Earnings Call Transcript - BABA Q3 2020

Robert Lin, Head of Investor Relations

Good day, everyone, and welcome to Alibaba Group's December Quarter 2019 Results Conference Call. With us today are Daniel Zhang, Executive Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, Chief Financial Officer. This call is also being webcast from our IR section of the corporate website. A replay of the call will be available on the website later today. Now let me quickly cover the safe harbor. Today's discussion will contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the U.S. SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, marketplace-based core commerce adjusted EBITA, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. Unless otherwise stated, growth rate of all of the stated metrics mentioned during this call refers to year-over-year growth versus the same quarter last year. In addition, I want to let everyone know that today's Q&A session will be conducted in both Chinese and English. A third-party translator will provide consecutive interpretation for the Q&A session, and our management will address your question in the language you asked. Please note that the translation is for convenience purposes only. In the case of any discrepancy, our management statement in the original language will prevail. With that, I'm going to pass to Daniel.

Daniel Zhang, CEO

Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. We delivered an outstanding quarter for a strong finish to the 2019 calendar year and celebrated three major milestones especially important to Alibaba. First, we successfully held our 11.11 Global Shopping Festival. Second, we successfully listed on the Hong Kong Stock Exchange. Thirdly, Dr. Wang Jian, Chairman of the Alibaba Technologies Steering Committee, was the first representative from the private sector to be appointed as a member of the Chinese Academy of Engineering. However, like all other companies in China, we are confronted with a black swan event soon after the start of 2020, the novel coronavirus. The outbreak is having a significant impact on China's economy and may potentially affect the global economy. It will present near-term challenges to the development of Alibaba's business across-the-board, but at the same time, we will see opportunities created by the forces of change. Before further elaborating, I will share an overview of our performance for the December quarter. According to the China Ministry of Commerce, total retail sales across China increased by 8% year-over-year in 2019 for a total of RMB 41 trillion. Consumption contributed 58% of China's economic growth and accounted for 3.5 percentage points of China GDP growth. Online retail sales of physical goods for the year was RMB 8.5 trillion, up 19.5% year-over-year. From these figures, it is clear that consumption has become the major driver of economic growth in China, and online retail is the engine driving consumption growth. Over the past quarter, our China retail marketplaces continued to maintain rapid growth in both GMV and user base. As of December 31, annual active consumers reached 711 million, representing a net increase of 18 million over the previous quarter. Over 60% of new AAC came from less-developed areas. China retail marketplaces MAU reached 824 million, up 39 million from the previous quarter. We noticed stronger unit engagement and buying frequency as measured by DAU growing faster than MAU. This reflects healthy user business on Taobao. Tmall physical goods GMV grew 24% year-over-year, further consolidating our leadership position as the top consumer engagement and distribution platform for brands in China. Our 11.11 Global Shopping Festival set a new GMV record of RMB 268.4 billion. This is equivalent to 2.3x the combined online sales of Black Friday and Cyber Monday in the U.S. It reflects the strength of Alibaba's digital economy and our Chinese consumers' robust consumption power. More and more merchants are leveraging 11.11 to acquire new customers, launch new products, and develop new categories. During this year's November 11, fifteen brands surpassed RMB 1 billion in total sales. Two hundred fifteen premium brands launched their new products in new categories. And 120,000 merchants each acquired over 10,000 new customers. Our globalization strategy enjoyed solid progress this quarter. Lazada and AliExpress continued to grow rapidly as a result of effective strategies in user acquisition and merchant onboarding. Lazada's quarterly orders increased 97% year-over-year, and AliExpress DAU grew by 56% for the month of December. Tmall Global paid GMV grew by 45% year-on-year and continued to consolidate its leading position in China's cross-border import market. And with the ongoing optimization of bonded warehouse import logistics solutions, Tmall Global's end-to-end order delivery time has further improved by 2.78 days, which is a 10% reduction in delivery time compared to the same period last year. Cainiao Network continued to go from strength to strength. During this November 11, Cainiao processed a record-breaking 1.29 billion packages. Of those, 960 million were delivered within one week, an improvement of 30% year-over-year, as a result of ongoing platform optimization and collective efforts with our logistic partners. We also saw a preference for using Cainiao Post, our last-mile service stations in residential areas and campuses. The number of packages collected by Cainiao Post increased by 88% year-over-year. In November 2019, we invested RMB 23.3 billion to raise our equity stake in Cainiao from 51% to 53%. This investment is a demonstration of Alibaba's commitment to the development of a small logistics backbone as one of the core pieces of infrastructure for digital commerce. Alibaba Cloud continued its rapid rise with 62% year-over-year revenue growth. We celebrated two meaningful milestones this quarter. The first milestone is Alibaba Cloud revenue surpassed RMB 10 billion in a single quarter for the first time. The second milestone was the successful migration of our e-commerce businesses' core systems onto the