Netdragon Websft Unsp/Adr

Ladies and gentlemen, our presentation will start very soon and it will be also live streamed on Rocio China, Futu and Tiger platform. Presentation PowerPoint is currently available under the webcast news and event tag on NetDragon's IR website. If investors on webcast wish to waste question, please feel free to enter your questions in the text box. Management will answer your questions during the Q&A section. Good morning. Thank you for joining us for NetDragon Websoft Holdings Limited today for our 2024 interim result presentation. First, please allow me to introduce the managements who are joining us today. Dr. Simon Leung, Group Vice Chairman and Executive Director. Mr. Ben Yam, Group CFO. Mr. Lin Chen, Group Senior Vice President. Now, please allow me to pass the time to Dr. Simon Leung.

Not very tall. Good morning. No, no, no, that's not what I was expecting. Sorry I have to get you working on a Friday, I guess. But anyway, it's good to be here. It's actually, I'm going to take you through some so-called highlights. It's going to, well, it's an eventful year for us. It's actually some challenges, some headwinds, but nonetheless, there's a lot of opportunity ahead of us. So from a company standpoint, from a management standpoint, and for the board, we ask, optimistic and enthusiastic as before. But that said, we need to hunker down and work on some of the issues, so I'm gonna go through that, some of that today. Now, before I do that, I need to remind everybody, it's like the education company, Mind.ai, is a separately listed company on the New York Stock Exchange under very different governance. Even though we own a big chunk of the company, we have a separate board running it, it's listed, on the U.S. is actually under the governance of the New York Stock Exchange rules. So I can only talk about it in kind of directional, with directional comments. I cannot go into the details because I'm the non-executive chairman of the company. In anticipation of that, actually we're going to arrange a separate capital day for everybody to call in and ask the management team very specific questions about what are the challenges, what are the opportunities going forward, okay? With that, some of you or most of you are very familiar with the agenda, so I'm not gonna say anything. So just here's some of the highlights. I'm not gonna go into detail. For gaming, the good news is actually we are growing. Actually, we have some short-term challenges, which Lin Chen will we'll talk about, we have a lot of them addressed already. Some of them like forex exchange issue is something that we cannot do. And then don't forget the worldwide economy is actually under some interesting, I would say, transformation from that standpoint. But I guess the good news is actually there's this new game called Wukong that came out that's got a shot in the arm, not only for China, but also for around the world. I happen to be on a board of directors of a Swedish gaming company, so a lot of people are talking about it. They're very enthusiastic about the gaming business going forward. On the mine side, it's actually like I said before, we're seeing some headwinds. For example, inflation is actually hitting the U.S. As you may or may not know, U.S. is our largest market in education. So we're dealing with that. And Europe is actually, we are also seeing economic downturn. I mean, you've been reading the news with the war in Ukraine and with Russia and all that stuff. But the good news is actually, we are growing in places like Germany. I can delve a little bit more into the detail later on. The other good news is that we're working on improving a lot of our metrics. For example, our cost, our margin, everything. Ben's going to highlight it at a very high level. Again, The upcoming capital days for Mind.ai, we will go into much more detail. Last but not least, for education. I think with the advent of AI, with challenges, you know, with inflation and everything, and schools around the world or school districts around the world are looking for opportunities to, number one, to enhance the productivity of the teachers and, you know, maybe also for the students, so that allow us to create services that we can help them out. So SaaS is actually, it's gonna be a term that you're gonna be hearing a lot going forward. It's actually, we also coined a term called CAS, which is actually Classroom as a Service, because it's of what we have. I can assure you we have a lot of activities going on to address that issue, but unfortunately, a lot of them are work in progress. I cannot disclose a lot of the activities that we are doing. We are very confident about moving from a pure hardware play into really a hardware and a services play. Our biggest asset in education with Mind.ai is our 1.5 million classroom around the world, and we keep adding to it every year. So with that, I'm going to tear it up. I think Ben's going to spend a couple of minutes to go through the financials, and then followed by the intern. I will come back and talk a little bit more about Mind.ai, and then we'll give you a view of what we see in the next, well, it's actually not six months, even though this is interim, for the next few months, and then how does it lead up to 2025, and then we open up for Q&A. Okay? Thank you.

