Baozun Inc.
Q3 2020 Earnings Call Transcript

Published: 23 Nov 2020

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. As a remainder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun, Investor Relations Director of Baozun. Please proceed, Wendy.

[Wendy Sun:]

Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2020 earnings release was distributed earlier today and is available on our IR website at ir.baozun.com, as well as on Global Newswire services. On the call today from Baozun we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Robin Lu, Chief Financial Officer. Mr. Qiu will review business operations and company highlights, followed by Mr. Lu, who will discuss financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the US Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the US SEC and announcement on the website of the Stock Exchange of Hong Kong Limited. The company does not undertake any obligation to update any forward-looking statements except as required under applicable law. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

[Vincent Wenbin Qiu:]

Thank you, Wendy. And thank you all for joining us. I'm pleased to report another solid quarter with a lot of accomplishments. This is our very first earnings call as a public company on both the NASDAQ and the Hong Kong Stock Exchange. Our dual listing in the US and Hong Kong marks another exciting milestone during our evolution as the leading pioneer in innovative brand ecommerce solutions in China. In particular, it increases our ability to pursue expansion opportunities and alternative financing options to grow and demonstrates our long-term commitment to create value for our growing base of global shareholders. In the past few years, we have focused on building our competitive moat around technology and innovation. Our impressive results for this year's Double 11 Shopping Festival is a great example of our progress where our total order value rose by 54.8% during the extended 11-day period to a record high of RMB 16.5 billion.

[Robin Bin Lu:]

Thanks, Vincent. This will be my last earnings call as CFO of Baozun. And I want to thank all of our investors and friends for your support over the past two years. Brand ecommerce and digitalization is becoming a more significant part of everyday life of COVID-19. And we are pleased to say that our initiatives in high-quality growth strategy are bearing fruits and that our balance sheet is as strong it's ever been. We believe we are uniquely positioned to compete and win as China e-commerce evolves. And we are accelerating our process for best utilizing our industry insights and the know-how to identify and secure new ecommerce trends. I'm sure that it will be the exciting journey for us going forward. And I'm honored to be handing over the CFO position to Arthur, so that I can focus more on these initiatives and capture the fast changing opportunities. Before we go into details on our financials, let me update you on the class action complaint filed last December as we noted in our 2019 annual report. Earlier this November, the lead counsel has filed a notice of voluntary dismissal against all defendants, and consequently, the court signed a notice of voluntary dismissal, thereby adopting it as an order of the court and officially dismissed the consolidated action. One last thing, given our listing on the Hong Kong Stock Exchange, we will follow the common practice for companies listed in Hong Kong and now provide guidance on net revenues or net revenue growth going forward. Let's now go over the third quarter 2020 financial results in detail. As always, we believe a year-over-year comparison is the best way to reveal our performance. All percentage change I'm going to give will be on that basis. Once again, please note that all figures that I mention will be in RMB unless otherwise stated. As we mentioned on our previous call, we are in progress with optimizing our category mix, which may negatively impact year-over-year comparison. Despite this, our total GMV this quarter increased by 19.4% to RMB 10.8 billion. Our distribution GMV rose by 17.4% to RMB 868.3 million and our non-distribution GMV increased 19.6% to RMB 10 billion. During the quarter, we continued to see modest growth momentum in the sportswear, luxury and FMCG categories. In addition, the men's and the women's clothing categories returned to double-digit growth. I will give a quick summary of the categories that accounts for over 10% of our total GMV. The apparel category, which includes sportswear, luxury, and men's and women's clothing, grew by approximately 35% year-over-year.

[Arthur Yu:]

Okay. Hello, everyone. And thank you, Robin. It's a pleasure to join the call and taking over Robin as the new CFO. I joined Baozun because of its impressive growth story in the fast growing Chinese e-commerce industry. But after working for Baozun as the Finance VP since September, I now have more faith in Baozun because it has a great set of assets, including three things. Number one, it has an impressive customer base, over 260 globally famous brands. Number two, it has a well-developed technology and innovation capability. And number three, more than 6,000 engaged and energetic people. So, as the company's new CFO, I look forward to work with the board and executive management team to take Baozun's success to the next level. And I hope to meet all of you in person soon and on the call to gather your view on Baozun's future. And with that, Robin, I hand it back to you.