public cloud. During 11.11, our public cloud infrastructure and technology helped us to power the creation of over 544,000 orders per second at peak, process 970 petabytes of data without any disruption and defend against 6 billion cyberattacks, all within a 24-hour period. We believe the migration of Alibaba's core e-commerce system to the public cloud is a watershed event. Not only will we enjoy greater operating efficiency, but we believe it will also encourage others to adopt our public cloud infrastructure. Now I would like to speak to the coronavirus situation on three areas: first, the responsibilities and duties that we assumed towards the community immediately upon the outbreak; second, our relief measures to support SMEs; third, the potential challenges and opportunities that we see for Alibaba's business in connection with the outbreak. Let me start with our actions related to our community. We took every effort to protect the health and safety of our employees through flexible work policy and remote office collaboration using our proprietary technology. At the same time, we leveraged Alibaba's powerful forces of commerce and technology to deliver supplies to the affected regions. This is our responsibility to our community. Soon after the outbreak, we began to procure medical supplies from around the world. To date, over 40 million units of medical supplies worth RMB 468 million are on their way or have been donated to Wuhan and other affected cities. Cainiao teamed up with our global industry partners to launch fast-track logistics channels that facilitate delivery of over 26 million units of medical supplies into Wuhan and other cities to date. We also worked to ensure supply of food and other consumables for the residents in affected regions. Our self-operated grocery chain, Freshippo, committed to a policy of remaining open for business, not raising prices, and remaining stocked, particularly in the 18 stores across Wuhan. Freshippo became a lifeline for many local residents. Additionally, Freshippo and Ele.me teamed up with restaurant chains to provide free meals and necessities to the hospital staff in Wuhan and emergency response teams. Alibaba also contributed the power of our advanced technologies to combat the outbreak. DAMO Academy provides free AI voice chatbot service to government and academic or prevention agencies to efficiently keep a daily health record of those who might have close contact with infected patients. Our enterprise communication and collaboration app, DingTalk, introduced a digital health check-in feature to help companies maintain up-to-date health monitoring of their employees. To date, there have been more than 150 million daily health check-ins recorded in DingTalk. Now about our relief measures in support of SMEs. Together with Ant Financial, we announced a comprehensive set of relief measures that fall under six categories: one, reduction of business operation costs on our platforms; two, financial support by waiving or lowering interest rates; three, subsidies for delivery personnel and raising the level of logistic efficiency; four, provisions of flexible job opportunities to guarantee income; five, additional tools for businesses to accelerate digital utilization; six, remote working management for enterprises. We will support our merchants to overcome this challenging time and are taking proactive measures to fulfill our mission to make it easy to do business anywhere. Lastly, the potential impact on our business. We are closely monitoring the challenges as well as identifying opportunities for Alibaba's business as the situation evolves. For our e-commerce business, the delay in employees returning to work following the Spring Festival holiday is preventing merchants and logistics companies from resuming operations. For the first two weeks after the Chinese New Year holiday, we have observed negative impacts on our commerce business as merchant operations have not returned to normal, and a significant number of packages were not able to be delivered on time. In our New Retail business, Freshippo and Taoxianda's average basket size increased significantly as a result of consumer migration to online purchasing of fresh food, groceries, and a broader selection of daily necessities. However, limitations in delivery capacity are preventing order volume from fully recovering. For local consumer services, restaurant visits and food delivery orders declined noticeably year-over-year because many restaurants have not resumed normal operations. Other categories like grocery shopping have increased sharply. Our travel booking service, Fliggy, received material levels of cancellations for air tickets, hotel reservations, and tour packages. In accordance with government regulations, Fliggy provided unconditional and penalty-free cancellation to our customers. DingTalk has experienced explosive growth in DAU and number of corporate users. It is providing business with remote working features to maintain their operation and accelerate their digitalization. We are closely monitoring the impact of the ongoing outbreak on our business and will take necessary measures to ensure our business operations. Our mission is to make it easy to do business anywhere, and we are being tested. True to our mission, we will stand together with all of our merchants to overcome the current challenges and facilitate our users and our communities to fight against the virus. Seventeen years ago, the e-commerce business experienced tremendous growth after SARS. We believe that adversity will be followed by changes in behavior among consumers and enterprises, leading to ensuing opportunities. We have observed more and more consumers getting comfortable with taking care of their daily living needs and working requirements through digital means. We are confident in the ongoing digitization of China's economy and society and are ready to see the opportunity to build the foundation for the long-term growth of Alibaba's digital economy. Now I will turn the call over to Maggie, who will walk you through the details of our financial results.

