Good evening, ladies and gentlemen. Welcome to NetDragon's Third Quarter 2015 Earnings Conference Call. At this time, all participants on listen only mode. There will be a presentation followed by question -and -answer session. I would now like to hand the conference over to your host today, Miss Maggie Zhou, Senior Director of Investor Relations at NetDragon. Maggie, please go ahead.
Thank you. Ladies and gentlemen, good evening and good morning. I would like to welcome everyone to our 2015 third quarter results earnings call. Before the presentation, I would like to remind you all that this call may contain forward-looking statements, which may not be relied upon in the future for various reasons. Non-GAAP data is included as part of this presentation. Non-GAAP data is not expressly permitted by the Hong Kong Financial Reporting Standards, and therefore may not be comparable with other similar indicators. For more details on the Non-GAAP financial measures, please refer to the disclosed documents on the company's IR website at www.nd.com.cn/ir. The company's results were released earlier today and are available on our IR website. A webcast replay of the conference call can also be found there following the conclusion of this call. Please allow me to introduce our management team who joined us today.
Dr. Simon Leung, our Vice Chairman and Executive Director. He also holds the position of CEO of Huayu Education. Mr. Ben Yam, our Chief Financial Officer. Simon will begin with the review of recent developments in NetDragon's future strategy and online education business, followed by Ben, who will then review the company's games business and go through the financials. They will both be able to answer your questions during the Q&A session that follows. I will now turn the call over to Simon.
Well, thank you, Maggie. A round of greetings to everyone on the call. Well, I have to say, time flies since our last call. A lot happened. Hopefully, I can today go through some of the happenings with you. My plan for today is actually go through very quickly the state of the union, then I'll talk about progress a lot. I'll probably spend a little bit more time on Promethean. I'm sure that actually a lot of you will be curious about where we are and what our outlook for that business is going to be in 2016. I will talk a little bit about our market progress in this part of the world. Also, to end it, I will make some comments in our ecosystem product strategy and also some of our plans going into 2016 with our product.
With that, I am not going to go into any detail in gaming because I think Ben will with all the details. I would like to say, we are very happy with the gaming business because it is like we are enjoying steady growth. We are progressing well, not only with our core business, but also we are going into mobile area and also we are expanding into the international marketplace. Also considering the fact that Q3 tends to be a slower quarter for us and the fact that we are growing quarter-over-quarter, I think that is very encouraging. Again, Ben will go into more detail. Let me kind of dive into the learning business. I would just like to kind of spend 10 seconds remind everybody, what we are talking about is not just the education business. We are talking about lifelong learning.
Actually, our strategy is actually to create the ecosystem. We want to create a community of users in there that has teachers, students, and parents, and then we can collaborate, we can communicate, so we can monetize it in many different ways. In terms of the ecosystem, we have a common platform in there, which is a cloud implementation. We have a big data engine underneath it. We have hardware and software. The goal to do this is actually not only to support our own software and services, but also to open it up to our partners. I will talk a little bit about that later on. Last but not least, we are a global company now as a result of some of the acquisitions that we have done. Okay? With that, let me dive into the two recent acquisitions.
We can talk officially about it now because both of them are closed. The first one is actually our technology company called ChiVox, which is actually Chisheng, which is actually based in Suzhou. The deal was closed in August. We are very happy and excited about it because they do have a world-class technology in voice, but more importantly, in voice assessment, which is actually a key element for us to base on, and then we can expand it to other languages. This technology will become part of our ecosystem. We will fully utilize it, and at the same time, we are going to open it up for our partners in the future. This technology currently is actually applying to English, is a fast-growing market in China. At the same time, there is a lot of need for English around the world, in Southeast Asia, including in the United States.
I will talk a little bit about it when I get to the Promethean part. This is actually to give you an idea on how we as a company will be leveraging our expertise around the globe to help us to grow. As I said it earlier, English learning is a huge and growing area in China. With the acquisition of ChiVox, we can take advantage of the growth. Let us turn our attention to Promethean. Technically, the deal actually closed in Q4, but the fact that we are in December, so I took the opportunity to go into a little bit more detail about the company. As I said, the deal was closed in November. We are working very hard on the integration. Again, I will talk a little bit about what we are working on later on.
