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Edited Transcript of 777.HK earnings conference call or presentation 29-Aug-19 2:00am GMT

Half Year 2019 Netdragon Websoft Holdings Ltd Earnings Call

Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of NetDragon Websoft Holdings Ltd earnings conference call or presentation Thursday, August 29, 2019 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Simon Leung

NetDragon Websoft Holdings Limited - Group Vice Chairman

* Ben Yam

NetDragon Websoft Holdings Limited - Group CFO

* Lin Xin

NetDragon Websoft Holdings Limited - Gaming Operations CEO

* Vin Riera

NetDragon Websoft Holdings Limited - Promethean CEO

* Garwin Chan

NetDragon Websoft Holdings Limited - Edmodo CSO

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Conference Call Participants

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* Susanna Chui

DBS

* Hillman Chan

Citi

* Jeffrey Chan

CLSA

* Winston Chu

Hinrich

* Eric Qiu

CCBI

* Aily Yang

GF Securities

* Steven Nie

Kingsway

* Kim Pao

ROCIM

* Feiya Zhao

Haitong International

* Mianlu Zhao

First Shanghai Securities

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Presentation

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Unidentified Company Representative [1]

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Dear friends, good morning. Thank you for joining NetDragon Websoft Holdings Limited for the 2019 interim results presentation. (foreign language)

First, please allow me to introduce the management who are joining us today. (foreign language): Dr. Simon Leung, Group Vice Chairman and Executive Director (foreign language); Mr. Ben Yam, Group CFO (foreign language); Mr. Vin Riera, CEO of Promethean (foreign language); Mr. Lin Xin, CEO of Gaming Operations (foreign language); Mr. Garwin Chan, Chief Strategy Officer of Edmodo (foreign language)

Now please allow me to pass the time to Dr. Simon Leung. (foreign language)

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [2]

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Thank you. Thank you. Well, thank you for coming in such a nice and cool sunny day that we have. Actually, we were thinking about hosting it at a spaceship this year. But when we found out about the weather, we decided not. I think it's a 35-degree and 100% humidity. So Hong Kong is not that bad after all.

For those of you who come from out of town, really appreciate you take the time to come here at a time like this in Hong Kong. But being from Hong Kong, I'm sure everything will be better tomorrow.

So today, what we're going to do is I'll take you through the last 6 months and kind of down the memory lane a little bit and then kind of talk about our performance. So what I'm going to do is very quickly -- and take you through the highlights, and I'll pass it to my colleagues, and -- which is actually sitting in front of you, is actually -- Vin is going to do it in Mandarin this year. So that's actually because he's been taking lessons. And actually, Lin Xin is going to talk about fashion rather than gaming today, so the way he dresses. But anyway, all kidding aside, let's go.

So -- sorry, I'm -- skip through this. So this is the highlight. We don't have to talk a whole lot about it. That's actually the highlight is that our profit grew over 100% year-over-year. We were pretty happy with that. And then it has continued to be the same theme. It's actually is a record year for us. Profit is record high. And actually, revenue is record high. This is a -- due largely -- driven by our gaming business. So I'm sure you will be able to listen to Lin Xin very carefully.

And then our Promethean business is like you maintain the dealership position in the world. And the other good news is -- actually, Garwin is going to take us through, which is something you guys are very curious about, is actually our road to monetization, with our big community of students and teachers and parents called Edmodo.

Just very quickly, gaming. Again, I don't need to go through it in any more detail. So -- it's like that this could become a hardcoded slide going forward because it's actually -- everything is actually -- will grow over 50%. Because of the nature of the gaming business, when you grow that much, everything dropped down to the bottom line, so our profit grow even bigger.

And then we continue to do very well with our -- not only our existing IP, but we also invest into some of the other IPs. We're driving a lot of that, and we have a very strong pipeline, which Lin Xin will talk about.

On the education side, our business grew, ex Russia. As those of you who's familiar with our business in Promethean, it's actually is a cyclical business. Also, on top of that, we have big tenders. So last year, we had the Phase 2 of the big Russia tender is actually fall into the first half. The Phase 3 is actually where we continue to work on. So there's some kind of a fluctuation in that. But if we normalize that, we grew 5% overall. Actually, Promethean grew actually a little bit more. The good news is, actually, we are growing our unit quite a bit, 28% growth. Again, we talk about maintaining our leadership. And we launched our new product. We announced the launch in the last event. Actually, we started shipping in Q2 of this year. Actually, the response has been very, very encouraging.

In Edmodo, the foundation for us to move into SaaS model has been late, so we are working very hard. We are launching our first of our series of services. We call it Edmodo Academy, which is all around learning and tutoring. So the first one we can launch is -- actually is a homework help, we call AskMo. So it's -- actually, it's quite appropriate because Edmodo Mo is our mascot. So we said, "Let's go AskMo." Garwin is going to go through that very quickly.

I talked about getting into China with the right product last event. So I want to report to you at a high level, we started to implement our strategy. Actually, we're executing it. Actually, we're deploying our product in China. Just case in point, we won the first phase of a big deployment in Fuzhou. Actually, it's about USD 6 million, so that's kind of marked the first of the big event -- the big deal that we're going after. We spent a lot of time laying out the channels in China because China is a big place. So you need an extensive and expensive network to go after the market. We're doing that.