Maggie Wu, CFO

Thank you, Daniel. Thank you, everyone, for joining us. Before we start, I would like to say that our thoughts and prayers go to those families deeply impacted by the coronavirus outbreak. At the end of my prepared remarks, I will also share with you our current assessment of the effects of this epidemic. So before talking about this quarter's financial results, let me give you a quick summary on this Hong Kong listing. On November 26, we successfully listed on the Hong Kong Stock Exchange. We offered 575 million new ordinary shares with proceeds of about HKD 100 billion or about USD 13 billion. Our shares are multiple times oversubscribed. We view Hong Kong as strategically important to us. Overall, this is a very successful listing. So let me review our financial highlights. We had another strong quarter. We achieved strong results for our core commerce segment, reflecting our strategic focus on user acquisition and engagement, as well as enhancing product varieties and increasing our offerings of price-competitive products. Mobile MAU were up 39 million, reaching 824 million. New active consumer on our China retail marketplace increased about 18 million to 711 million. Over 60% of new annual active consumers were from less developed areas. The increase in consumer growth reflected continuous improvement in our consumer segment initiatives. These initiatives have been well received by consumers as evidenced by higher purchase frequency for our China retail marketplace business. When we look at December quarter revenue, our total revenue grew 38% to RMB 161 billion. Excluding the effects of consolidating acquired businesses, mainly Kaola, total revenue would still have grown at 33%. The increase was mainly driven by robust growth of our China commerce retail business and Alibaba Cloud. Our operation continues to run efficiently. When you look at the quarter's cost trends, cost expenses are well controlled, while our business has continued to grow. So let's turn to the secondary reports. Core commerce continued to be very strong. Revenue grew 38% to CNY 141 billion. The fundamentals of our China retail business continued to be very strong, and customer management revenue grew by 23% in the quarter. This growth was primarily the result of an increase in the average unit price per click and an increase in the volume of paid clicks from improving click-through rates. The growth also reflects strong growth in the number of paying merchants during the quarter. Commission revenue grew by 16%, primarily due to the strong 24% growth of Tmall online physical goods GMV. The increase in direct sales volume helps us improve our supply chain and operational efficiency for the business. China retail others revenue, mainly our New Retail business revenue, is still growing very strongly, 128%. This increase was driven by our direct sales business, including Tmall Supermarket and Freshippo. This quarter is also the first full quarter of consolidation of Kaola, which we acquired in September 2019. Let's take a look at the details. As Daniel mentioned, we experienced strong growth in our global markets. Lazada and AliExpress continued to deliver robust growth in orders and active merchants. Revenue for our international retail business grew 27% to RMB 7.4 billion. The increase was primarily driven by growth in revenue from Lazada, partially offset by slower revenue growth from AliExpress because we deconsolidated the Russian business of AliExpress in October 2019. Cainiao's fast growth across other businesses supported the increased adoption fulfilled by Cainiao's service. This growth contributed to strong revenue growth for Cainiao. In the quarter, Cainiao revenue reached RMB 7.5 billion, growing at 67%. For our local consumer service, revenue grew 47% to 7.6 billion. During the quarter, we continued to achieve strong growth in GMV, driven by robust order growth and the increase in average order value. We will continue to take a targeted and systematic approach to invest in local consumer service. Alibaba Cloud's cloud computing revenue grew at 62%, reaching 10.7 billion. This is the first quarter that cloud business revenue surpassed RMB 10 billion. The robust cloud revenue growth was primarily driven by increased revenue contribution from both our public cloud and hybrid cloud business. Let's look at profitability. In our commerce segment, we continued to generate strong market-based core commerce adjusted EBITA, which reached CNY 66 billion, growing at 22%. Comparing to a year ago, we have increased adjusted EBITA by CNY 12 billion in absolute dollar amount while the combined losses in our four strategic areas were all flat year-over-year. This reflects our targeted approach to the allocation of resources and investment in key strategic growth areas while also optimizing costs and improving efficiency. After incorporating these losses, our core commerce adjusted EBITA grew strongly by 26%. Now look at the cloud computing