[Robin Bin Lu:]

Okay, thank you. Operator, we're now ready to begin the Q&A session, please.

[Operator:]

. First question comes from the line of Alicia Yap of Citigroup.

[Alicia Yap:]

Congratulation to Robin for your new role. And also, welcome and congratulation to Arthur as the new CFO. My question is related to how we should think about in terms of what we have learned. So, as we just finished another record year for Singles Day sales, while the result was strong and likely has exceeded management expectation, just wondering, were there any areas that you hope that your team or the results could be even better? Any brands that is underperforming? How do you deal with helping the brands that experience lackluster performance? And then, as we head into 2021, will Baozun retain your initiative like what you did for 2020 in terms of balancing the top line growth versus the margin improvement? So, if you can give us some colors on that, would be great. Thank you.

[Robin Bin Lu:]

It's Robin, I think I can take a part of your question and then Junhua will give you more details about Double 11 and the trend of the business. Basically, I think when you recall the previous call, we do notice that – discuss with you about this year is a very special year, a special year because of the pandemic. And for both brands and consumers, they are more focused on the promotional event, just as in the 618. So, I think we do see the similar pattern in Double 11. Especially, this year, Double 11 is extended timeframe, which has about like 11 days. So, we do see – they have a big promotion and they just want to dump out the inventory. And especially, there is some about the pandemic and the COVID-19 globally. And the people always have some concerns about the future for the next year. So, that really have some negative impact and also the pattern is more focused on the promotional events. And going forward, in the next year, we think – we started – even though it was a real date compared with the previous year, we started our new business development and acquired more and more brands coming in. We do have a very strong pipeline in the current business. And additionally, because there are more like traffic diversified in the other marketplaces and other areas like mini program and Douyin and Kuaishou, we have more focus on this new business. I'm very happy to say, we see the second sequential quarter, we make profit in the mini program and we have a very high growth in the mini program business, really demonstrate our capability to expand our business from current arena to the new areas.

[Junhua Wu:]

Alicia, let me share with you some color about the Double 11. So, we do have a lot of learnings from the past Double 11, consider that this Double 11 had a very special gameplay including two big waves of everything, two waves of warm up, preorder and moving period. So, everything doubled, including sales opportunities and also potential operational risks. And this is new to everybody. So, we need to help the brand to reallocate for the merchandising for two weeks. The first wave, how do we just make sure the brand has the right assortment with the right price to attract the first wave of consumers. In terms of consumer engagement, we need to prepare how do we drive the second wave for the repeat purchase rates for the consumers. And including all those kind of the traffic management and the consumer experience management, we do learn a lot of things from that, also including our fulfillment and warehousing. Consider between the two big booming phases, we have engaged a new wave of return between the two booming period. So, the great part is our system and our fulfillment team did a great job. So, there definitely few brands are underperforming during the Double 11, of course. Because of the post COVID-19 did affect some of the brands, including their merchandising and assortment preparation, and also some of them are lacking their marketing spending for the two waves, very hard to reallocate their offline resources to online at the end of the year. So, there's a lot of things we are reviewing with our brand partners after the Double 11 and we believe that we can do a lot of new initiatives by helping them in the next year doing greater job. Thank you.

[Operator:]

Next question comes from the line of Binnie Wong of HSBC.

[Binnie Wong:]

Congrats on a very, very strong quarter on both top line and bottom line. My question here is on the competition side and also one on the take rate. So, one on the competition. Do you see that – as we see more of this e-commerce – like, service provider emerging in various verticals. So, long ago, you had the and then also we saw like , what are the competitive advantages, if you can remind us, as to how we can further strengthen ourselves against some of these verticals to become the partner of choice for more of these brands? And then, how do you see that in terms of – if you look back at our take rate, just looking at the nine months to date, the take rate actually increased by like 50 bps in terms of the total service revenue. So, can you remind us as to – down the road, what are some of the things that we have been improving to drive this increase in the take rate? And then, how do we think about balancing in terms of monetization on the take rate versus in terms of growing our GMV? Do you think that to improve in terms of this take rate? Or is it that we're still aiming growing the GMV, procuring more brands onboard? Thank you so much.