Thank you, Simon. Good morning. All right, so I'm going to go through a couple of slides of financials. And as Simon mentioned, the first half is full of challenges and also opportunities. And specifically, I think we're seeing some challenges on the top line, on the revenue side. But I think we've been doing a lot to manage sort of the bottom line. So I think we've done... a lot of in terms of cost savings and also investment income, which really mitigate a lot of the decrease in revenue. So if I look at this overall P&L here, we're seeing stable game and application services revenue, while Mario.ai also experienced a decrease in revenue. And I'm gonna go into that in the next slide with a little bit more details. But the good news, the positive news is that we're seeing an increase in the gross margin percentage from 62% to 66.6%. So we're seeing an increase in gross profit margin. And also on the overhead side, we're implementing a lot of the cost savings measures, a lot of measures to improve our operational efficiencies. So as you can see, for selling and marketing expenses, we're seeing a 20% decrease. year over year in sales and marketing as we really try to optimize our sales force and also trying to use our resources more efficiently. And then if you look at admin expenses, it decreased a little bit sort of a smaller number, 3.3%. But if you exclude sort of the Singapore learning center operation that we acquired last year, that reduction in admin expense is actually about 11% year over year. And by the way, the Singapore operation is a positive EBITDA business. So just to put that on record. And then in terms of R&D, obviously we'll continue to invest in R&D because we have to continue to put resources to develop new offerings in terms of gaming and also in education. And then on the bottom line, as I mentioned, driven by cost efficiencies and also partially by investment income, we're actually seeing a positive growth in EBITDA by 12.9%. And also non-GAAP EBITDA as well, it's actually a larger 33% increase in EBITDA. and as well as profit before taxation, also a 21% increase in profit before taxation. And if you look at sort of the net profit attributed to owners, of the company, that's sort of the Bloomberg number, right? So it's a decrease of 20% to 400 million, but I want to point out that, I don't know if you guys can see this, so there's actually a one-time deferred tax provision of roughly about 40 million US dollars, which we, we have to record in the first half. And what that is, is really a provision on deferred tax asset that we have to record on the books of Mind.ai. The reason for recording that is because it's according to accounting principles. You have to record it just in case Mind.ai does not have enough income to sort of offset the tax loss carried forward. Because that's what that is. tax loss carried forward, that actually can be carried forward for seven years. So unless we can be profitable in the next four to seven years, otherwise, we actually can reverse that provision in the future years. So I think that's really a one-time, non-cash, non-operating item that you guys should take note of that. And if you exclude that item, our net profit actually increased by 24%. And actually, if I kind of look forward a little bit, so if I look forward at sort of the net profit figure for the full year, I think what we're looking at is actually a number that's actually very much in line with many of the sell side estimates and also the Bloomberg consensus. So I hope you guys can kind of take note of that, that we're confident of the full year sort of the bottom line performance. And then on the balance sheet, I guess, you know, I'll just, you know, highlight, you know, the cash balance. We want to include liquid investments sort of, you know, as a cash and liquid investments as a more proper, metric because we do invest in sort of very liquid investments. We invested in some Ethereum, as some of you guys would know, and we're actually sitting on a pretty profitable position right now on that. And so if you look at our cash and liquid investments balance, as of the end of the first half, it's actually increased by 11% compared to the end of last year. Okay, so this is the segmental financial highlights. Yeah, so first of all, the top line, you know, going through the gaming and application service segment first. So if you look at the gaming, it's a stable performance, a little bit slight, you know, 0.8% negative growth. And I would attribute that to a couple of reasons. One is, and this is something that Lin Chen is going to highlight, we had a little bit of a short-term issues, you know, on the overseas gaming side, and that led to sort of a material decrease in our overseas gaming. And the second thing is that I think overall the gaming spending, I think if you look at the industry gaming spending, looking at the research report, like the GammaSat report is first half is roughly about 2% growth for the entire gaming industry, domestic, right? And if you sort of take out the mini games, right, it's actually a reduction of 2.8%, right? So I think it's a very stable performance for us, you know, in line with the market. We did not launch any new games in the first half, right? So that's also part of what we have to consider. And yeah, I'll let the intern go more into that. And then... The gross margin, you know, decreased a little bit. I think that's mainly sort of a mixed issue, right? Because gaming, it's a slightly lower percentage of the whole, you know, segment revenue. So that led to a little bit of a lower gross margin. But if you look at a gaming gross margin per se, then it's actually pretty stable. And then, yeah, on the SG&A side, I think it's pretty much in sync with what I just sort of highlighted in the last slide. You know, we decreased our sales and marketing. We decreased our admin expense. A lot of that is driven by sort of cost efficiencies, right? Cost rationalization. What we did in the first half is actually we, you know, we did a headcount review and we actually rationalized some of the headcounts and in the meantime also upscale, you know, our resources and our people, right? And then on the mind.ai side, sorry, just, yeah, on the mind.ai side, I think, Yeah, so we're seeing a 23.5% decrease in our revenue. And I think there are a couple of factors, right? So first is, you know, we're still seeing a lot of normalization of sort of the demand of the hardware sector because of the, you know, after the sort of the very large COVID funding that we saw in the past. And I think that's one factor. And the other factor is really sort of, you know, inflation sort of also playing a role in that as well, because inflation really affected teacher salaries, affected some of the recurring overhead of the schools, and that sort of squeezed the budget a little bit for some of our customers, and that affected our hardware revenue. But I think the good news is that, honestly, we're not really focused on you know, sort of hardware, right? I mean, yes, we are focused on hardware because that's our bread and butter from a revenue standpoint, but we're more really going, moving into sort of the software and service-based model, right? So that's what Simon mentioned. This is something that we're really going to dive into that, you know, when we when Mind.ai has its own capital market state. And then for gross margins, you know, we increased by 4.3 percentage points. And I think that's, again, you know, cost savings, efficiencies, you know, we experienced decrease in the components cost, right? A lot of work on that. we had decrease in the freight cost. We also moved part of our contract manufacturing into Mexico, right, to reduce sort of the tariffs and some of the savings. And also we reduced our warranty, you know, expense as well. That's also part of the cost of good soap. So because our failure rate actually is lower, which is good, right? So that's why, you know, we... we saw an increase in the gross margin percentage. And then on the SG&A side, sales and marketing decreased by 26% as we optimize our sales team. while we continue to deepen the reach of our customer base. So we're not reducing our sales force to get a lower revenue. We're really rationalizing our sales force to get better revenue in the future. And therefore, the admin expense, you notice that it's a 37.9% increase, which sounds a lot, right? But again, remember we acquired this Singapore Learning Center business last year, and that business actually contributed a lot of sort of admin expense, right? It's a positive EBITDA business, but contributed a lot of admin expense. So if you look at that line item individually, you're seeing a very large increase. If you exclude that Singapore operation item, sorry, the Singapore entity, the admin expense only increased by 11%. So hopefully that sort of gives you guys a clear picture of the segmental and that's it for my part. I pass the stage to Lin Cheng. Thank you, Brent.