I just want to remind everybody the reason we acquired the company. It does have a fantastic user base, 1.3 million classrooms, two million registered users on Promethean Planet. When I say user, I mean teachers. They have a wonderful product suite that we can leverage, including interactive whiteboards, interactive panels, response devices, network software, both on the PC and then also on the internet. Let me set the stage of the company on where they came from and where we are going to take the whole company. Essentially, we are in the middle of the second transformation of the company. We are taking them to more a community-type company, internet-type company. They came from a very strong hardware background. They went into solution.
We are taking them one step further, so we can kind of help them to create this community, which is also part of our strategy around the world. I have to let everybody know that they have a profitable legacy business. I use the term legacy, but not in a negative fashion. Their classroom solution has been sold all around the world. I did talk about 1.3 million classrooms, which is actually quite exciting. Actually, last year they sold over 100,000 of these panels, whether it is like whiteboards or panels. I use the word panel very loosely. They are making money on that business. But at the same time, we are also making some major investment in creating an environment so we can acquire users rapidly. Again, we are transforming them. We are investing just like we are doing it in the rest of the company.
ClassFlow is the software that we invest heavily into, which this is actually a software that we develop in the developed country like U.S. and U.K., and it is intended for classrooms, for teachers, for the school, and also for the district, and also for students and parents. At the same time, we are also investing into creating some lessons in partnership with content providers. One example is actually HMH in the U.S., the largest publisher of textbook in the U.S. for K-12. We have some very strong partner that we work with. We mentioned about synergies when we announced the deal about a month ago. I am going to go into a little bit more detail into this one.
In terms of cost, we are very confident because we saw a path that we can revamp their supply chain, which is actually a key element in terms of cost in this business. I cannot go into all the details, but we are confident that we can work hard to improve the margin by reducing the actual BOM cost and at the same time also looking at the freight and all the logistic costs. In due course, we can reveal more details with you. But I do have to point out the one risk in that one is actually the peak selling season for the business in the developed countries for this type of product is actually in Q2 and Q3 of a calendar year. As you can tell, we do not really have a lot of time to work with.
We may run into an issue that we may not be taking full advantage of the cost reduction in terms of the entire volume for next year. But again, we are going forward with the cost reduction. We will know very soon how much we can take advantage of that. The next one I want to talk about is actually product synergy. This is actually the part that I get very excited about because it is synergistic between NetDragon and Promethean. Now that we are one big company, we can work with each other. For example, like the panels and the whiteboards, we can bring it into a market like China, so that will increase our opportunities.
At the same time, some of our software, our IM software, our App Store software, we can provide it to Promethean so they can integrate it with their ClassFlow so they can take full advantage and create a very friendly environment for acquiring users. At the same time, we are going to work on creating emerging market solutions because, as you know, Promethean actually are very famous to produce high-quality products. So that is why a lot of schools in the developed countries are procuring those products. But at the same time, for emerging markets, the price could be a little bit too high, so we are looking at reducing the cost so we can take the product into the emerging markets like, again, China and India and other countries in between. We are also working on the converge roadmap.
That will take a little bit of time, but that is definitely a direction. The last but not least is actually I want to talk about the market. Like I said in many different occasions, I do not see an overlap, which is actually very good between the two companies. Now that we are one big company, we do have the capability to cover both the developed and the developing countries. One thing I also want to point out, while we are working very hard on K-12, using the collaborative system, at the same time, we have been slowly creating products which fit into the enterprise arena. So collaboration is also a big demand in enterprises, whether it is big or small. So basically, you just move the solution from a classroom to the boardroom. Of course, there is a different requirement, but nonetheless, the core technology is very similar.
We are excited about the possibility of taking some of these products into the enterprise space. If you remember, we are a portfolio company. We do have mature businesses like gaming. We are growing and investing in education, but at the same time, we are incubating businesses and enterprise is one of them. And actually, with this acquisition, we can help us speed up some of our development in the enterprise area. This is really basically the theme of our strategy for the last couple of years on how we approach mergers and acquisition, and they will be the same going forward. Looking ahead to 2016, from a market macro perspective, the technology replacement cycle is going to speed up, especially in the U.S. market and also U.K. and Europe.
