ECARX Holdings Inc.

Good day and thank you for joining us. Welcome to ECAR-X Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management to give their prepared remarks, there will be a question and answer session. To ask the question during the session, you will need to press star, 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star, 1-1 again. As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host, Renee Du, Head of Investor Relations at ECAR-X. Please proceed.

Thank you, operator. Good morning and welcome to ECAR-X Third Quarter 2024 Earnings Conference Call. With me today from ECAR-X are Chairman and Chief Executive Officer, Ziyu Shen, Chief Operating Officer, Peter Serino, and Chief Financial Officer, Phil Zhou. Following their prepared remarks, they will all be available to answer your questions during the Q&A session that follows. Before we start, I would like to refer you to our follow-up statements at the bottom of our earnings press release, which also applies to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP financial measures can be also found at the bottom of our earnings release. With that, I'd like to hand the call over to Ziyu. Please go ahead.

Thank you, Renee. Hello, everyone, and thank you for joining our third quarter earnings call today. The solid growth momentum we picked up in the first half of the year continued into the third quarter. The global automotive industry is rapidly evolving towards software-defined vehicles, which we are uniquely positioned to benefit from, and I think our results this quarter reflect that. Let me start with a brief market update. Looking at the broader automotive landscape internationally, the sector continues to face a challenging environment globally. Despite the headwinds, the overall trajectory remains positive, particularly for electrical vehicles and intelligent car technologies, with the automotive industry still projected to reach approximately 88 million vehicle sales in 2024. In contrast, Chinese automotive market has been gradually picking up. Total sales from January to September increased .4% from the same period last year, among which China's export data showed a much more positive outlook with overall export volume rising every month this year. China exported 4.3 million vehicles from January through September, an impressive increase of 27% -over-year. Electrical vehicle sales in China during the same period increased 33% -over-year, accounting for 39% of total new car sales. The market continues to yield significant opportunities for us despite headwinds. This underscores our unique positioning to drive growth in China and overseas. Regardless of market cycle, our involving part of portfolio, diverse customer base and strategic global partnerships and operations are key factors that enable us to capitalize on these opportunities. By the end of quarter, there were over 7.3 million vehicles on the road equipping a car X technology, with 442,000 vehicles added this quarter alone. This translates into an increase of approximately 31% -over-year or 6% sequentially. Our global reach across the sector remained stable from last quarter with 17 OEMs across 26 brands. Notably too, the number of project wins from existing customer increases substantially as we deepen our relationship and build up the success of existing mass production projects. Revenue during the quarter increased by 31% -over-year to R&D 1.4 billion on the back of recent vehicle launch such as the GDGLAX E5. Competition remains fierce with ongoing pricing pressures causing growth margins to decline to approximately 17% during the quarter. Despite the challenging competition and the impact on margin, we remain firmly on track with our top line continuing to out-fund the broad market as we scale and build a path towards profitability. We have a very strong track record of our top line with new vehicle launches and have a robust and healthy pipeline with over 40 vehicle models currently in development. To offset the impact of pricing pressure on our margins, we are working aggressively to optimize our cost structure by taking greater vertical control of our manufacturing and supply chain, optimizing our product portfolio, improving engineering and operational efficiency. At the same time, we are expanding our global footprint to provide us with the flexibility to mitigate geo-project scale risks. I'm highly confident in our ability to drive significant growth throughout the year and beyond. Our strategy has not changed and we remain on course for success as we focus on sustaining revenue growth momentum. Capturing sales volumes and improving margins. Our flexibility to adapt to a changing market environment ensures that we can see new opportunities as they arise, leaving us very optimistic about the future. I will now pass the call over to Peter, who will go through the operating results of the quarter in more detail. Thank you,