Good morning, everyone. I am very happy to introduce the performance of NetLon Games in the first half of 2024. First of all, in the first half of 2014, we think that the whole business is still very good from the basic point of view. Since the epidemic, we have continued to invest in our IP, our user technology, and our advanced cloud. These have maintained a very good stability in terms of our game income. It sets a good foundation for our future development. In terms of the entire game business, apart from revenue, we will also pay more attention to the influence of our entire IP, our number of active users, and the effectiveness of our entire market and strategy. From these aspects, in the next few slides, I will introduce you in detail some of the achievements we have made in the first half of the year. First, let's take a look at the mobile and mobile games market. The domestic mobile game market is in a very good condition. First of all, the IP of our flagship, whether it is our Devil's World, Conqueror, or Soul Reborn, the revenue in the mobile game market is the same as the growth. At the same time, users in the domestic terminal oil market are also relatively stable and have a very good habit of paying. This is a good news for us from the user group and the entire ecosystem of MMO. Of course, in terms of terminal oil, as Ben mentioned earlier, we may be affected by some short-term factors in foreign countries, resulting in a fluctuation in our income. As for the mobile game market, last year and the first half of the year, we had a new mobile game online. Therefore, we maintained a good and stable long-term operation on the current mobile game income. As we prepare for the next stage of mobile games, we believe that mobile games will return to a trend of growth. Next, I will introduce the game industry from both domestic and overseas. In terms of domestic, our income is relatively stable. Our growth on the online market is still in line with our expectations, and some of our mobile games have been cancelled. In the field of mobile games, we will seize the opportunity to optimize our channels and expand in the next half of the year. As for the overseas part, as Ben mentioned earlier, the overseas part is mainly affected by some of the short-term factors, including some of the external effects of the overseas part of MoYu. It has caused some short-term impacts on the entire ecosystem and fees of our game. These external issues have been solved in the first half of this year. We believe that in the second half of this year, we will be able to return to a normal growth trend. Of course, in the government, there are some unexpected temporary power supply impacts on our game revenue, including exchange rates. These problems, especially power supply problems, have basically been solved. So we hope that in the second half of this year, we can also solve these problems in overseas power supply areas and return to a growth trend. OK. Next, I would like to introduce some of the good things we can do for users. First of all, in terms of MMO's entire online ecosystem, online users are the basis of all our income and online applications. In the past, we have been investing in IP, including economic transformation and operation, including some growth strategies. From the data point of view, we have already obtained better results. First of all, in terms of customers, we now have not only our PC end, but also our interactive version. This is actually very effective in increasing our user interaction and user connectivity. From the perspective of our interactive version of this entire active user, this kind of dual-end user interaction is very effective in transforming our user activity. In the first half of the year, we also paid great attention to the growth of users in this part. At the same time, as a long-term operation game, we will continue to optimize the threshold for our users to enter. In the first half of the year, we also made major adjustments to the optimization of new players. From our added data, we have also made a very effective growth here. At the same time, in terms of customers, although we have reduced some of the investment on the purchase volume, but with it, whether it is a live broadcast or a user response in other ways, we are actually more effective in getting some users. OK. From the overall long-term operation, we have been constantly increasing the frequency of our content updates in the first half of this year. And then, to promote our game in a variety of ways. As you can see from the above, from the threshold of our newcomers to the content of our Long Nian Shou, including some of our brand connections, we have been continuously promoting more high-quality content for our users. The promotion of these high-quality content has also accelerated the growth of our commercialized content collection, including the continuous improvement of our active users. This is very important for the long-term management and user activity have set a good foundation. Especially from the perspective of the commercialization of income, as we mentioned last time, the habit of consumer consumption in the domestic market and the habit of active consumption have changed significantly. We will continue to transform from consumption and content to culture and content consumption. In fact, from the first half of the year, the result is that Uh, uh, It also proves our judgment on the market, as well as users' payment habits. Including here, there will also be some upgrades to the gameplay package based on the content of the cultural image. In this part, we will actually see that because our package attracts users, whether it is active or paid, we have achieved better results than in the past when we did the same content and gameplay upgrade. OK. In fact, Simon mentioned Black Sienna Mimicry. In fact, since last year, we have started to develop our national style elements, including our full-scale content upgrade from music, art, and skills. In fact, I think that black and white space is not a single phenomenon. It is still very easy to pass on to domestic game users. It has a very significant bridge to feel the connotations of Chinese culture through characters and characters. As a game content transmitter, we use the good graphics of the game characters, especially the reinterpretation of historical IPs, to very well convey the cultural content we want to the users. Users actually like this form very much. For example, the character of Hua Muran, which we launched in July, is also a innovative interpretation of our historical characters. For our overall modeling IP, it will become more and more rich. In addition to the part where we have the magic, we also have the part of the Jiuzhou continent. From the whole worldview to the character to the payment, we can give our users a complete and good gaming experience to promote the structure of our entire ecosystem and payment. OK, so this is what we just talked about in terms of our MoYu IP. We can also briefly introduce some of the contents of the ZhenFu IP. The first part is about some of the temporary influences that we have received overseas. The first one is the power supply problem. It directly caused the player's time to