We are very confident that we can take advantage of this, and at the end of the day, we grow our business. Emerging market demand is increasing, so the fact that we are focusing on creating a low-cost solution will help us out. At the same time, we are increasing and investing into our sales and marketing resources in the countries that have more opportunities so we can take advantage of it. At the same time, we are going to aggressively rolling out our ClassFlow product. At the end of day, if we look at 2016, we believe we will grow our business quite aggressively. As a result, our top line will increase, and also the unit ship that we are looking at will increase. Margin will improve, it really depending on the timing of our supply chain implementation, but nonetheless, it will improve.
At the same time, because we are going to be investing into the sales and marketing effort of ClassFlow, we will see a significant kind of growth in our ability to acquire users. You will see a lot of users on ClassFlow. We will provide you data when we go into 2016. At the same time, we are going to be continuing to invest in our product. Let me switch gear and talk about China a little bit. I think two areas I want to talk about. One is performance year-to-date, the other one is actually, again, looking into 2016. I will talk about some of the newer market after this. As of year-to-date, I think we gave some guidance in the last call. The update for you is actually we have contract signed and awarded year-to-date is around CNY 80 million. We still got three weeks to go.
We expect we will continue to make progress in that one. The only caveat I want to make on that one is actually we are looking at some revenue recognition issue which Ben will address later on. We sold the contract cover about around 2,000 classrooms, so significant progress since we talked. The other good news is actually the fact that we bought Promethean. As you remember, we have the 101 pad, we have the software, and now we also have the front of the room, which is actually the panels and the whiteboard. We can make something actually starting now and go into next year, we can provide a total solution. At the same time, we have spent a lot of time and effort to expand our sales coverage. We are covering the market very well. We will continue to invest, by the way.
We will see significant growth in our business in education in China in 2016. I would like to talk a little bit about our common platform, our ecosystem. The good news is actually we have made a lot of progress in the area, including acquiring the core technology like ChiVox. Our plan is to open up the ecosystem to our partners in 2016. This is actually, I think, very good news, not only to our partners but also to the market, because this will enable rapid development and rapid deployment for a lot of people. In turn, we can provide a lot of products and services much sooner and much more robust to the market. We have a new version of IM that came out, which is actually part of Renrentou, very exciting. That new version, we are also taking it into the enterprise area.
Very exciting. Also we start to make inroads into the international market with that product. It's actually very exciting. One thing I'd like to tee up today, but I don't intend to go into great big detail, is actually our next wave of investment in the technology area. We have done a lot of work in terms of voice and a common platform. The next wave of investment, if you have read the announcement, you will see it. It's actually in the area of 3D, VR and AR, also in video and voice. These are core technology that will go on the common platform.
Not only we will utilize it to create products, we're going to, at the end of the day, open it up to all our partners so they can take advantage of these platforms and core technologies, so together we can go after the education market. This is actually our strategy going forward in terms of our ecosystem. A couple words on the international market. Happy to report we hired our first employee in India, so we'll continue to hire. This is actually a very interesting market for us. With the acquisition of Promethean, we actually are quite deeply involved in some of the schools in India. This is actually another big market that we're looking at.
There's a lot of development effort going on right now in various countries. At the right time, I will share with you. With that, I want to wrap up by saying we have made a lot of progress, but a lot more work to be done going forward. I think we hit a very nice milestone by finishing up the two acquisitions, plus making good progress in China. We have much bigger plan for 2016 and onward, so I'm looking forward to sharing more good news with you in the future. With this, I'm going to stop and going to hand the phone over to my friend, Ben, so he will give you a lot more details in our business.
Thank you, Simon, and good evening to everyone. First, I'm going to talk about the gaming business, then I will go into the financials. For the gaming business, we actually had a very successful quarter in the third quarter. We have gained very strong traction on several fronts, and we have hit several milestones and also achieved record highs in several operation metrics. On a high level, overall, our gaming business continued to grow at a very steady pace. Revenue in Q3 grew by 13% year-over-year. Our PC online gaming business also grew sequentially by 4% quarter-over-quarter. Our overseas gaming business, in particular, grew significantly by 24% quarter-over-quarter to CNY 31 million. Our PCU and ACU have increased by four consecutive quarters to 761,000 and 360,000 respectively, and both of these numbers are a record high for our company.
Turning over to specific games. First of all, I am going to talk about Calibur of Spirit. This game hit a record high 1.7 million daily active users in October. We also achieved another milestone with our PVE, or player versus environment mode, going online earlier this month, and this has received very good feedback from our players. Basically what this means is that this is going to translate to more room for monetization, and this basically will bring our monthly gross revenue to the next level as we believe. The mobile versions of Calibur of Spirit, it is undergoing testing at the moment. We target the mobile version of Calibur of Spirit to be launched within the first half of next year.