[Vincent Wenbin Qiu:]

This is Vincent. I'll take your first question and leave your second one to Robin later on. About the combination, we would rather use the word active. The whole industry right now is getting more and more active, not only the players are getting more and more covered for different categories and also the different kinds of services now emerging in the market to help the brands to do a better business, so that is our opinion. We think active is a more accurate word for this competition horizon. For Baozun, I think the advantage is quite clear. Number one, I think Baozun is in a leading position with very good brand name, serving especially the global brands in the market. Secondly, we think Baozun continuously invest into the technology side and right now we have a very completed service and solution offerings to brands based on good technologies and data technologies. So, that is a very important long-term strategy from us. Thirdly, because we are covering the omnichannel, so Baozun can help the brands not only on the major marketplaces, but also emerging in the channels to help them to achieve sales goal and also engage customers. And lastly, I think because we are doing this multi-channel and also a multi-category business, so we are knowing consumers much better than the others. So, that give us a good chance in delivering consumer insights and also CRM related data-based marketing in the future. So, that is about the competition, the Baozun advantage. Now about the take rate, Robin?

[Robin Bin Lu:]

It's Robin. Basically, I think, numerically, our take rate was heavily decided by the category mix, as we mentioned before. That's why we did a lot about optimization in our categories. And I think that's the first factor. The second factor is, we continuously add value-added services to our existing brand and the new brand. For example, we provide more services in the marketing, IT services, integrate them together, and at the end, we provide supply chain services in addition to the operations. And the third factor, I think we are testing this now. And we made some progress with so-called deep cooperation, which means we do a lot of co-marketing and co-branding from with the brand partners and then we share some of the costs. But based on our data, the accumulated data and based on our very high level know-how about operations and the technology base and the marketing, we are very confident to be working with some brands to do the deep cooperation and change the landscape of the structure in the take rate. So, these three factors really contribute to the take rate improvement. I think, especially for the second one and the third one will contribute more in the later years. Thank you.

[Operator:]

Next questions will come from the line of John Choi of Daiwa.

[John Choi:]

Congratulations, Robin, on your new role. And welcome, Arthur, and congratulations to your new role as the CFO. I have two questions. First of all, a quick follow-up to Binnie's question on the take rate. I think if you look at this quarter's percentage, I think the service revenue growth has been more or less in line. We did experience, I guess you mentioned, slight improvement on the take rate. But how should we think about this going forward? I think, Robin, you just mentioned that take rate, we're going to see a good momentum. But considering that we have been investing quite a lot over the past couple of years in terms of fulfillment and also logistics and also – we've also have done some brand optimization to improve our take rate in the business. So, I'm just wondering, like, should we be expecting a further acceleration of take rate and service revenue that should outpace the overall revenue growth? That's my first question. And your second question is something related to your new role, Robin. I was wondering if management could kind of share with us, in the longer term – there have been a lot of new business players in this field that are providing more software as a service and kind of alternative to Baozun for some of these smaller brands or smaller merchants. So, one, could management let us know or share what are the key priorities or areas that you will have to further strengthen going forward? Thank you.

[Robin Bin Lu:]