segment. Adjusted EBITA was a loss of CNY 356 million. The EBITDA margin improved slightly during the quarter. The loss margin got narrowed. Our digital media and entertainment segment's adjusted EBITA loss was CNY 3.3 billion. This loss has been significantly reduced from CNY 6 billion in the same quarter last year. Excluding content-impairment impacts, EBITA losses would be CNY 1.2 billion, a reduction from CNY 2.8 billion in the same quarter last year. Innovation initiatives' adjusted EBITA for innovation initiatives was a loss of RMB 1.9 billion. Look at the free cash flow and capital expenditures. Our business overall continued to show strong profitability and cash flow. So as of December 31, cash, cash equivalents and short-term investments were CNY 352 billion or approximately USD 50 billion. For the December quarter, free cash flow was CNY 78 billion, which increased by 52%. This is mainly due to our robust profitability growth as well as a decrease in CapEx expenditure. Other financial matters: the share of profit from other equity initiatives in the quarter reached CNY 2 billion, which mainly includes our share of profit from Suning. Under equity accounting, Suning completed a transaction related to their financial businesses that created a one-time gain. In addition, we received a 33% equity interest in Ant Financial on September 23, 2019; we recorded our share of profits of RMB 215 million from Ant Financial for the period of September 24 to September 30. As a reminder, our equity account for stake in Ant Financial is on a one-quarter lag basis. There was no other income arising from our prior 37.5% profit-sharing arrangement with Ant Financial during this quarter as it was terminated in September and replaced by this equity pickup. GAAP net income during the quarter was CNY 50 billion, up 62%. To reconcile GAAP net income to non-GAAP net income, we made the following adjustments. First, we took the exclusion of RMB 17 billion in investment gains and others. These gains primarily include a one-time gain related to our contribution to the AliExpress Russia business into a JV and a gain in the fair value of our equity investments. Second, we excluded the additional CNY 2.3 billion one-time gain related to the 33% equity interest in Ant that we received in September. Excluding these gains and losses and certain other items, our non-GAAP net income would have increased by 56% to CNY 46.5 billion. We've finished the cash flow discussion, and that's pretty much other financial metrics and non-GAAP income. Now let's take a look at the impact of the recent coronavirus breakout. So we ended the calendar 2019 on a high note. We successfully listed on the Hong Kong Stock Exchange and delivered strong sets of results in the December 2019 quarter. The strong performance continued in the month of January with our major business maintaining solid revenue growth. As Daniel mentioned in his remarks, some of our major businesses have been negatively impacted in February due to the coronavirus outbreak and the resulting business disruption that followed in most parts of the economy. At the same time, we have announced, together with Ant Financial, 20 major initiatives and relief programs to help our customers and partners. While it's too early to quantify the financial impact of the coronavirus on our business, I would like to provide some qualitative observations on the situation. First, the epidemic has negatively impacted the overall China economy, especially the retail and service sectors. While demand for goods and services is there, the means of production in the economy has been hampered by delayed openings of offices, factories, and stores after the Lunar New Year holiday. We, like other businesses, are not immune to this imbalance of supply and demand. However, we see this unfortunate situation as an opportunity to provide value and support to our customers in order to help them recover production and supply capability as soon as possible. Their recovery and long-term success would translate into sustainable, long-term growth for Alibaba Group, similar to what we experienced during the SARS outbreak in 2003. So for financial impact, I talked about so what could impact our financials for March quarter, right? There are two things. One thing is the coronavirus outbreak's impact on our own business. The other thing is that we're also offering these relief programs to help our merchants. Let me talk about overall impact. I said two things. Number one is that we estimated March quarter revenue growth would experience negative impact, which means that the growth rate will come down significantly. We just don't know yet because this is just mid-February. And number two, I said that the business in our China retail marketplace, production-related, which means China retail marketplace, Taobao and Tmall, CMR and commission, as well as local consumer service would likely experience negative revenue growth. So that's to clarify.