play the game to be minimized. In this part, we hope to return to a normal growth trend in the second half of the year after the power supply recovery. In fact, if we use iBank, the decline in our consumption is just a small drop of 1.3. However, we can see that we are in the debt penetration rate. Debt penetration rate also represents the potential of our long-term flow. Including the continuous promotion of the MMO's entire play system, in addition to the content of the development, the leisure active content, the number of players with the same level of user acceptance is constantly growing. This also means that our new product based on the code Alpha based on our leisure play method has already done some initial testing in the second half of the year. Its testing data is still very positive. We will also put it in a separate mobile version to more users and markets. This has already achieved some good results in the current testing process. It will also help us to push this part of the gameplay and content to more markets and users. OK. The other part is our soul-supporting IP. The whole IP of the soul-supporting IP has recovered positive growth in the first half of this year. At the same time, especially in the part of our PC soul, it still has a very obvious trend of growth. From the core data, from the activity of a MOBA game, from the number of matches, from its payment penetration rate, including its user participation and payment confidence, we can see that it is not a seasonal fluctuation, but a new trend of positive and negative. OK. After talking about the basics of the operating period, I would like to introduce the results of the first half of the new product layout. In fact, after 1-2 years of continuous research and development, all of our new products have completed our deployment stage relatively smoothly in the first half of this year. After the entire gameplay is confirmed, the current progress of mass production is relatively smooth. Most of the products here have been tested by our users and have received some good feedback. First of all, from the point of view of the product line, from the point of view of the relatively good market, we actually have MoYu. It is a product that is more inclined to rebuild the face-to-face loss users, and our MoYu PC-SIM is also expected to be released next year. It faces our IP users and non-IP users to better break through a high-quality, high-quality version. These two versions are already in line with our expectations in terms of deployment and testing data. In the future, the 2.0 version of the mobile game line will also be in the process of development and testing, and will also be online in the future. The next step is to conquer the product line. To conquer the product line, the main direction of our efforts is the part of our leisure play. I just mentioned that our leisure play code Alpha has basically entered the test of a small batch. From the current foreign political test, including pay data, it is also slightly exceeding our expectations to a certain extent. The launch of this product will certainly be 100% confirmed in the second half of the year. It will also bring some growth for our income in the second half of the year. Next, it will be divided into our overseas brand, Rwana. It will upgrade to a more globalized content to better drive our layout in the globalized MOBA market. With the 2.0 version of Soul Reborn, it will also provide vitality to our future game product competitiveness. Next, we also have our 20 yuan track, our Soul of the Soul overseas version, which has also been tested in the first half of the year. I will also introduce the slides in the back separately. In addition to these products that we already have, in the new order, including our code name Dragon, our Xinhai特工, that is, the old code name Gecao, including our Huan Chongzhen's song, have also done external testing in the first half of this year. OK. OK. OK. OK. Our planning art will make a large-scale upgrade based on the original. At the same time, in terms of communication feedback with our IP users, our IP users also recognize this kind of content. At present, the completion of a large batch is also very smooth. We hope that after this year's version, it will be available in Q1 next year. This is a relatively strong product, and we hope to revive the feelings of our lost users through this, and then get our entire IP product line income back to a growth of at least 10%. Okay. Next, we will talk about the layout of our new product. Xinhai Special Air is also a very important product. It is also the first UE mobile game that we have launched. In comparison, the concept of the subject itself, the concept of our Logo-like floating angle design elements, including the subject package, has been verified in the TAP test as a very good and popular direction. whether it's TAB or Apple, they have given us a positive feedback on this direction, by using new technology to achieve fast design and interoperability experience. As for this project, we also hope to invest more resources to make it into a product that can be operated on a long-term basis, rather than a short-term transformation product. This product is actually quite certain in terms of the whole gameplay. In the next few words, we will add commercialized content and long-term After the content is developed, we will expect to push it to the line next year. We also hope that this product will be a relatively new product that can be used on the long-term. Finally, I would like to talk about the game called Middle East World War on 20 yuan. In the overseas market, we are now targeting all Japanese users. In fact, it is also different from the domestic version. At least from its art, its plot, including its dubbing, We have done a complete upgrade on the localization content. This complete upgrade is also from the initial test data. Accomplished the recognition of Japanese users This point is very important for us to do globalization content upgrade. Because we look at the globalization strategy How to do the localization content well that are loved by local users. How to do this overseas long-term transportation, this is still a key research and development work for us and our own studies. This product, its current testing data has reached our expectations. We will push it online next year and the first half of next year. This is also a very important product of a multi-region strategy content that we have introduced in Japan or Japan-Korea. To sum up, in the last half of the year, we have achieved a relatively good basic aspect in the operating system. Although we have some short-term factor fluctuations, we believe that in the next half of the year, we still have a very good solution and a trend. In terms of the layout of the user market In terms of investment, we will still seize the opportunity to focus on the current IP content, including AIGC, etc. All the content we talked about before, we will continue to work hard to make the best use of this part. In the pipeline of the new game, we will also seize the feedback of the existing good test data, and then in the next six to nine months, Okay, what I'm going to do is actually go through mind.ai very quickly at high level.

