Aurora Mobile Ltd Q3 FY2021 Earnings Call

Thank you, Annie. Hello, everyone, and thank you for joining us today. Aurora's earnings release was distributed earlier today and is available on the IR website at ir.jiguang.cn. On the call today are Mr. Weidong Luo, Chairman and Chief Executive Officer; Mr. Fei Chen, President; and Mr. Shan-Nen Bong, Chief Financial Officer. Following their prepared remarks, all three will be available to answer your questions during the Q&A session that will follow. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions which are difficult to predict and may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and/or factors are included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. With that, I will now turn the conference over to Mr. Luo. Please go ahead.

Thanks, Rene. Good morning and good evening to everyone on the call. Welcome to Aurora Mobile's first quarter 2021 earnings call. This is the third quarter where we have been operating under the pure SAAS business model since the beginning of 2021. We continue to see great business growth in the SAAS business, and I will go straight into our quarterly results and share with you our business progress and key business metrics in the third quarter of 2021. Before I comment on our Q3 results, I would like to remind everyone that the quarterly earnings deck is available on our IR website for your reference. You may refer to the deck as we proceed with the call today. Let's begin our review with highlights of our key operating and financial performance for the third quarter of 2021. As a reminder, we completely exited Targeted Marketing at the end of 2020, and our business is now 100% focused on Subscription model, which includes Developer Services and Vertical Applications. For an apple-to-apple comparison, numbers presented exclude contribution from the legacy Targeted Marketing in the full year. In the first quarter, we have seen a steady and solid upward trend in our SAAS business, which is a result of our dedicated effort in building and growing them. Here is a summary of the solid results for 2021. The number of paying customers increased to 2,729 from 2,320 a year ago, up 18% year-over-year. Revenues were RMB19.5 million, up 48% year-over-year. Group gross margin was 74.4%, which is more than 1.5 times compared with 47% from a year ago. Gross profit was RMB57.4 million, up 48% year-over-year, and adjusted EBITDA was negative RMB16.1 million, a substantial improvement of 27% from a year ago, demonstrating our strong operating leverage. Total deferred revenue was up RMB100 million for six consecutive quarters, indicating strength in suites growth. Accounts receivable days continued to decrease to 39 days, indicating our disciplined credit granting, and the majority of quality customers are paying on time. Revenues from our SAAS business set another quarterly record high with 48% growth in Development Services and 18% in Vertical Applications on a year-over-year basis. Our group margin has greatly improved from 47% a year ago to 74.4%, which was the result of our successful transition into the pure SAAS business model since the beginning of 2021. The strong gross profit growth of our SAAS business was mainly driven by revenue growth of 38% year-over-year. The backbone of our continuous revenue growth has been our relentless team effort and prioritization of innovation in developer services’ products. We always strive to provide solutions that exceed our customers' needs and requirements for continuous development feedback iterations. In this quarter, we are proud to share recent updates with you and innovations across various product lines. Our product development strategy has always been to introduce rightly upgraded products that are scalable and suitable for all industries. Then based on the needs and feedback from each specific industry vertical, we move on to address and offer solutions and services that can meet the specialty requirements of each user base in our target market. For example, how do we go deeper to raise customers' participation and fulfill their needs. Many of our development efforts in recent quarters have been focused on creating deeper customer engagement. In Q3, we launched a free version of our core JPush product, featuring a brand-new upgrade to the HUB function whereby mobile app developers can easily integrate with the seven major mobile phone manufacturers and operating systems push channels into the app, including but not limited to channels such as Huawei, Xiaomi, Oppo, Vivo, and Meizu. For this HUB function, we are able to help mobile app developers significantly increase the overall notification delivery rate by 80% compared to those mobile apps that do not use this HUB function, which sequentially improved the performance of their apps. Mobile app developers no longer had to integrate each manufacturer and operating system channel on their own. By using our HUB function, they can easily integrate all of these seven major notification channels and manage all of the push messages on our G1 platform in one go. As of today, over 7,000 apps have already started using this new function. Over 35% of the new apps that use our JPush SDK have already integrated this function into their apps. This HUB function marks a new milestone in helping developers greatly improve their push results with very simple and efficient integration steps and cements our position as the leading push notification provider in China. As one of several newly introduced products in 2021, our VAAS product has generated much customer interest. With the growing demands in the short video industry, we have noticed that some industry verticals have evolved over the past few years and become even more dependent on the product range and scope of VAAS service. During the quarter, one of the most renowned manufacturers in the smartphone industry started testing our VAAS products on their smartphone appliance intended for wider rollout in the near future. As more and more screen displays become integrated into the smartphone update appliances and devices, bringing out the right content on these screens has quickly become a way of keeping users engaged and improving user experience. By providing short videos that are tailored, customized, and geared towards different user groups, and displayed on different appliances, our VAAS product continues to satisfy customers' requirements and increase user stickiness and user retention time. We believe that our VAAS product has vast market potential and applications going forward. In addition, we have recently launched our on-demand video cloud service under the VAAS product lines. This new service provides app developers an opportunity to quickly integrate their app with video function. By implementing our on-demand video cloud service into their apps, developers can enjoy the freedom and convenience to perform a streamlined set of actions, including upload, review, create, manage, and play the videos on their own apps. Each service fundamentally eliminates the traditional process for those developers who want to manage their own videos on their apps. Within the short release period in Q3, we have already seen great customer interest and received numerous inquiries about this product. We have observed that our on-demand video cloud service has added great value to app developers and is part of our product development strategy to satisfy customers' specialty requirements and needs. By doing so, we can develop closer ties with our customers and become their long-term trusted partners. Finally, another very exciting new step I want to share with you is that on November 17, our JVerification and other customized services officially launched on HUAWEI CLOUD. The cooperation with HUAWEI CLOUD demonstrates the industry-wide acclaim and trust we command for our robust technical capabilities and services. Currently, developers can easily purchase and experience our JVerification service by simply logging into a HUAWEI CLOUD account. In addition to JVerification, developers can also gain access to JIGUANG's customized service package on HUAWEI CLOUD, which includes push notifications, instant messaging, traffic monetization JIGUANG Alliance, JIGUANG VAAS, and UMS, among other products that help developers operate, grow, and monetize their applications. We believe that this cooperation with HUAWEI CLOUD can benefit us by reaching out to more potential fee-paying customers and bringing positive results in the near future. In fact, we have already signed a number of paying customers since these alliances started. Now, I will turn the call to Fei, who will discuss the Q3 performance in greater detail.