Ziyu, and good day, everyone. Our customer base remained diverse and stable during the quarter as our business continues to scale and gain momentum. We secured two new design wins from existing customers during the quarter, further deepening our relationships with them. Both vehicles are for the China market and will deploy a version of our Antora series computing platform and come integrated with FlyMe Auto OS. These wins showcase our ability to deliver customized cutting edge technology solutions and reflect the growing value proposition we offer automakers with our unified computing platforms for China and overseas. Our global ecosystem of strategic partnership forms the backbone of our strategy to reshape the global automotive technology value chain. We entered into a formal partnership with Multi-Core Wear at the end of August. Having initially worked together to optimize our intelligent driving software algorithms used in the Lincoln Go 08 earlier this year, we are strengthening our partnership and expanding the scope of our collaboration to cover all projects to reduce the time to market for mass production of Skylamp Pro and provide global OEMs with unique vehicle experiences. In addition to leveraging our global ecosystem of partnerships to improve our performance of our leading hardware and software stack, we continue to strategically invest in R&D while at the same time improve R&D efficiency. We are investing in our lower cost R&D centers. We are engaging AI tools to improve efficiency and quality, onboarding new partners with innovative and cutting edge support models and completing a deep dive of our entire cost structure. Our ADU solutions now feature real world rendering capabilities compatible with mainstream 3D engines such as Unreal and Unity and are expected to be integrated into Hung Chi and smart models currently in development. We deployed eCorex Auto GPT by adopting Microsoft Smart Occupancy Monitoring System to track and monitor in-vehicle behavior of children to ensure safety. While we continue to work closely with ecosystem partners to explore more in-vehicle scenarios under eCorex Auto GPT. We also developed an automotive hypervisor that allows multiple vehicle systems to run on the Macaloo platform using AMD chips. Our technology leadership continues to strengthen as a result with our robust intellectual property portfolio now expanding to include 613 registered patents and 656 pending patent applications globally as of September 30th. On the product side, we had several new exciting vehicles launched this quarter that showcased our technological strengths and demonstrate our remarkable versatility to replicate and scale our solutions across various brands and models. Demand for the Geely Galaxy E5 since its launch in August has been particularly strong with over 12,000 vehicles sold in that month alone. Notably, the Galaxy E5 is the first vehicle to integrate digital cockpit and parking capabilities into a single board using the Antora 1000 computing platform under Geely's new EE architecture, which serves as the foundation for their next generation vehicles. On top of that, the Antora 1000 SPB, which integrates digital cockpit parking and driving capabilities on the Antora 1000 platform has also been launched and can be replicated and scaled with any AI chip, providing a highly cost-effective and streamlined solution that aligns seamlessly with evolving EE architectures. This broadens the Antora 1000's appeal as the central computing platform of choice for automakers globally. Lincoln Co.'s flagship Z10 began mass production during the quarter following its debut in June. This vehicle showcases the strengths of the Macaloo computing platform powered by AMD Ryzen V2000 processors and our self-developed hypervisors, which I mentioned earlier. Our extensive experience in digital cockpit design combined with AMD's advanced computing capabilities has resulted in a vehicle that sets a new benchmark for in-vehicle technology and user experience. The Smart Hashtag 5 officially launched on October 27th, following its global debut in August, also comes integrated with the Macaloo computing platform. I'm happy to see our Antora and Macaloo series widely adopted across various vehicle models ranging from entry-level to premium. This demonstrates our strong competitiveness in the market and ease with which our solutions can be scaled and replicated. The Lincoln Co. 02, known as the Z20 in China, debuted in Milan on October 11th and has since launched officially in Europe. Integrated with our Galena computing platform, we are committed to support the -the-art model as we explore market opportunities globally for this tailor-made solution. Lastly, our Pykes computing platform officially launched this quarter, utilizing Qualcomm's Snapdragon 8295 SoC. This solution will first be integrated into a new Geely model planned for the start of production in 2025. We are making solid progress and establishing ourselves as a partner for automakers as they transition to software-defined vehicles by delivering solutions that are scalable and cost-efficient. Our expertise in commercializing and deploying these integrated vehicle solutions on a global scale not only optimizes costs, but also speeds up market entry for manufacturers around the world. We attended the third Global Digital Trade Expo in Hangzhou at the end of September, where we showcased the Macaloo and Antora platforms and signed an agreement to further expand our Fuyang Smart Facility. Fuyang represents a critical step in our strategy to integrate manufacturing and supply chain processes. This facility is opening at the highest industry standards, deploying the latest in connectivity, advanced analytics, automation, and advanced manufacturing technology. Production capacity has quickly ramped up since production started in April, with about 30,000 Antora 1000 units produced and shipped for the Galaxy E5 in August and September. In 2023, we were deeply engaged in the supply chain management, but all our end product manufacturing was completed through partners and joint ventures. Now, by the end of 2024, we have taken control of our manufacturing, and we should end the year with about 15 to 20% under our own control. By the end of 2025, we expect that metric to be over 50%, with a long-term target in the range of 70% or more. By improving our control over cost, product quality, and operations, we will be able to further enhance our competitive position in the market. I am pleased with the progress we have made and remain highly optimistic that we will continue to see tremendous growth going forward as our investments, technological innovation, diversification of customer base, and global expansion begin to generate significant returns. I will now turn the call over to Phil, who will go through our financial results.