I think for the first question, I think there is some systematic issues in Q3. So, you may see our take rate and the service revenue grew quarter by quarter, but it's not a large improvement for some certain quarters due to the systematic. I think it's really – it's not about our service. It's about the macroeconomic issues and some certain quarters. And we do believe we will have a consistent improvement in the take rate and service revenue. And also, we are experiencing some optimization continuously, as we mentioned in the past two quarters. And we think we are ready to have more contributions for the next year. I think that's the first question. The second question about my personal task. I guess, in the e-commerce landscape, when you look at that, there are a lot of challenges. Most recently, especially after COVID-19, I think the first trend is more and more emerging brands coming up in Tmall and the other platforms. And the second one, the traffic coming from lots of other marketplaces. And you may recall, about two years ago, we started our mini program and we made significant improvement and progress up to today. And I think we can replicate this success in the other marketplaces, especially in the live streaming driven marketplaces. And also, for the emerging brands, we will do some trial, and they focus more with our – to incubate the smaller brands or emerging brands, working with our existing brand partners rather than to do the investment in the non-related emerging brands. So, it's kind of our strategy to do based on our strong data support in the past. So, I think we have a very clear picture how we can expand our business to the other platforms and how we can incubate or be working with emerging brands and also how we can expand our categories in some certain category, like FMCG. That's part of my role to drive up the new business for the company. Thank you.

[Operator:]

Next question comes from the line of Tian Hou of TH Capital.

[Tian Hou:]

Congratulations on a good quarter. And also, congratulations on the new roles to both of you. Two questions. One is related to the cooperation with Alibaba. So, you used to cooperate maybe wholly with Alibaba and also next quarter. And now, Alibaba team up with Farfetch or invested in Farfetch? How is that going to impact your future cooperation with Alibaba ? So, that's the number one question. The second question is related to the channel. So, you start from operating shops on the Tmall platform and you've gradually expanded out to the other side. So, I wonder, today, what's the ratio of the shops that you operate on Tmall platform and what's the ratio for non-Tmall platform. So, for different channel, what's the cost and the operational expense structure looks like or which one makes more money for you? Thank you. That's the two questions.

[Junhua Wu:]

This is Junhua. Let me answer your first question. Regarding the Mei.com, YOOX NET-A-PORTER and Farfetch, so let me address this question from two dimensions. Number one, you need to understand the difference between Mei.com and YNAP and Farfetch. Mei.com is a first party platform running lots of products focused on the product lifecycle status with a long tail. So, basically, on the Mei.com, all the products are offseason products, and they provide a firsthand purchase by Alibaba. And they only focus on the last circle of the product lifecycle status, like offseason and clearance, et cetera. And YOOX NET-A-PORTER and Farfetch kind of similar to each other. So, all of them are lifting new arrivals, in-season products. And most of them are selling cross, either within the Richemont Group, also cross on other luxury categories. So, we don't think there are heavy competitions within the Luxury Pavilion or Tmall Luxury. Farfetch are getting open a Tmall flagship store. Because consider the consumer engagement and the traffic source, there is a huge sales opportunity for both of the platform to share with their products across different kind of the portfolio within ready-to-wear and the bags and accessories and jewelries. There's a lot of opportunities. That's the first dimension. The second dimension is, I cannot mention the details, but Baozun is running all of those three platforms, as we just mentioned, including Mei.com, YNAP and Farfetch on JD for now. So, as long as Farfetch is opening their flagship store on Tmall, so it doesn't affect the current Baozun service scope and Baozun business. And on the other hand, we believe that we are very, very confident in helping all of those luxury platforms to do a better job on Tmall with their consumer engagement. Thank you.

[Robin Bin Lu:]

It's Robin. Let me take the second question. I think, right now, the Tmall business is about like 70% to 75% of our business, and we are driving up more from the other marketplaces right now. And I think for the other marketplaces, because of the difference of the nature in business, both revenue model and the cost structure are different. For example, we can utilize more SaaS-based system we already developed internally to support our mini program, as well as our Douyin store. And also, we have more marketing-oriented business coming up from the other platforms. So, that really gave us more color for the new platforms. However, I want to say for the current cost structure, you saw in our P&L, for example, we already accumulated a lot of basic structure to be ready for the business in the other platforms. We don't need to just redo our infrastructure again in the other platforms, so we can create more efficiency and effectiveness when we grow this business. Thank you.

[Operator:]

Our next question will come from the line of Joyce Ju of Bank of America.