We believe that leveraging the popularity of this brand and the large player base of the browser-based game, we actually have the potential of this mobile version becoming a major revenue driver in 2016. Another game, Conquer Online. Conquer Online hit record high monthly revenue during the third quarter, thanks to optimization in our monetization scheme. Talk a little bit about Eudemons Online. For the Eudemons Online, this game continued to maintain very solid revenue. Based on the current trend, we do expect Q4 is going to be another strong quarter for this game. In the meantime, we are also exploring creating a second mobile version for this brand. Finally, for the Tiger Knight, we are in the final testing stage for this game, and the formal launch will be first half of next year in the overseas market on the Steam platform.
This game will be another revenue contributor in 2016. With that, I will turn to our financial highlights for the third quarter. Revenue for the third quarter was CNY 259.4 million, up 11.5% year-over-year. Revenue from online games was CNY 238 million, up 12.8% year-over-year. Gross profit was CNY 215.4 million, up 3% year-over-year. The gross margin was 83%, roughly stable compared to 83.9% in the previous quarter. I am going to talk a little bit about the sales contract for our education business which is over CNY 80 million, signed and awarded. Basically, because there is the delivery and the customer validation cycle of these sales will take several months. The revenue recognition for this number is going to span across Q4 up to Q2 of next year.
A portion of this revenue, we believe, will be recognized in Q4, but a big part of it is going to be recognized in Q1 and maybe a little bit in Q2. Just a word on that. The Non-GAAP operating loss for the company was CNY 23.5 million, compared to CNY 1.8 million operating profit in Q2. I want to make a note that this operating loss actually includes a couple of one-time items. First of all, there is CNY 11.5 million of third-party professional fees related to the acquisition of Promethean.
Secondly, there is also a CNY 4.4 million of office repair costs related to the flooding in Fuzhou, which happened during the quarter. Basically, this cost was incurred to repair or replace some of our equipment and fixtures of our office that were damaged in the flooding. Taking out the above one-time items, the adjusted Non-GAAP operating loss is CNY 7.6 million. The loss this quarter, it is expected as we continue to invest heavily in our education business by expanding our R&D team. Currently, we have 2,600 R&D employees as of the end of the third quarter.
As I have mentioned in our conference calls in the past, we do believe that investing in the online education business is the best use of our strong cash position, and this will pay big dividends for our shareholders in the future. I want to make a brief statement about our gaming business, which is continuing to be very profitable. For the third quarter alone, the net profit of our gaming business is CNY 69 million. In terms of our cash balance, as of the end of the third quarter, our cash bank balance, bank deposit, and liquid investment stood at CNY 2.4 billion. That is the end of my presentation, and we are now ready for Q&A.
Thank you for the presentation. Now we will enter into the Q&A session. Please feel free to raise any questions. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel a request, please press the pound or hash key. We request all participants to limit their question to one or two questions and one follow-up question.
Okay.
The first question comes from the line of Jeff Hao from China Merchants Securities. Please ask your question.
Hi. Good evening. Thank you for taking my question. I have two questions actually for the education business. One is, a lot of things are going on in NetDragon. Dr. Leung, can you help us to prioritize your initiatives in terms of from short term to long term, and especially, what should we be monitoring next year in terms of business development, milestone, or your key KPIs? That is my first question, and I have a follow-up.
Wow. This is going to be taking the rest of the hour to go through. Maybe I will try to answer it in a very high level. The priority, of course, is actually number one is to integrate Promethean and NetDragon, the two companies, right? I talk about we have a very specific plan now. It is time to execute. Integration also means we need to realize all the synergies that we have that I highlighted earlier. That will be the other one. We did talk about, a lot of people ask us about Promethean going forward. Our focus also will be to, number one, turn it into a profitable business.
Not only that, we also want it to be our growth engine for selected markets. Promethean market focus will be in the developed countries. The two countries that will be the big focus for us next year will be the U.S. and the United Kingdom. In terms of NetDragon, we are going to take advantage of the fact that we are going to have more product to complement our existing portfolio. Again, we will take advantage of that to go after, of course, the China market, because it is very big. In terms of the front of the room, which is actually a whiteboard, and also panels.