Thank you, Peter, and hello, everyone. Our strong performance in the first half of the year continued into the third quarter as our business continues to grow. Total revenue for the quarter was 1.4 billion RMB, an increase of 31% year over year. Revenue from the sales of computing hardware was 1.2 billion RMB, up 61% year over year, mainly driven by continued global demand for the Volvo EX30 and the Polestar 4, as well as an increase in sales volume for the Antora series and the Macalu platform digital carpet and autonomous driving controlling units, which contributed approximately 23% and 11% respectively to total revenue. Software license revenue came in at 84 million RMB, down 39% year over year due to a decrease in the sales of navigation and operating software compared to the previous year. Compared to the last quarter, software license revenue grew by 28 million RMB, or 49% with the ramping up of frame auto sales volume and the intellectual property revenue growth. Service revenue decreased 26% year over year to 151 million RMB, mostly as a result of timing differences in completing non-recurring engineering revenue contracts. Over a year today, service revenue grew approximately 10% year over year. Growth profit was 248 million RMB, a decrease of 25% year over year, which translates into a gross margin of 17%. Margins on hardware products continue to be under pressure as we adopt a penetration pricing strategy to drive revenue and volume growth, to gain market share and achieve economies of scale and the cost reductions. Against the backdrop of an industry-wide price war in automotive sector and ongoing transformation of customers' EE architecture. As I discussed in the previous earnings course, we expect this pressure on our hardware margins to remain over the median term. To offset this impact, we will continue to focus on driving sales of our unique product portfolio, deepening cost reductions and improving operational efficiencies. All hacks during the quarter decreased at 2% year over year. This was primarily driven by improved global operational efficiencies and the lower share-based compensation expense during the quarter, which were partially offset by continued investment into RMB, core product roadmap and the future technologies. Last share was RMB 0.97 compared to the previous quarter, RMB 0.84. Adjusted EBITDA loss was 233 million RMB up from a loss of 181 million RMB during the same period last year, primarily attributable to one, a decrease in growth margin as a trade-off for the growth in motive computing platform business and the increased market share. And number two, lower foreign currency change gain, partially offset by lower operating expenses and an increase in fair value of financial assets compared to the previous year. Moving on to our balance sheet, as of the end of the third quarter, we had 688 million RMB of cash and restricted cash, which gives us ample resources to fund our core product roadmap, key initiatives and the global business expansion, while we continue to improve our working capital and profitability. Overall, we maintain the robust growth despite intense market competition. We will continue to focus on expanding our customer base, deepening our penetration of both GLE and the non-GLE ecosystem to gain market share, driving economies of scale and the cost optimization. We will also continue to optimize our operating expense and carefully control the new investments to improve our margin performance and the sustainability of our business in the long run. That concludes our prepared remarks today. I would now like to hand the call back to the operator to begin the Q&A section.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star one one on your telephone and then wait to hear your name to be announced. To withdraw your question, please press star one one again. While we compile the Q&A roster. Our first question comes from a line of Wei Hong with Discerbank, your line is open.

Hello, can you hear me? Yes,

we can hear you. Hi, thanks for taking my question. So my first question is regarding the sale of goods margin. We've seen a decline Q over Q and year over year to around 9% in the third quarter. Can we talk a bit about the factors contributing to that and how should we think about it in the fourth quarter and into next year?

Okay, sure, I'm happy to address your question regarding the margin performance in the third quarter. Yes, there's a market competition which drove the hardware solution margin deterioration in the quarter, which is from last quarter 14% to current quarter 8.9%. We actually chose to drive the volume increase and maintain a share of a wallet, stability in our key accounts, our customer base. And we also want to have an opportunity to further work on the supply chain and the cost optimization. As I mentioned, it's all about economic scale. The other reason is the product mix also impacts the current quarter's margin performance. Normally, 50% of our profit came from services and software. Their margin performance is pretty stable, ranging from 57 to 60%. Due to the software selling ramp ups and the service bookings is an added issue. The mix from services and software changed from 30% to 17% in this quarter. And all these are the key factors that impact our margin performance. However, in moving into Q4, we perceive that we will rebalance the portfolio sales on services and software, and we are able to restore our margin performance through that. Meanwhile, we are able to further drive our cost optimization, and which can help uplift the hardware margin performance as well. So that is the answer for your question on the margin performance in Q3.