Thanks, Weidong. Let me start the discussion on different revenue streams within the SAAS businesses. In the third quarter of 2021, revenues from Developer Services reached RMB64.7 million, a robust 48% growth on a year-over-year basis. The year-on-year revenue growth was a result of strong growth of 32% in Subscription services and a very impressive 84% growth in value-added services. Subscription Services revenues were RMB39.8 million, an increase of 32% year-over-year, primarily driven by new customer acquisition. Apart from new customer acquisition, our continuous efforts in cross-selling various non-push subscription products such as JVerification, JSMS, and JAnalytics have increased our customer subscription uptake via multiple product lines. As a result, our revenue contribution of non-push notification products increased to 43% from 31% a year ago. Non-push notification products also achieved a higher ARPU of RMB37,000, resulting in the overall ARPU for subscription services increasing by 13% to RMB16,600 compared to RMB14,700 a year ago. New and renewed contracts with notable customers in the quarter include NetEase News, China Southern Power Grid, Starbucks, McDonald's, and so on. Value-added services within developer services, which include revenues from JG Alliance services and the advertisement SAAS, achieved outstanding results where revenues grew significantly by 84% year-on-year to RMB24.9 million from RMB13.5 million in the third quarter of 2020. The demand for our JG Alliance products has proven to be continuously strong since its introduction to the market. We expect this strong demand trend to continue into the future. On the supply side of JG Alliance, during the quarter, we continued to grow this traffic pool as it is a vital part of our strategy to create opportunities for monetization channels. The total number of apps within our network exceeded 390 apps compared to 344 in the second quarter of 2021, representing a 15% growth quarter-over-quarter. The total DAU within the network has stabilized at RMB180 million, the same as the second quarter. As discussed in the last earnings call, there has been some delay in developers joining our alliance network and integrating our SDK due to the regulatory requirements that became their top focus during the quarter. However, we are seeing the ramp-up of this integration period during the fourth quarter, which lays a solid foundation on the supply side of the equation and can, in turn, help us achieve strong sequential revenue growth for the coming quarters. On the demand side, mini-program developers and app retargeting demand continue to play a pivotal role by contributing to the majority of our JG Alliance revenues in the third quarter of 2021. During the quarter, other agencies contributed more than 50% of the JG Alliance revenue stream while the rest came from direct customers. Major customers of JG Alliance consisted of repeat customers and market leaders across many industry verticals. They include, but are not limited to, Weibo, Maotai, JD, Alipay, Taobao, Baidu, Vipshop, and TravelGo. Now let's move on to Vertical Applications that cover Financial Risk Management, Market Intelligence, and iZone products. These revenues grew steadily by 18% year-over-year, with the lion's share of the growth coming from the Financial Risk Management business. In the Financial Risk Management segment, revenues increased substantially by 35% year-over-year with the help of the 37% growth in ARPU. This quarter, we had another remarkable quarter with the highest revenues since the onset of COVID-19 in the first quarter of 2020. The strong demand for our Financial Risk Management products has paved the way for us to acquire new customers and retain mainly existing customers each quarter. New and renewed customers include Taikang Insurance and other notable names. Our Market Intelligence product line recorded a slight 3% dip in revenue year-over-year due to the lackluster China ADI investment environment in the third quarter of 2021. Nevertheless, we expect the demand for this product line to recover in the current quarter and the quarters going forward. During the third quarter of 2021, we signed renewed contracts with many large customers, including Himalaya, NetEase Media, Ali Entertainment, etc. Lastly, our iZone business has delivered modest 5% revenue growth year-over-year. With that, I'll pass the call over to Shan-Nen.