Daniel Zhang, CEO

This is Daniel. Let me answer the second question. I think whether it will be a U correction or V-shaped correction is highly dependent on how long it takes to finish this outbreak. The longer it takes, the longer we will take to recover because many service sectors are disrupted during this outbreak. I think if we can recover as we see in recent days and we should see some good indications in cities outside of Wuhan, I think that will take time to see how quickly we could recover.

Robert Lin, Head of Investor Relations

Operator, before we start, I just want to remind all the analysts that you can ask the question in Chinese or English, and our management will respond to you in the language you asked. With that, operator, let's open to questions.

Operator, Operator

Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from the line of Thomas Chong from Jefferies.

Thomas Chong, Analyst

I have a question about the migration online. Post the coronavirus, would our digitization strategy further speed up given offline merchants realize the significance of going online and the data insights from our ecosystem? The other question I have is about the synergies we've earned in local services. What are the strategies to further unlock the potential of Ele.me on top of food delivery?

Daniel Zhang, CEO

Thank you, Thomas. This is Daniel. Let me answer these two questions. For the first one, in this outbreak, there are many consumers changing their way of living and many office workers changing how to work. So people now work remotely from home. People buy food, fresh products, groceries, and necessities from home. This crisis is a very big challenge to society but also, as I said in my remarks, gives people a chance to try new ways of living and working. So I would expect that this is an inevitable trend that more businesses and customers will have a digital life or digital working style. This obviously will, in the long run, be good for the digital pace of the whole society. And for your second question, local service is a very important sector in consumption. Alibaba has a strong commitment to this sector, and we don't view this as a business, but we think this is foundational for consumption.

Eddie Leung, Analyst

My question is regarding Tmall and Taobao. We heard both from Daniel and Maggie that there's an impact on both supply and logistics brought about by this coronavirus outbreak. My question, however, goes to the demand side. I'm wondering if you're seeing any different impact on demand, for example, in different categories or in different markets. For example, first-tier cities versus the less developed markets. Could you tell us about any impact you're seeing on the demand side, in categories like clothing or consumer electronics?

Robert Lin, Head of Investor Relations

Thank you very much for your question and also for your best wishes. The answer is, yes, we certainly are seeing some relatively large changes in demand in different categories. For example, in the category including food and daily necessities, fast-moving consumer goods, we're seeing relatively rapid growth. Of course, part of that growth is coming from the traditional retail sales sector with delivery from nearby shops.

Daniel Zhang, CEO

Secondly, when you look at categories like clothing and consumer electronics, of course, there's a big challenge there, including on the supply side, but also including reduced willingness on the part of consumers to make those kinds of purchases at the height of the epidemic. Of course, I'm confident that will turn around as the situation improves.

Alex Yao, Analyst

Best wishes to working through the challenging environment. I would like to clarify with Maggie your comment about the financial implications for the quarter from the current situation. Did you say that the business with a strong connection to physical production and fulfillment will be declined, specifically, actually, you talked about China marketplace revenue will be declined for March, which means your CMR and commission revenue would decline? The second part is if we assume this coronavirus situation is short-lived, just like what happened in 2003 with SARS, should we be expecting a V-shaped recovery or U-shaped recovery?