Thank you, that is very clear. And the other question I had was, we've seen Julie, the Galaxy brand, launch two vehicles, the Galaxy E5 and the Star Wish sedan. And we know the company has disclosed that the E5 uses the Antora platform and the Flammy Auto system. Can we talk about the Star Wish sedan? Does eCorex also supply the hardware for that model as well?

Yeah, this is Peter, I'll grab that question. Does the Galaxy E5 uses our Antora 1000 platform? Along with the Flammy Auto software, as you mentioned. And the Star Wish platform uses our Venado platform. So that's our E02 platform. That's a very robust product that we've had in the market. We have more than a million units lifetime on that program. So they both use solutions from eCorex.

Thank you, that is very clear. Maybe a last one for me. After the Lincoln Co. Z10 and the Smart 5, can you maybe give us some outlook on what other vehicle models for the McAloo platform we use now?

Yeah, I'll grab that one as well. I mean, the McAloo platform is really a benchmark in a lighthouse project for us. It's a deep strategic cooperation with AMD. We're the first automaker to adopt the V2000 platform, which is AMD's newest automotive platform. And we've built up, even as we discussed in our prepared remarks, a unique hypervisor that extends our software capabilities and really drives a very tight software hardware linkage to have fantastic performance. We've got great user feedback from the vehicles. The Z10 has been in production. The Smart is in a ramp up phase right now. And we will continue to promote that to both the future vehicles for Smart, for a Lincoln Co. as well as others in the market.

Understood, thank you very much. That's all for me.

Thank you. Please stand by for our next question. Our next question comes from Alana Dashin with SPDDI. Your line is open.

Dear management, this is Tony from SPDDI. I've got two questions here. The first question is also going back to the growth margin. Do we have an outlook for the growth margin for next year, for 2025? Do we have a direction here? Do we expect the growth margin to improve from the growth margin of South Dakota, especially for the hardware products and for the growth margin specifically? I think that our in-house manufacturing is improving, especially for 2025. Is this a plus for the growth margin for next year? This is my first question.

Hey, thank you. Thank you, Sintai. This is a very good question and I'm happy to address this one. We observed that the market competition starting from September 2023 and we keep seeing aggressive pricing pressure from our customers. But again, as I just mentioned, we also would like to drive the volume uplift and maintain our install base in our customers. This is very critical because we want to drive the economy of scale and only with that, we are able to further negotiate the cost optimization from a supply chain perspective. And yes, you mentioned that we will for sure, we will try our best to keep our overall gross margin performance over 20-ish. That is our goal as well because half of our profitability came from the services and the software and their margin performance is pretty stable. And as long as we can keep the reasonable sales mix from the two products, then we should be able to keep the overall margin performance at a reasonable level. However, I agree with that, the pricing pressure, especially on hardware solution is right now a challenge, but we do have our plan to recover that first. We will keep innovating. We keep investing our R&D and we'll keep innovating and we always can bring our best of great solutions for our customers and within the time window, we are able to charge a price premium as well. So we are pioneering in this hardware solution in the market sector. And we will also drive the lean operation as well, in terms of the loss of operation, the total profitability with our focus on SGMA optimization. And we should also highlight in a quarter, SGMA OPEX actually declined 19% a year, year over year. This also reflects our ability to control the expense as well. So in general, I would comment that we will try our best to keep our gross margin performance above 20-ish, but that depends on our execution on services and software sales. At the same time, how to bring the high margin hardware solution to the market to delight our customers. And we will control our operating expense tightly. And in the end, with the scale of our business, we are able to achieve a break even very soon. So that concludes my answer to your margin questions.

That's very clear. A quick follow up on the in-house manufacturing and is it positive to gross margin?

Yes, for sure. So right now we adopt a OEM manufacturing model. And the good thing is we keep receiving orders from our customers and for sure, we'd like to achieve the scale as well. So as long as we keep optimizing the CapEx investment, the expense happening in a supply chain site and manufacturing site, we should be able to control our manufacturing cost at a reasonable level, which is also very competitive in the market. So I can show you that. Let's also on our radar.

Okay, it's very clear. And my second question is about the overseas business. Can we have an update on our overseas expansion and also on the overseas customers? Do we expect any revenue or profit from overseas customers for 2025?