China is talking about shipping 400,000 a year, which is actually a significant number that we can go after. Then there are selected markets we want to start to open up. I talk about India a lot. I told everybody that we hired our first employee. That will be another area of focus. Step back, and actually, to answer your question one more time, it is actually integration, turn Promethean into a profitable business, at the same time, a growth engine, continue to progress in China, and then open up a selected market for us. One thing I did not talk about is actually the back end, the other focus. That is why we tee it up, is actually we will focus a lot in terms of technology in the next wave, is actually in the area of VR, AR, 3D. This is actually part of our ecosystem strategy.
Okay. Thank you, Simon. My second question is about competition. We have seen quite a lot of companies and startups are entering into the education markets by selling their products and services to the school. Can you maybe talk a little bit more about what you have seen in the third quarter and fourth quarter about some recent competition dynamics and the competitive landscapes in this market, and how did you manage to compete with those companies?
Especially, have you seen the case that in some area, cities or provinces, there are already some companies have strong relationship with the local authorities or schools, so your sales team may not be able to penetrate to this market or slow them down. Finally, as more capital injected to the market, do you expect to see the money burning or heavy subsidized promotion strategy to appear in next year, just like what we have seen in the O2O market? Thank you, Simon.
Okay. Let me try to answer in kind of overall. First of all, I think your question is very specific to China. But I want to step back a little bit and talk about. That is why we want to be a, well, number one, overall, is a portfolio company, but even within the education businesses, we do not want to rely on one market to grow our business. So that is why we want to be a global company, unlike a lot of the people that you are referring to. I do not think it is appropriate for me to comment on competition. I will just talk a little bit more about our strategy.
First of all, some of the so-called competition, I do see a path for them to be our partner, because actually, that is why we are focusing so much in terms of creating a platform and also creating a community. In a way, we are kind of co-competing with them, but in the long term, it actually could be very interesting dynamics coming out. Again, our strategy is actually creating this platform, not only with the cloud and big data, with all the technologies in there, so everybody, including ourselves, can take advantage of it.\
In terms of winning in every single market, I like to do that, but I also got to be realistic. You will see somewhere, one city, whatever, that somebody will be there before us because China is such a big market. One of the beauty of our strategy is actually, it is not like all for one or one for all. It is actually we can be very encompassing. Even though our competitions are in there, because we can open up our system, we can still go in, even other people are in there. To us, that will not be a deterrent for us.
In terms of burning capital, the way we do it is actually, it will be slightly different. We are going to be very selective in terms of how we do it. I don't see the need to subsidize the product because, again, our strategy is actually to go in, whether we go in and provide total solution, or we go in and work with other people's solutions because we have an open system. The area that we are going to be spending some cash is actually really back to the investment piece in our technology piece. I don't know whether I am answering your question. We will be spending wisely, mostly in the technology area.
Okay. Thank you. It is very helpful.
Thank you.
Thank you.
The next question comes from the line of Eric Qiu from CCBI. Please ask your question.
Hi, good evening, Simon, Ben, and Maggie. Thank you for the call. My question was regarding your education business. I know you have very ambitious plan for your education business, including building up ecosystem, content, hardware. My question is down to earth. Would you give me some very concrete things about your achievements in the third quarter or in the fourth quarter till now? I mean, in terms of user numbers or products and technologies, and also in terms of contract you signed with the schools and the classroom. Because purely judging by the third quarter results, it was very difficult to have some real color or to find some trace of what concrete progress you have been made. Thank you.
Well, thank you for the question. Maybe I was not doing it well because I did say, and Ben also said it is actually in terms of contract in China. In China, it is actually contract signed and awarded today is over CNY 80 million . It is actually that covers around slightly south of 2,000 classrooms. So it is actually, you can do the math, and that covers about 10 different provinces. So, we are rolling it out. So it is actually, I think we have some details in the press conference. Sorry, in the press release.
Oh, okay. Sorry. Maybe I missed it. Sorry.
Okay. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. The next question comes from the line of Ryan Roberts from MCM Partners. Please ask your question.
Good evening, and thank you very much for taking my question. I wanted to kind of circle back on something Dr. Leung mentioned a few minutes ago about the hardware replacement cycle looking like it is going to speed up, definitely in the more developed markets. I am curious if you could kind of discuss that a bit more, because it sounds a bit like that could be an opportunity for sure. But also, as the cycle gets shorter and faster, that could present opportunity for new entrants to also kind of step up their competition. Can you give me some more explanation about how management is looking at that?