[Joyce Ju:]

Robin and Arthur, congrats on the very solid quarter and the Hong Kong listing. And thanks for taking my questions. I have two questions. My first question actually is a follow-up on the Singles Day performance. This quarter, for the first time, company disclosed for the key category growth for the third quarter. Just try to understand what our remarkable 55% year-over-year growth of the singles day GMV result. Could you provide similar breakdown in terms of the category growth? Is apparel the fastest growing category or if electronics within the Singles Day experienced a year-over-year declining trend? Just want to get more color in terms of how these different categories together contribute to our Singles Day sales growth. My second question was related to our margins and investment because we see the company restructure the organization to put more efforts in terms of launching new initiatives. And this year, we also raised a lot of capital. So, just want to understand, what's the area we are going to invest specifically and will these investments actually affect our margins probably for the fourth quarter, or maybe just for the next year. What the outlook for the margins well be look like? Thanks.

[Robin Bin Lu:]

It's Robin. I think the line is not clear, but I try to answer your – catch up and answer your question. I think the downturn in the electronics that many from – as I mentioned in the prepared remarks, that's because of the adjustment and optimization of our smartphone. You remember we have a smartphone brand, which has some GMV contribution for the last year and today we just ended the cooperation by the last third quarter. And also, we did some optimization in the other smaller brand in the smartphone. In general, we're not going to grow up this kind of low-quality growth. We call it the low-quality growth business in this category. That's why you see the double-digit decrease in this sector, which really negatively impact our overall GMV for this quarter. And about the margin impact, because we did the financing recently, we think, in the past, we continuously invest in the technology, but also we are stressing our supply chain. And in the meantime, we utilize some money to do our new business, like a mini program. In the last questions, I explained what we will do, but I want to reiterate, we are not going to do a drastic investment in our new business. And we have the very strong support for our technology already. And also, we have a strong support for our data accumulation. And we know what we can do to expand our business and the capture opportunities, which without or with the most of cost. And I don't think that that will affect too much about our margin. And you can see, we have a continuous or consistent investment in the different areas. You can see just as a status quo in the future and we are not going to have a big investment to affect our margin. Thank you.

[Operator:]

Next question comes from the line of Ashley Xu of Credit Suisse.

[Ashley Xu:]

Two questions from me. First one is that, given we have printed a nice third quarter and fourth quarter momentum has been quite strong, is our previous outlook that next year should be able to post around 30% revenue growth remain unchanged? And my second question is about our fulfillment side. Given we are onboarding more luxury brands, do we have any investment plan on this front? And how should we see the trend of fulfilment expense ratio? Thank you.

[Robin Bin Lu:]

It's Robin. When we provided 2020 guidance, we did have some precondition about the path of COVID-19. Based on current situation, we don't think we have much change about our guidance, but we are very cautious about what happened for the next year in the COVID-19 globally. And just most recently, one is the season going to winter, there are some changes. And we do feel about the brand – most of the brand are very conservative right now for the next year. So, we are cautiously watching out that now. And if there is no big change in the macro, we are going to keep this outlook. And about the fulfillment, I want to say fulfillment is one of the very important area we want to invest. I think should be the continued or consistently investment in a way expand our floormat in the warehouse. We are happy with our warehouse for the luxury. And I think that's one of the drivers to grow also our business. And in the next year, we think we do have some investment in the warehouse, but we are in the budgeting process right now. We haven't decided the exact number? When we have the number, we will share with investors. Thank you.

[Operator:]

Next question comes from the line of Thomas Chong of Jefferies.

[Thomas Chong:]

Thanks, management, for taking my questions.

[Operator:]

Sorry, Mr. Chong. I think your line is not very clear. Are you using your handsfree?

[Thomas Chong:]

Can you comment about the strategies of domestic and international brands entering into the China market? Should we expect international brands entering into the China market more aggressively next year? Thank you.

[Robin Bin Lu:]

Hi, operator. It's not clear. We cannot – we barely here. So, can we just skip this one and have him adjust his speaker?

[Operator:]

Mr. Chong, allow us to take your question later. You can dial back again. Next questions, we'll go to Charlie Chen of China Renaissance.