Yeah, I'll grab that. This is Peter. So I mean, the company has been driving down this global expansion road for a number of years now. I mean, as you remember, in early this year, we established our office in Stuttgart to help expand our customer intimacy with the German OEMs. And presently we're engaged in a number of RFQ processes with new customers there. So we're quite excited about the progress. You know, the European OEM business, I would say, moves on a very rigorous structured timeline. So we might see some NRE service revenue towards the end of 25, likely in 26. And the SOPs we're looking at are probably in the 27 horizon. And that's just, let's call it a standard development cycle that the European OEMs follow. But we definitely see a lot of strong customer intimacy, customer engagement, and as I said, a number of very tangible programs that we're working through the RFQ processes with. So we're very excited about the progress we're making there.

Okay, thank you very much. Thank you, Peter. Peter, it's clear. That's all my questions.

Thank you. Please stand by for our next question. Our next question comes from the line of Jiaqi Zhang with CICC. Your line is open.

Hi, management team. My name is Jiaqi Zhang from CICC also. So I have three questions for this quarter. And the first one is regarding to the Jili Group. And we have seen Jili Group has performed a very strong quarter. And also for the October, Jili has delivered the single most number of deliveries in a single quarter. And my question is regarding what is the percentage of revenue actually currently contributed by Jili? And what is the ECRX expectation for the percentage of revenue contributed by Jili in the year 2025 and maybe the year is coming? Thank you.

Sure, thank you Jiaqi. This is Phil. So regarding the business mix from Jili and the Jili ecosystem and non-Jili business. So in 2024, the expectation is still 90% of our business still came from Jili and the Jili ecosystem including Jili affiliation like Volvo, Polestar, Smart and Lotus. And yes, we still have lots of opportunities to further improve our non-Jili business mix. And in 2005, we foresee that the mix will keep improving including new business from FAW. And we also foresee that more business from our international OEMs as well, which is also a highlight of our non-Jili business expansion especially from a global OEM perspective. And when moving into 2025 and 26, our goal will not change. We will keep focusing on our non-Jili business expansion. So our goal is like by end of 2026, 2027, nearly 40% of our business will be from non-Jili.

Well, thank you so much. Just one quick follow up. So could you give us more color on the projects doing with FAW? Because previously you mentioned that we are going to expand into wider spectrum models. So how is the progress on this? Thank you.

Yeah, sure. I can address the question and maybe Peter can chime in additional information. So everything is on track, Jiaqi. We are delivering two flagship vehicle programs from FAW Hunxi project and the contract has been signed, had been signed and the team is working diligently to make a traction. And then we are on track to deliver our program. And the SOP expected by end of the quarter, by end of the year and the Q1 of next year. And yes, and we foresee more FAW Hunxi vehicle program is coming and then we also can significantly contribute to non-Jili business to our portfolio.

Well, so this is you speaking. So I would actually add more information here about Hunxi FAW program. So right now we have two models and development right now and we will make them SOP the end of this year and beginning of next year. So, and actually not only the full vehicle model that will be the platform because that will be very similar what we are deploying in Jili already that Antora plus driving auto platform. So that will be very unique competition platform for all FAW Hunxi future vehicle models. Yeah, so that's the, I would like to add here.

Right, thank you so much. That's very clear. My second question is regarding to the progress in ADAS. So we have seen from the news that the AD1000 chip has takes out. So big congratulations on that. So from the management perspective, how can we evaluate the breakeven point for the chip? Like how many deliveries that we can lead to a breakeven? And is there any new contractual design ways that can be shared or is there any technology that's really regarding the chip that can be shared?

Okay, well, so AD1000 that's very successfully we take out ETSMC. And also I would like to share more information to you because right now all performers record already achieved regarding the design point view. And for investment point view from E-Card X we will start a computing system R&D with this SOC. But for SOC investment, 100% in Syngene which is separate company from E-Card X. We are shareholder for a separate company. So that means E-Card X will invest the AD1000 computing platform next two years and three years to accelerate our ADAS portfolio. Yeah, so that's our plan. And this one is, this SOC is very competitive the seven millimeter and the with 512 top AI capacity. And also, as you know, we already had seven millimeter experience already shipped SE1000 over half million in the market. So that's why we're quite confident AD1000 will be faster and quicker to go to the market in production soon.

Thank you so much. That's really promising. I just want to quick follow up. So are we going to develop the algorithm software by E-Card ourselves or are we going to collaborate with the external partners?

Yeah, because AD1000 platform will be the open platform. Of course, we'll finish our platform and integration and engineering. But of course, that open platform can support some customer like, oh, we have in-house software or also we can support a third party software on top. Very similar position like NVIDIA platform in the market.