Maggie Wu, CFO

Okay. So for financial impact, Alex, I talked about what could impact our financials for March quarter. There are two things. One thing is the coronavirus outbreak's impact on our own business. The other thing is that we're also offering these relief programs to help our merchants. Let me talk about the overall impact. I said two things. Number one is that we estimated March quarter revenue growth would experience negative impact, which means that the growth rate will come down. It's possible that growth rate comes down significantly. We just don't know yet because this is just mid-February. Number two, I said that business in our China retail marketplace related to production would likely experience negative revenue growth.

Daniel Zhang, CEO

Let me answer the second question. I think whether it will be a U correction or V-shaped correction is highly dependent on how long it takes to finish this outbreak. The longer it takes, the longer it will take to recover because many service sectors are disrupted during this outbreak. If we can recover as we see in recent days and we should see some good indications in cities outside of Wuhan, I think that will take time to see how quickly we could recover.

Binnie Wong, Analyst

My question is actually on local services. If you look at the loss tracked to core commerce EBITDA, right, the line that adjusts for the FX in the losses in the local services, we see it's positive to note that the loss margin percentage is actually narrowing. Should we expect similar trends to continue? The second question, we see meaningful operating leverage in the product development expenses. I just want to understand what are the positive reasons we have seen on the improvement?

Daniel Zhang, CEO

Actually, local service business is our long-term commitment and we don't manage the business purely by EBITA ratio. We focus on creating value for both the customers and merchants. All service sectors are in the process of digitalizing their business, and consumers are already enjoying their digital lives. We will work even harder to try to identify the value for both merchants and consumers and create incremental value for them.

Maggie Wu, CFO

Let me answer your second question regarding the product development leverage. If you break it down, the staff cost is mainly the item that brings this average. The growth of this payroll is not at the same pace as the revenue growth. We've been quite aggressively looking for these top data scientists and engineers. But what you've seen is that since revenue growth is very strong, the recruiting this quarter is not at the same pace. We have been recruiting throughout the past quarters. Along with business growth, some of the fixed costs wouldn't grow. This is where the operating leverage will come from.

Tina Long, Analyst

Just a couple of small questions. My first question relates to the information received regarding differences in commission revenue and GMV for different merchants in different categories where preferential pricing was applied. And I'm wondering if that's a one-off thing for the 11.11 Singles' Day Shopping Festival or will that differential pricing be an ongoing exercise going forward?

Maggie Wu, CFO

On your first question regarding commission discounts offered in the 11.11 Shopping Festival for different categories, it's true that 11.11 performed excellently this year. Those discounts are being offered to eligible merchants in key categories, including FMCG and electronics. Merchants who have performed very robustly in terms of GMV, hitting GMV targets, are receiving discounts. This is not a new policy. It's there to encourage and reward good merchants with good performance. We will continue to have this policy to reward merchants.

Piyush Mubayi, Analyst

I wondered, Daniel talked about an improvement over the last 12 days. Could you just take us through qualitatively what is the degree of improvement we've seen over the 12, 13 days? And Daniel also talked about the opportunities that get created during this period. What are the top three features in DingTalk that have been very popular, and how do we see this product evolve in terms of size, scale, MAU, DAU, for example, since CNY?

Daniel Zhang, CEO

In the past 10 to 15 days, I think before this week, most merchants didn't have assets back to work. But this Monday, in big cities like Shanghai, Beijing, Guangzhou, and Shenzhen, more companies' staff are back to work partially. We also see the logistics network starting to resume operation, especially in the sortation centers in big cities. We have observed that the situation is getting slightly better, but it takes time to get back to normal. I strongly believe that after the virus leaves, consumers will have a strong desire to go out and consume. For DingTalk, it is experiencing explosive growth during the outbreak. We facilitated our people to work from home and study in virtual classes online. We also facilitated daily health check-ins with employees. We have features like video conferencing and virtual classrooms that are very popular among workers, office staff, as well as the education sector. We'll continue to extend our capacity, and although we face some difficulties, the situation is getting better.

Robert Lin, Head of Investor Relations

Thank you, everyone, for joining our earnings call today. If you have any additional questions, please feel free to contact anyone at the IR team. Thank you.

Operator, Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.