I think I'm not going to go into detail because it's actually Ben talk quite a bit about some of the numbers. But directionally, I'll tell you where we're going. I mean, we have some challenges in terms of the revenue, but the good news is actually a lot of metrics is actually up. I've got another slide on it. So what we're doing is actually we're optimizing everything and also be prepared for the future. So this is actually our advantage. But the biggest one is still our 1.5 million classrooms around the world. We're adding to it, not at the same pace, but I think one thing I'd like to mention very quickly is actually we have a new product coming out towards the end of the year. I can't go into detail, but that's actually very, very exciting and actually very suited for where we are today and also going to the future in terms of services, in terms of embracing AI. So again, I mean, some of the metrics, gross margin up is actually we are managing the sales and marketing expenses and EBITDA and all the good stuff. So But it's just like a life in a company. We need to manage this, whether we are growing or we're facing headwinds. So just kind of to sum it up is actually, I mean, we do have some challenges, some headwinds, but we are continuing. We believe this is actually tremendous market for us going forward. The fact that we have AI coming in with services people start to embrace, and that will only they would take us also outside the classroom and possibly into people's home for learning. So to sum it up, I think it's much better for us to have the management team of Mind.ai to talk to all of you. So we decided to do a capital stage for Mind.ai later on in the year. So I'm sure you'll be hearing about it. Okay, very quickly on the outlook. Actually, Lin Chen talked about the gaming already. So we are excited because it's actually, I think, I mean, unfortunately it's not our game, Wukong, but actually that gives you a view of where the market is going. I think one of the things we talk about, and we've been doing it for a long time, And we did not highlight it well enough on gaming. It's actually Global South, in which actually Middle East is actually part of it. So the fact that we've been in Middle East for a while, and if you look at a lot of their activities, especially in Saudi Arabia, that's going to be, that whole area is going to be an opportunity for us. Now, not only for gaming, but also over to education. We're doing a lot of work. A couple of comments on... how we are addressing going forward in the education market. So we're doing it the same way, which is actually organically we grow. Organically means we're going to create our own product and do that. We're going to also do it inorganically, which is actually we'll find some other way, whether we partner or we maybe do some acquisition. So that's the direction. That's the strategy. So I'm not saying we will do some tomorrow. So But that's what we're going to be doing. So with that, just kind of finish for the year. We're cautiously optimistic about both businesses, but we have to be cautious and recognize there is some economic kind of challenges. for the U.S. and also for Europe, and also certainly for this part of the world. So we are very cautious about how we approach the market to make sure we do all the right thing for the business, both in the short term and also in the long term. With that, so why don't we open it up. So what do we do? Oh, okay.