Thank you, Ziyi, that's very clear. And my last question is regarding to, so what are the costs and expenses actually associated with developing new platforms? Because we see there are quite a number of new platforms that's currently under development and the research R&D expenses actually going up. So I'm quite curious, like what are the costs and expenses associated with developing a new platform? And what's the point of breaking even regarding to each of these platforms? Thank you.

Yeah, I think you're asking a very good question here. So I think the most important for the company that every year we are having 30% growth of revenue. That's very important. Also, we are keeping more than 20% growth margin for three years. So that's why we are expanding, we are spending R&D investment actually year by year. We can keep the same percentage, but we can get more total amounts because our revenue grows. So that's the logic. So that's why we are doing very carefully, like 10% R&D investment, maybe future will drop to like a nine or 8%, but a total amount will be much bigger because our revenue growing faster. And SGNA, we're going to be like 7% or maybe below 7% because we are trying to break even as early as possible. So that's why we want to balance these kind of percentage for R&D and SGNA. That make sense?

Right, thank you. Just one very quick. We currently we have core function. So I'm in check and AMU check. So which one of these actually contribute the most gross margin and probably why?

I think from revenue perspective, so because this will, gross margin perspective, that will be the very different, these very different assignment. So sign in check will be entry planable and very strong cost competitive for China market and for worldwide market as well. I can for your information, we have one global OEM opportunity bidding that we are using sign in check right now. That's quite advantage for us because cost competitive comparing the global shipment. But for core coin, IMD, even Nvidia for future, that's for global roadmap and for at high end segment. Yeah, probably like gross margin are bigger like Nvidia and AMD even Qualcomm, but for gross margin percentage should be similar.

Right, totally on the speed. Thank you so much for answering my questions. Thank you. That's the end of my question. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Derek Soderbergh with Cantor Fitzgerald. Your line is open.

Yeah, hey guys, thanks for taking the questions. So Phil, you guys talked about new wins. I guess on the hardware gross margins, just specifically referring to new wins here, these are with existing customers and I'm curious, are hardware gross margins improving with existing customers as you guys are sort of becoming more integrated into their vehicle platforms? Again, specifically asking on the hardware gross margins.

Yeah, Derek, thank you Derek. Again, yeah, hardware gross margin, we did see the challenges and this is all about the competition, right? Because the China market, you know, the competition is fierce. At the same time, as I mentioned, we are expanding our footprint into the globe. We want to serve the top customers in global OEMs. So that's why we can balance the margin, especially the hardware margin performance from different customers base, different customer segment. But in China, the competition will be always there. And we also chose to, again, we also want to choose the game to play, to win as small as the volume, as small as possible, which is also the foundation for us on the supply chain management as well. And yes, we also expand our footprint into other OEMs, FAW, and which can also help improve our hardware margin performance. So it's all about the portfolio playing from a different customer base, from a different product, like hardware service and the software. Okay.

Got it, got it. And then on the software side, pretty good margin there. You guys have made some good partnerships. What are the biggest growth opportunities looking ahead for that business? Can you talk about ways to maybe expand that over the medium term? Thanks.

Yeah, so right now the core software business in China is all about like operating systems like auto and E-Cox in-house development software product. And we basically, along with the customer's demand, we also promote those software products aggressively and for the last generation product, they are end of life. And that's why there's a transition, as you can see that from the software revenue -by-year perspective, there's a slight decline earlier. But in the long term, we foresee that our software from primary auto and the cloud pick will climb up for sure and will replace the traditional old generation software and the growth will be there. And as you can see that from the quarter quarter perspective, the software revenue from primary auto and cloud pick is outstanding. Right, so that momentum will continue.

Got it, really appreciate it. Thanks.

Thank you. As a reminder, ladies and gentlemen, that's star one one to ask the question.

I'm showing

no further questions in the queue. I would now like to turn the call back over to Phil for closing remarks.

Okay, thank you. Thank you all for attending today's earnings call. So we are on right track to deliver our commitment to the customers. The growth momentum will definitely continue through the solid execution on pipeline conversion and the new business acquisition, both from a non-jury and the global expansion perspective. eCards always takes a long-term focused strategy. We will keep investing into R&D, keep innovating and bringing the best solutions to the market and delighting our customers. We will take multi initiatives to optimize the cost structure, drive lean operations and improve our profitability. Our global business expansion will carry on and we will keep diversifying our customer base. And we are on the right track to deliver our profitability improvement and achieve our break-even point in a very short time. And this concludes the remarks for today's earnings call from the management side.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.