Thanks, Fei. And I'll go through some of the key expenses and balance sheet items. The total operating expenses increased by 6% year-over-year to RMB103.7 million. In particular, R&D expenses increased by 22% to RMB55.5 million, mainly due to the increase in stock compensation as we continue to invest in our R&D department, and improve IT infrastructure, such as higher bandwidth and cloud expenses to support the expansion of the SAAS businesses. Selling and marketing expenses increased by 5% to RMB29.4 million, mainly due to the increase in stock compensation and traffic expenses. G&A expenses decreased by 22% to RMB18.8 million, mainly due to year-over-year reduction of RMB6.9 million in bad debt provision due to our proactive and strict financial control measures. Adjusted EBITDA calculated as EBITDA excluding share-based compensation, impairment of long-term investment, and change in fair value of foreign currency swap contracts improved by 27% year-over-year to negative RMB16.1 million from negative RMB22 million in Q3 2020. For the third quarter of 2021, we delivered another set of solid financial results. For year-over-year comparison, the key highlights for this quarter include: revenue of our SAAS businesses increased significantly by 38%. Group gross margin improved from 47% to 74.4%, a direct result of Q3 2021 gross margin being 100% contributed by high-margin SAAS businesses. Operating expenses, however, increased by only 6%. As a result, our adjusted EBITDA improved by 27%, which continues to demonstrate the scalability of our business model. This is the third quarter where we have delivered consistent SAAS business results, and we are very pleased with the results we have achieved. We believe that the growth momentum of Q1, Q2, and Q3 this year will continue to bring more strong results in the coming quarters. Next on to the balance sheet. I'll start with two very important KPIs that we closely monitor. Firstly, the AR turnover days decreased from 45 days in Q3 2020 to 39 days in this quarter. This was similar to the trend we have seen last quarter, due to both the shift away from the legacy Targeted Marketing business to focus on SAAS businesses and the disciplined credit granting policy and our focus on improving AR collection. Secondly, the total deferred revenue balance, which represents cash collected from customers, for a sixth consecutive quarter has exceeded RMB100 million at quarter end. As of September 30, 2021, the balance was at RMB119 million, up from RMB111.5 million in Q2 this year. Next, total assets were at RMB627 million as of September 30, 2021. This includes cash and cash equivalents of RMB281 million, accounts receivable of RMB41 million, prepayments of RMB13 million, fixed assets of RMB68.9 million, and long-term investment of RMB165.6 million. Total current liabilities were at RMB373.1 million as of September 30, 2021. This includes short-term loans of RMB105 million, accounts payable of RMB13.5 million, deferred revenue of RMB114.4 million, and accrued liabilities of RMB95.1 million. Next on to business outlook. Based on the current information available, the Company sees full year 2021 revenue guidance to be in the range of RMB350 million to RMB360 million, representing growth of 36% to 40% year-over-year compared with last year and our guidance for our full year gross margin to remain above 70%. Please note that for meaningful comparison purposes, the prior year revenue numbers used to calculate the growth percentage exclude revenue from the Targeted Marketing business. The growth outlook is based on current market conditions and reflects the Company's current and preliminary estimate of market and operating conditions and customer demand, which are all subject to changes. Lastly, before I conclude, I'll give a quick update on the share repurchase plan. In the quarter ended September 30, 2021, we did not repurchase any shares. As of September 30, 2021, cumulatively, we have repurchased a total of 921,000 ADS since the start of our repurchase program. This concludes the management's prepared remarks. We're happy to take your questions now. Rene, back to you.