Thank you Dr. Leung and management Now it's time for our Q&A section If you have questions please raise your hands and our colleagues will pass the microphone to you Before your questions please also tell us your name and the firm you're representing For investors on webcast if you wish to raise questions please feel free to enter your question in the text box and we will read it out for you Let's welcome our first question on the floor

Hello, everyone. I'm Li Chenghao, an analyst from Zhongjing. I'd like to ask about the game industry. In the first half of the year, we saw a reduction in sales. In the future, in addition to the traditional MMORPG and MOBA, we will also expand to design and 2D games. I'd like to understand Because in the past, we may not have had such a rich experience in terms of users, traffic, and purchase. So I want to ask, what impact will the development and launch of these products have on our sales costs or on our overall revenue table?

Yes, thank you. OK.

There are a few things mentioned here. The first is a drop in our sales fees. In fact, it is also because the core of the MMO category is that our users are relatively stable. At this time, we will not use the way of buying quantity to get users. We may use a kind of callback of a lost user in the data sheet. A good news is that although our sales fees have dropped, the data of our new users has increased. In other words, in the entire IP management process, buying is not the best way to get users, but we make better content to attract our lost users to return to our game, and reduce some thresholds for them to re-enter. to ensure that our entire user plate can be expanded. That is to say, we just mentioned that content is the best way to attract users to come in. Of course, the second question you mentioned is that if we separate from the MMO category and look at our overseas, if we want to do new market and new growth, We are certain that the strategy of the 20 yuan track in Japan is different from that of the MMO platform. Purchasing is a must, but I think the threshold for purchasing is getting lower and lower. We believe that in the past, overseas, we already have a basis for purchasing. With these purchases, plus the part of content marketing, we are still very confident to be able to make very good customers. In terms of some key advantages, we may also consider to assign some parts to some external companies to establish our key areas of long-term operation. In some areas, if other companies have advantages, we will say that We would like to welcome our next question.

Thank you.

This is a very good question. Actually, if you look at the growth of loans, a large part of the growth is the so-called interest rate growth. We have some loans in China. Then we have a deposit at the same time Then we make a small profit So if you take that away In fact, our loan should be reduced in theory Because before we completed the acquisition of the mine It should be said that before the acquisition of GEX We have a CB After completing the acquisition of the CB It has been greatly reduced, so the CPI has dropped a lot. So what you said is basically what I just said, the profit.

But in general, it's not just about this. Because we have so much cash, how should we deal with our profits? Maximize, optimize, I should say. So I think this is one part of our financial management. So why do we have some crypto in our hands? That is to say, we bought Ether. Is there anything that hasn't been done recently? Let's not talk about it. Anyway, we still, and we also invested in some funds. In fact, that return is actually very healthy. We still think it's pretty good. Of course, we have to be very careful how to deal with some money. So I hope it's not just looking at Thank you. Let's move on to the next question.

Hello, I'm Rachel from Nomura. I have a question about games. First of all, I would like to ask the management to share about the reason behind the drop in mobile games in the first half of the year. Secondly, we want to know if the consumption behavior of gaming paper has changed under this challenging environment. Because we see that we have a lot of new users, but our income growth may be relatively limited. We want to know the changes in the number of paid users, including heavy game players and light game players. OK.