Exactly. That is a good question. It is actually, the market always sped up in the U.K. So it is actually, if you look at U.K., I think a year ago, it is actually, there is still more whiteboard than panels. Now it is predominantly panels. And then we see the U.S. is actually going exactly with that trend. I think it will open up, in theory, against competition because there is actually a lot of people doing panels. There will be a lot less people doing whiteboards. But that said, I think that is the power of the software, is actually I talked about it earlier, 1.5 million classrooms using our product. A lot of them will be using our ActivInspire software. It is actually that is one of the key software that teacher uses. The reason we have two million users on Promethean Planet is actually they are all ActivInspire users. To add to that already very powerful software that teachers are using, that is why we introduce ClassFlow. So, which is actually is a product that connects the teachers and the students and the parents together and also allow the school to use that product to manage the school. So in a way, when I talk about the replacement cycle and product, maybe I did not do it justice because the way we approach it is actually not just to replace the front of the room. We are going in and bring the whole solutions in there. So the way to fight competition is actually continue to invest into our software.
Yeah, thank you. That is very helpful. Thank you.
Thank you.
The next question comes from the line of Jeff Hao from China Merchants Securities. Please ask your question.
Hi. Thank you again. My question is for Ben. Can you maybe talk a little bit more about your expectation for the next year in terms of the financial? Especially, maybe can you talk separately about the gaming business and the education business in terms of revenue expense and the profitability. For the education business, we have seen that the G&A and R&D expense have been growing very fast this year, as you mentioned. So what would you expect these two items next year? Maybe should we expect the selling and marketing expense to increase significantly next year, please? Thank you.
Yes. Thank you, Jeff, for the question. First of all, I am going to talk about the gaming business. Looking into next year, I think the gaming business expense on the expense side is going to be pretty stable. So we do not expect a huge jump in the gaming OpEx, if you will. On the revenue side, as I mentioned earlier in the presentation, we do believe that revenue for the gaming business will increase next year. This is going to be driven by several factors. One is Calibur of Spirit. We do expect that with the current traction that we are building with the monetization scheme and also the PVE mode going online, we do believe the online version of Calibur of Spirit will increase the revenue next year.
Also, the mobile version of Calibur of Spirit will go online next year, so that would also generate revenue. In addition to that, we also have Tiger Knight, our new 3D strategy game, that will also become a revenue contributor in 2016. I think if you look at the bottom line for the gaming business, as I mentioned, the net profit for third quarter alone for the gaming business is CNY 69 million. If you look at EBITDA, which is a better approximation of cash flow, it is CNY 92 million EBITDA for the gaming business in the third quarter. Going into the education business, I think you can use the third quarter Non-GAAP operating loss as an approximation for future quarters. As I mentioned, the Non-GAAP operating loss was CNY 23.5 million for the third quarter in education business, but that includes a couple of one-time items.
Excluding the one-time items, we are looking at CNY 7.6 million of Non-GAAP operating loss for the education business. That said, we are continuing to increase our headcount. Right now our headcount is 4,600 people, and our R&D is 2,600 employees at the moment. Our strategy really is to deeply invest in education because we believe that the market opportunity in the education space, both in China and globally, is unprecedented. It is basically still a blue ocean market, and we, as a major player, we are going to have tremendous leverage in targeting this market in the next couple of years. As you know, we do not offer concrete guidance on the financials, but I hope that what I just said, it is helpful to you.
Well, let me add a little bit of color on this one, too. Definitely, we will increase the sales and marketing expenses because as I said, we are going after more markets. We want to increase our penetrations in the key market. Also, when I talk about Promethean and different markets, I also did indicate it, we will see growth in our revenue. I think that will give you an idea of what we are talking about. We will increase both sales and marketing and also R&D, because as I said, R&D is our investment in the future. Sales and marketing is our coverage—
Yeah.
—but we also expect an increase in revenue.
Okay. Thank you very much.
Thank you.
Once again, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced.
Okay.
As there are no further question, we will now conclude today's call. On behalf of the entire NetDragon management team, I would like to thank you for your participation in today's conference call. If you have further questions about NetDragon, please feel free to contact the investor relations department. Have a good day or good evening. Thank you and bye.