of course, it is difficult for us to quantify specifically. But in this, we believe there are a lot of From April, operations in other cities such as Beijing, Shanghai and Guangzhou have returned to normal. From May, operations in Wuhan have almost returned to normal. Then we see that in the second quarter, we can see a very big improvement in the efficiency of the whole operation. In fact, this is why we think that although we expect the second quarter to have a slightly lower gap revenue than the first quarter, So during the COVID-19 outbreak, we did face a lot of challenge on our operation.

So during that break, you know, demand is quite high. In February and March, the free trial lesson demand is 30 to 50% higher than our capacity. And at the same time, 100% of our Wuhan team is working from home, which is leading to, you know, less, you know... lower efficiency. And so we actually, you know, starting April, things are getting back to normal. A lot of our offices have... And in May, our Wuhan office is back to normal. So you can see a lift in our operating efficiencies in Q2. And so that's quite helpful. So despite our, you know, recognized revenue may decline because of fewer lesson consumptions, Our growth building actually will grow sequentially. This is, you know, one of the reasons is our improved sales and marketing.

那么关于您刚刚问的第二个问题就是这个竞争, 那么我们在第一线城市呢, 我们的这个主要是, 我们可以大致上分为这三个部分, 那么第一个部分呢就是跟 to compete with these online institutions. But because we are in non-tier one cities, our brand and influence should definitely be one of the most influential brands. So in fact, in the competition with these online institutions, we are still very advantageous. The second part is the competition with some offline institutions. As you all know, the online education and training industry in China is very scattered. We are standing on this trend, because the online education penetration rate is gradually increasing, and in the field of online youth English, because there is no diplomatic support at the moment, so we also have a great competitive advantage. Then the third type is actually some increased users. They did not learn offline and did not compare with other products. Then this type of user is actually because of some of these young, these 80s, these mothers. They actually need to learn English for their children. In fact, it will be more and more intense. They don't say that they want to go abroad in the future or something. They just hope that the children can be able to speak English. So talking about the competitive landscape, so there are, let's split into three parts.

So the first part is the online peers. So in the non-tier one cities, actually we have better brands than most of our competitors. and we have more competitive products that are more suitable for the mass market. Second, for the offline schools, there are many offline schools in non Tier 1 cities but they are very fragmented. We mentioned earlier that the trend is that the online education penetration is accelerating. That trend is really helpful to us. And especially for our product, many of the offline schools, they actually don't have qualified foreign teacher resources. So that makes our product very competitive. And the third part is actually the incremental demand. or parents, they haven't sent their kids to neither offline schools or online schools. Many of the young parents that, you know, born in 1980s or even later, they have very, you know, strong intention to send their kids to learn English to improve their employability. just to open their eyes and to make their future life better. So these demands we see, you know, probably the largest portion of the incremental demand.

Excellent. Thank you.

Thank you, Roger. Thank you.

Thank you. And as there are no further questions now, I would like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact 512 Investor Relations through the contact information provided on our website, other PSN group investor relations. This concludes this conference call. You may now disconnect at your line. Thank you.

Thank you.