Thank you. Our first question is from the line of Brian Kinstlinger of Alliance Global Partners. Please go ahead.

First, can you comment on the pace of JG Alliance integrations? Has the pace picked up to the same pace prior to the discussions of new regulations? Or is there going to be a gradual pickup and you still have a bit more to go before the pace returns to that rapid pace?

Brian, this is Fei. So in terms of the apps, the pipeline to join the JG Alliance, right? So, we do see, actually starting from the end of the third quarter and beginning of the fourth quarter, many apps that were delayed in the process have renewed their processes and started engaging with us. So we currently are seeing a pretty decent pipeline. It will be a very strong pipeline, not only including some medium-sized apps but also some very large apps who are in discussion with us. We expect there will be a decent number of DAUs joining our network in the current quarter. So because of this situation and this outlook, that's why we give this confidence that we will be able to narrow our guidance range for revenue, as you have seen; right? We've narrowed it to the upper end. So that shows the confidence and visibility we currently have.

Maybe just a follow-up on that. Is the pace fully recovered or is it partially recovered, and do you still have more to go as those apps improve their regulatory situation?

I believe that most of it has recovered, approximately 70% to 80%.

Okay. And then in terms of JG Alliance, can you talk about the mix of direct sales versus publishers? And how you kind of rank these and CDs going forward as growth drivers?

I believe the key growth driver is that demand for our product is consistently strong, and it's not a bottleneck as I mentioned earlier. The real bottleneck has always been on the supply side. As long as more apps and daily active users join our network, we can provide greater impressions and more exposure to the customers on the demand side. I want to reiterate this situation.

Okay. And lastly, can you talk about the early adoption trends with JG Video-as-a-Service product since launch? And how do you expect this to impact revenues over the near and long term? And in terms of that, maybe go through the sales cycle, how long will respective customers maybe test this product before purchasing?

Yes. So in terms of JG VAAS products, right? Since the launch, we are continuing to educate and explore the market, and we have discovered that demand is coming from very diversified industry verticals, such as financial institutions, security houses, local services, transportation, and entertainment. Many app developers in those verticals have expressed strong interest which, as you have read the press release, we recently successfully signed up a contract with a leading IoT manufacturing company in China. This is a very big contract, close to RMB1 million versus traditionally, the ARPU for this product is about RMB100,000, right? So initially, for video content, we appear on this IoT user's mobile app and then you will appear on the smart devices. Think about the user case when you wake up in the morning, go to the kitchen and start preparing your breakfast, when you are cooking, the big screen on your refrigerator will start showing your favorite short videos. So isn't this going to make your cooking more fun? All of this is possible because it is powered by JG VAAS. We think that this is what's going to happen in the future, and we think it's really exciting. I think the adoption across multiple industries is going to happen not overnight, but we do see the trend and the demand is indeed there.

So in the short term, there will be a very small contributor to revenue. But as we look to maybe the second half of 2022, does that become a catalyst for revenue growth? Or is that even too soon?

That's what we are aiming for. Yes, you are correct. In the short term, the revenue contribution is still relatively small, given our existing base of traditional products, such as push services and the related SDK tools. However, for next year, we aim to have the sales force drive strong promotion to sell this product. It will certainly be a key focus for next year for this VAAS product as well as the UMS product, which is another new product.

So my question is really kind of more on the financial performance. So, first question kind of on gross margin for SAAS, I know it moves around a little bit from quarter to quarter. It looks like it's softened a little in this quarter. And so I was kind of curious if you can give us some color on why that might have been? And I've got a question about the outlook after that?

Yes. I guess the margins did not move as much as we expected; this dropped a bit, but there was more functionality on some of the apps that we brought in for the J all there. We managed to get more than some of the share of revenue. So in that case, we are giving them some benefits to our gross margin. We do not expect that to be a continuous trend. We expect the margin to be above 70% nonetheless. So, as far as the margin is concerned, we don't see that as a meaningful dip.

Yes. So we aim to keep our gross margin above 70% at least; that's our near-term target.