[Charlie Chen:]

I have two questions here. First one is about the strategy of the luxury brands and domestic and local brands. I would imagine those two brands are actually operating quite differently in the marketplace. So, based on your previous experience, I can see your company has done very well for the international big consumer brands. So, how would you do differently to do business with international luxury brands? And also, how do you do differently to handle these domestic smaller brands? And how would that impact your overall business structure, like margins, take rate? So, can you comment on that? That's the first question. And the second question is, since you have take this new initiative to acquire new international luxury brands and also domestic brands, I guess, this year, the quality growth strategy has been carried out very well. So, next year, would that new initiative change your focus on the growth in terms of top line growth versus quality growth or margins? How do you think about that in next year? Thank you.

[Vincent Wenbin Qiu:]

Let me take your questions and maybe Robin can say more for this too. Firstly, for the luxury brands and local brands, I think, actually, they are not new to us, especially luxury brands. We are working with them for several years already, although mostly we are helping them on the official brand side. Today, going through the marketplace stores, I think because we have strong experiences on the marketplaces like Tmall, so there's not a big gap for us to run this kind of luxury brands on the marketplaces. So, in general, we are quite familiar with international luxury brands. And for the local brands, we generally already worked with them for so many years. And talking about the strategy, I think for luxury brands, we're more focused on the fulfillment side, trying to deliver a very premier customer experience and also with some of the technologies and the CRM system to help the brands acquire new users and also fulfilling the demands from the existing customers as well. For the local brands, I think the more values will be from the technology side and also the digital marketing side. So, we have been in this kind of initiatives for years. So, we are ready to help the local brands for these capabilities. Talking about the margin structure, revenues from these two, I think maybe Robin can say more about this, the dynamics of luxury and the local brands.

[Robin Bin Lu:]

It's Robin. I think just back to your question about high quality growth, I think that's a corporate level strategy that really go into every categories, every sectors. It's not differentiated between the international and the domestic. Regarding domestic, just as Vincent mentioned, they want more in the technology, they want more in the automation, which we invest a lot in this area and we do have a very strong competency, especially compared with our competitors when they compete in the market and that's what the domestic brand like. And also, we are trying to figure out something like a brand new approach to be working with brands either in the international or domestic. For example, just now I mentioned, with so-called deep cooperation with them and trying to optimize the landscape to be working with these brands. I think that's really spread across the international and the domestic. There's much difference between the domestic and international. And also, what I want to say, if you ask me about the take rates, as a number, we don't see much difference between domestic and international as long as you provide the service what they do need. Thank you.

[A - Vincent Wenbin Qiu:]

Also, talking about the strategy, I think the high-quality growth strategy will remain the same. It will not be changed next year.

[Operator:]

We'll take the next question from Thomas Chong of Jeffries.

[Unidentified Participant:]

I'm sorry about the connection problem earlier and I will be asking on behalf of Thomas. Can you share some update on our mini program strategies and the competition between the centralized and decentralized traffic in 2020?

[Vincent Wenbin Qiu:]

Sorry, can you say that again. Mini program, what? I didn't hear that very clearly.

[Unidentified Participant:]

Can you share some update on the mini program strategy?

[Vincent Wenbin Qiu:]

brand oriented in the past. So, we actually serve the brands for different channels and also different services, not only about e-commerce transactions, but also digital marketing needs, the demand generation needs. So, mini program is one of the practice. We are serving the brand for omnichannel methodologies. So, mini program versus the other platform is very interesting because we can cover not only the transaction part, but also the digital marketing part and integrate these two efforts into one. So, we think the path in the mini program, ecommerce will be shorter than the other platforms. So, our strategy is that we are serving the brand, not only for the transaction, but also serving on a very SaaS plus customization base, means that we will deliver a lot of common micro services to the brands and also we can customize for – customize a solution for them to fit the Tencent ecosystem. So, that is the SaaS plus optimization strategy. Thank you.

[Operator:]

Thank you for the questions. In the interest of time, that concludes the Q&A session. I'd now like to hand the call back to Ms. Wendy Sun for closing remarks.

[Wendy Sun:]

Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you all for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

[Operator:]

Ladies and gentlemen, you may now disconnect your line. Thank you for your participation.