I just asked a few questions. The first one is about mobile games. There are two main factors in mobile games. The first one is related to the rhythm of mobile game products. In the first half of last year, we had a new mobile game product online. In the first half of this year, there is no new mobile game product online. So this part will cause an income fluctuation with the rhythm of mobile game online. Of course, the current mobile game we are playing is relatively stable, but there are some fluctuations. As Slice mentioned earlier, this fluctuation will be optimized with our channel. Because now we want mobile games to be able to run longer. Therefore, we may also manage the channels of many users. If we find a channel of a user whose return rate is not particularly high, we will take the initiative to make some adjustments. This part will have an impact on the ecosystem in the short term, but we have seen that the ecosystem has basically recovered in the past few months. This is also what we just mentioned, that we take the initiative to optimize our way of purchasing and the cost ratio of purchasing, and take the initiative to adjust the result. This is in the mobile part. The second question is, in the terminal part, why is the number of users growing? Why is our consumption not going up very fast? This is actually caused by two factors. The first one is that the user entry is actually the first step of the user payment. That is to say, the user has a rhythm from its return to its flow to its payment. From the perspective of long-term operation, we do not want to say that this is the behavior of cutting leeks. The user was very happy at the beginning, so our content was attracted and immediately returned. Then, before we do anything, we cut it first. Basically, we do not like to do such a thing on long-term operation. we have to deal with it in different stages. For example, in the first stage, we hope that users can come back, see our good stuff, and save it in our game. In the second stage, after they start to like our game content and start to get used to it, we will gradually bring it to the payment side. I believe that the return of our users is a good start. In the second stage, we will continue to do this according to our steps. That's the second point. The third point is, in fact, I think that some of our past proactive judgment on users and the market is currently proven to be correct. This is also very important to us. That means, From the user's point of view, we are actively leading the increase of cultural consumption habits. We found that it grows very fast. In fact, we may still think that this trend does not come so quickly. In fact, due to some of this year's economic impact, in fact, ordinary people's consumption is actually declining in some parts that can be consumed and can not be consumed. However, the cost of some unique content is increased. I think this is a good thing in the future, because our previous layout was done in this direction. So in the second half of the year, we can quickly increase the investment in this part of the content. At the same time, the end-of-the-line market may be a very good news for us, because we have a big improvement in the performance of the subsequent layout projects. At that time, we were still relatively worried about the popularity of end-of-the-line market users, whether their pure model upgrades could Thank you. Richard, do you have any other questions? No. Let's move on. Let's see if there are any other questions. This gentleman, please.

Hello, I'm from Pinnacle. Eric, I have a question about long-term stock return. Because our current share price ratio is relatively stable, the last half of the year, we were talking about $0.04. Will it be possible to increase the share price ratio? Will the share price ratio be increased? Or will there be some repurchase?

Or some other plans? We will see. Because what you are talking about is all the same, how to optimize the shareholder. We will definitely see. But in detail, We can't. There's nothing to be announced right now. Because you see, we've already done the retake. Last year.

Last year and the year before, we did the retake. Yes, we did the retake in the past three years. And we also filmed two special scenes.

But I think the filming is still more direct. It has an impact.

I think if you look at the historical, because I've been in Wanglong for a long time. In fact, over the past few years, the filming has been growing. So this is our track record.

Okay, thank you.

Thank you. Next, let's move on to an online question and then come back to the stage. This question is from Alex from Anxin International. The development cost of game business is relatively high in the first half of the year. Will the number of developers continue to increase? How do we control the cost in the future?

Thank you. Okay.

In this part, it means that the number of developers will increase in the first half of the year. The main reason is that we only put a large number of developers into the supply chain. As you all know, the number of people who started the project is relatively large compared to the number of people who started the project in the first half of the year.

So, in the first half of this year, because our number of people started the project was relatively smooth, so the number of people started to grow. However, in the second half of this year, the number of people started to decline, mainly due to two reasons. The first reason is that we didn't introduce the usage rate of AIGC this time. Last time, I introduced that AIGC's usage rate is constantly increasing. This year, in the first half of the year, its efficiency has increased. This means that the usage rate of AIGC continues to grow. At this time, for example, if we increase 5% of people, it will actually increase 10% of the output. This is what we are very happy to see. So in the second half of the year, we will continue to promote AIGC. including the use of external resources to optimize our cost structure. So in the second half of the year, it is already a very stable trend. But we hope to accelerate this application to make a drop. At this time, I think the long-term view of AIGC is very, very obvious for the improvement of the performance of our game development. So in the long term, we still hope that our development scale will continue to bring more and better products when it drops slightly.

In fact, I would like to add that this is a very good question, because we are connected to AI. I just talked about some AI in education. In fact, for our entire company, AI actually helps us in two aspects. On the one hand, it is to increase our products, such as SaaS. But in fact, our entire company is looking at AI. How to make our internal operation more efficient This is not only in the game In fact, our entire company is in the back office Do some management We try to use AI again So sometimes I think you see us the cost is reduced. It's not that our efficiency is reduced. In fact, it may be that when it drops, on the contrary, the efficiency will increase. Because now AI can really help us more and more.