Got you. That sounds like a base case. In the past several quarters, it's been well above that, which is how I’m viewing it. Looking ahead as we approach December, what are our thoughts for next year? It seems like JG Alliance devices are coming back into the mix. An earlier discussion touched on sign-ups, and you indicated a return to a normalized pace, though I understand there can be variability based on developer decisions. How are we approaching the upcoming year? Also, regarding JG Alliance, could you provide an update on the overall ad load as we near the end of the year, and how ECPM metrics are evolving?

Yes. So, Ryan, our teams in different business units are currently still finalizing the next year's budget. We usually use two approaches: bottom-up and top-down. The management team sets a goal we want to achieve for next year, but we also need to look at how the people in the field view their confidence level and what they perceive in terms of demand and the macro environment, etc. We take everything into consideration and then come up with a set goal for the different business units, and then we establish guidance for the entire company. We are still in that process. I think by the next earnings call, we should be able to give you confidently a concrete number of what we are aiming to achieve. Yes, the ad load is actually determined by a number of factors. One is we talked about this a number of times, basically the product called the SSP 2.0, which allows the models for the advertisement. In the third quarter, it continued its product iteration. We made some progress in the third quarter, which helped improve our ad load a little bit. The next magnitude is not used for selection. Currently, the improvement is less than 10% overall. The progress of the transition is a little lower than we expected, and we expect the full migration of existing apps into SSP 2.0 will be delayed until the first quarter of 2022. Not only does the product need to be robust enough, but we also need the sales force and app traffic operating team to work together to identify each app usage scenario that is suitable for multiple exposures. For example, we need to determine when a user navigates to what page and conducts what action, then it is appropriate to send another in-app message. Therefore, after such information has been analyzed, we need to have conversations with the developers one by one to explain how we think about it and why they should add this functionality, and all this takes time. Our goal is to have the ad exposure from this perspective improve by close to 20% overall by the end of the third quarter. Other than this SSP 2.0 improvement, we are implementing other technical improvements that can help increase our chances to display ads. For instance, we are storing backups in case the first impression doesn't work; another backup can show up instead, which will certainly help improve ad load. Furthermore, we are identifying and eliminating unnecessary opportunities for displaying ads due to certain rule settings. There are multiple initiatives currently underway to try to improve ad load. If we succeed in one or two of these areas, I believe the ad load will continue to see an upward trend.

Got it. And then maybe if you could share some insights, because I know the advertising industry in China has been a bit touch-and-go in the last several months in terms of demand, particularly in the education sector. Can you give us a sense of where you are vertical-wise, kind of what's meaningful right now? And maybe if you could share a little bit of outlook on demand, what you're seeing from them? That would be helpful.

Yes. Recently, several Internet platforms reported earnings. As we all know, they were impacted by the macro environment and regulatory supervision of key advertiser industries, which directly affected their customer churn, which is what we have seen in the education industry, as it had their budgets reduced on the client side, such as the gaming industry. However, for JG Alliance, we don't have much coverage in those two industries. Our main customers are mini-program advertisers, app retargeting advertisers, and advertisers in the fields of finance and e-commerce. Therefore, customer budgets in those areas are relatively stable. We do not see any weakening in terms of the demand from the demand side. So, we do not really see that demand will impact JG Alliance growth going forward.

Got you. Okay. And so, it sounds like churn is pretty low. I think you mentioned in the last analyst question about the mix between agencies and direct sales. Any color you can share regarding churn overall?

The core advertisers are still the same group, the players who are the mini-program operators, and the players who are for targeting purposes, such as companies like Taobao and Alipay. These customers remain our top customers, and they are very stable. Other than that, we continue to penetrate new industries, such as the car industry. We acquired some customers in that quarter as well. Additionally, we continue to leverage our ad agencies. If you look at the revenue mix between agencies and direct sales, it was about 50-50 last quarter. This quarter, agency contributions accounted for approximately 55% of JG Alliance revenues. Thus, we see a pickup in the revenue mix from the agencies, which, ideally, brings fresh brand-new customers to our platform. Overall, customer stability is maintained, and we are not seeing any meaningful churn from any large customers.

First of all, on the gross margin of 70%, again, you've been quite a bit higher for the last three quarters. Will you see that much pressure over the next few quarters to get you as low as 70%? Or is that just sort of the base pace long-term of where you'll be?

Yes, I think we have been operating the business with margins of 74%, 75%. No, we do not expect the margin to dip in Q4.

So Brian, let me clarify; we constantly said that we will keep our gross margin above 70%, right? So that's our base case, between 70% and 75%. Certainly, the USD fluctuation may cause some variation quarter to quarter. However, some business segments such as JG Alliance, the margin is sometimes decided by how we negotiate deals with the app developer traffic suppliers. But certainly, we aim to keep the gross margin above 70%. So that's our goal.

Yes. Okay. And then as we head into next year, talk about the seasonality and how much of an impact the Chinese New Year has on each of your businesses?

Yes. If you look at our past several years' seasonality during Chinese New Year, certainly the first quarter is the weakest quarter for us, not only for us but actually for most Chinese companies as well, as during the first quarter, at least for two weeks, nobody is working. Hence, nobody is spending. This certainly will impact demand for JG Alliance business. For the subscription-based business, it’s highly stable and highly visible. But that said, overall, for the Company, you should see some magnitude of seasonality in the first quarter, resulting in sequential revenue decline. However, our subscription-based business and our industry insights should remain stable. The vertical application, specifically our Financial Risk Management business, relies on consumer-related demand. During that time, if consumer demand decreases, their usage of our services may also decline because it’s a volume-based pricing model. That will be affected as well, but other than that, the subscription-based business and the industry insights should generally be stable.

Thank you. There is a follow-up question from the line of Ryan Roberts of Navis Capital. Please go ahead.

I had a question actually thinking about the year ahead, and again, I realize you're in the planning process. But here we are finding ourselves knocking on December's door. Looking at the kind of R&D spend, which has been chunky compared to last year, most of that headcount. What are you thinking about next year in terms of headcount and kind of expense allocations? I know for this year, things have been tightly controlled, but as you move into next year, what are you thinking about? And maybe what are some of the key concerns that you're weighing looking into the year end?

Yes. For next year, in terms of OpEx and spending, particularly R&D, one thing is clear. We are not going to increase much in R&D expenses, nor increase much in headcount. We believe there is a lot of room to improve efficiency from both a human resource and IT resource perspective, and we are conducting analyses to identify where we can enhance efficiency. This improvement needs to happen next year, so you will not see much increase in R&D expenses.

Understood. Okay. And maybe if I could turn back to something you mentioned earlier in the call. The Huawei kind of news or maybe some of the investors on the call are not super familiar with the landscape of the cloud providers in China and maybe what that actually means transformation-wise for your company. What that gives you exposure to? Can you maybe talk a bit around the impact of the Huawei deal, who that opens your software SDKs and stuff? Who does that open you up to in terms of overall market share?

Yes. Recently, our verification and other customized services officially launched on HUAWEI CLOUD. So the cooperation with HUAWEI CLOUD demonstrates the industry-wide trust we command for our robust clinical capabilities and services. Developers can now purchase and experience our JVerification service simply by logging into their HUAWEI CLOUD account. In the coming months, we will see several contracts from this alliance. HUAWEI CLOUD plans to create an asset one-stop integration service platform with us to package our developer service product into one solution and host it on their cloud platform. This will provide developers with a seamless purchasing experience, and we will provide systematic training for HUAWEI CLOUD sales teams to enhance their understanding of our operations concerning this channel, working closely with them to generate more sales opportunities. Additionally, we plan to collaborate on marketing activities such as office events targeting the financial industry. The large developer base that we own will also provide significant commercial value for HUAWEI CLOUD itself. We are actively discussing how we can embed our cloud service into our commercial solutions in the future and promote them to our various cloud bases based on what we see thus far.

We are actively discussing how we can embed our cloud service into our commercial solutions in the future and promote them to our various cloud bases based on what we see thus far.

I guess not about their manufacturer customers. I know Huawei mobile from back about their HUAWEI CLOUD, that's the busiest customer, right? HUAWEI CLOUD is actually growing very rapidly.

I wanted to clarify that the focus here is on the HUAWEI CLOUD and its infrastructure services, not on any relationship with the Huawei smartphone brand. There may be some confusion regarding the distinction between HUAWEI CLOUD and Huawei smartphones.

That's right. We are now collaborating with Huawei smartphone. We are only collaborating with the HUAWEI CLOUD business. Essentially, they have the 2B business, and we have the 2B business, so that creates synergy.

Thank you. Operator, please start the Q&A. Thank you, ladies and gentlemen, that concludes the conference for today, and thank you for participating. You may now disconnect.