Thank you, Simon. Thank you, Mr. Lin. The next question is also online. It's from Zhao Maiqi from Taibao Real Estate. How is the market share of our education platform now? What are the trends? When can we see a better recovery growth? And in the education business, do we have any plans for our staff? Will there be an expansion of staff recruitment in the future? Thank you.

In general, the so-called headwind that we are facing now is not the headwind of our company, but the headwind of the entire think tank, especially in the United States. We are the largest in the United States, so the impact is more obvious. In fact, our market share is still the same. We are still leading. I would like to add that we have done a lot of analysis. For example, our number of orders. In fact, there is no big difference with the previous year. But the amount of each contract. market share market share market share market share When can we come back? First of all, Q1 and Q2 are relatively low in terms of traditional standards. In the past, the purchase time in the U.S. was in Q2 and Q3. So we saw some of them go up. So we think that in the next six months, especially in the U.S., there will be some challenges. Because of the election problem. The election started in November. So our view is that it should start in 2025. But we don't think we should wait for the market to come back. We should take the initiative. So I just said, let's see what other things can be done. Some short-term, some long-term. So we are dealing with that. But I can't talk about it in detail. Because the first one is another New York listed company. The other one is that they have a lot of plans. The board of directors of Mind.ai has not officially approved it yet. So we will wait until that time to talk to everyone. So we will think about it again and wait for our Capital Market Day. At that time, we will introduce it in detail to everyone. I think our future growth must be from Let's return to our floor.

Thanks for the presentation today. Regarding the game business segment, please elaborate how does NetDragon balance the need to attract and retain best employees, such as developers and testers, et cetera. Ensure timely and consistent quality of game and upgrades. For example, meeting KPI, yet also keeping the salary competitive, and not overpaying for talent. Thank you.

Wow, that's a low required question. How much time do we have? I think we need to spend the rest of the day tackling it.

Do you want to answer?

No, I can answer in Chinese. I can answer in Chinese. I can answer in Chinese. So, for us, gaming is an industry of talent. Because we can divide gaming into two parts, creativity and production. In fact, in terms of production, we are currently pursuing high quality. High stability. Because when a user plays a game, he hopes that the content he plays will continue to maintain a quality. He doesn't want to say that after playing a game, it may be very good at the beginning and then very bad at the end. So for the mass production of games, he pursues high quality, high efficiency, high output. Therefore, we are constantly improving our production process and production methods to ensure that our art and all the content we observe will remain in a very efficient and high-quality state. This is how we manage and develop our students who produce games. Of course, we are working towards AAA. The other one is our creative core design students. Now, I think there are two trends. The first one is that we still need to inspire people's inner love. In the creative part, we may sign with many students. When a student does what he likes, what he is good at, he will usually generate more energy. This is the first point. The second point is that the current game is a combination of art, programming, planning, history, and even all the integrated content. Therefore, we value the cooperation of these cross-departments so that they can work closely together to become a creative team. to use their ideas and passion in creation. This is the most important thing for our creative staff. Of course, for Pay, we are a listed company. We are still able to design short-term and long-term feedbacks that are relatively competitive to encourage everyone. But for this elite creative team, we think it is the most core way to play the game, the art of the earth.

So let me do this. So I'm going to talk about it in general. I have to apologize to the gentleman who asked the question. So I think what we do is actually we'll summarize what Lin Chen has said and then we'll send it to him. But in general, it's kind of like a dynamic process. We don't have one set of rules addressing everything. so what what he's saying is actually we we're going to be looking for different people for different parts of our businesses uh we want people to be you know creative which is a core group but we also need a lot of uh uh foot soldiers to help us to kind of implement what uh what we want to do i think the salary part is actually is quite simple we need to be market competitive right so it's actually uh you know we we're going to have a mix of people in terms of skill set And also, we want to give them meaningful job so they can be satisfied with what they're doing. So I want to bring AI back in here. I think that's part of the whole astrology. With AI, we can kind of have AI doing a lot of the less interesting job or repetitive job of everybody and allow people to focus on being more creative, being more entrepreneurial. So it's actually, that's kind of the overall direction. Again, not just for gaming, but also for our other businesses too.

Thank you, Simon. Thank you, Mr. Lin. Next, let's take a look at the scene. Are there any other questions? Any questions from our floor? OK. This concludes the presentations today. We wish you have a very good day today. Thank you very much. Thank you.