And also, we start to kind of look at how we can use -- leveraging our base because we have a lot of 101 PPT users, how do we turn it into a SaaS model. So that's what we have been doing, and we'll continue to invest into China.

Just give you a kind of like a snapshot of some of the metrics we look at on the gaming side is -- actually, MAU is 10 million, which is actually very encouraging. We maintain our DAU. Actually, we improved on that one. Our current title is around 10 that we are monetizing, but we have another 10 plus in the pipeline that we -- that some of them are ready to deploy and some of them, we are still working on. So we have a fantastic -- I was going to say wonderful. But somebody used it maybe way too much, so I won't use it. So I was looking at Vin when I said that. So we have a good pipeline of games.

Over on the learning side, it's actually our MAU continue to grow. It's actually 13 million among all of our different businesses. It's actually, DAU is about 1 million on the classroom. Last time you see it, it's actually -- we are in about 1-point-somewhat million classroom, but we kind of eclipsed that one. We are in over 2 million classrooms now. And I think country will always be like 190 plus because I don't think you can add more countries after 190, because I will challenge you if you can name all 190 countries, I'll buy you a coffee later on.

So with that, I'm going to turn it over to Ben, our CFO, who will take you through the financials plus we -- how we bridge some of the revenue in education. Okay, Ben?

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Ben Yam, NetDragon Websoft Holdings Limited - Group CFO [3]

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Okay. Well, thank you, Simon. Good morning. I'm going to take you through the financials, and I only have a couple of slides.

Okay. Well, first of all, this is the high level P&L in RMB. So first of all -- actually, from the top and the bottom line. So just the top line, as Simon said, we continue to set -- I'm sorry, is it on? Hello? Yes. Just have to speak closer to the microphone.

So as Simon said, we have continued to set record high in terms of the revenue. Our revenue grew 8%. But I think what's more interesting, it's the bottom line where, this year, in the first half of this year, we grew over 100% year-over-year. And if you look at the absolute dollar value in terms of the RMB 421 million, that's actually more than 75% of last year's entire year [profit] (corrected by company after the call). So this year, as you can see, we are on track to a very healthy and very robust growth for the full year.

In terms of -- if you look at the gaming and the education side. Gaming, we continue to grow in a very strong manner, over 50% growth. And on the education side, if you look at the dollar value, we decreased by 24%. But as Simon also just mentioned, a lot of that is -- actually, that is -- a lot of that is because of the irregular timing or the seasonality of the tender business. So last year, in quarter 2 of -- in the second quarter of last year, we had a RMB 400 million -- close to RMB 400 million of Russian tender revenue, which was recognized all in Q2. But this year, we did not have that. And if you look at the Phase 3 of that tender, we actually are working towards that and that the timing is going to be later on. So I just want to kind of -- want to point that out. If you take that away, then our education revenue is actually looking at a pretty healthy increase.

So this actually gives you more details in terms of our segmental financial highlights. So first of all, education again, if you take out the Russian tender, our revenue went up by 5% year-over-year. And again, I wanted to mention that our tender business has been growing very strong. So if you look at our Egypt, our Turkey, our Russian business, so we are -- the discussion is going really well. And I'll let Vin talk a little bit more about that.

So in terms of the core segmental loss for the education business, so as you can see, the -- there's a big jump from RMB 158 million to RMB 308 million. So I would say that the jump is largely due to 2 factors. The first factor is that the margin of the Russian tender, which was recognized last year but not this year. Again, I talked about the irregular timing for the Russian tender. And the other reason is the fact that we consolidate the full 6 months of Edmodo. So some of you may recall that we acquired Edmodo in the first half of this year -- sorry, in the first half of last year. So last year, we only consolidated 2 months, but this year, we have to consolidate the full 6 months. So if you actually take out those 2 factors, our SG&A for education is actually quite stable.

And there's also the tariff factor as well, but the tariff effect on our segmental loss is actually a lot smaller compared to those 2 factors that you're seeing.

So on to the gaming side, again, 52% growth year-over-year. And I'll let my colleague, Lin Xin, talk a little bit more about that. But I would just say that our increase in revenue has been generated by a broad-based increase in revenue from all of our major IPs. So I'm talking about Eudemons, Heroes Evolved, Conquer Online. So all of those IPs have generated revenue increase. And on top of that, our revenue increase is also driven by kind of broad-based increase in a lot of our major metrics, right? So if you look at many of our major games, the MAU, the DAU, the APA, or the active paying accounts, all showed increase. So I think the revenue increase has been generated by a very, kind of robust metrics.

So if you look at the segmental profit for gaming, it has been the same pattern. We increased by 85% year-over-year. A lot of operating leverage. If you look at our SG&A for gaming, it's also very stable. You may notice that there is about 60% increase of the sales and marketing expense for gaming, and a lot of that is because of the advertising and promotion that we are doing for our gaming. But if you look at the absolute dollar value, there's about RMB 60 million increase in sales and marketing, but you're looking at above -- over RMB 500 million increase in the gaming revenue. So it's money well spent.

So that's it on my part. I'm going to pass it on to my colleague, Lin Xin, who's going to take us over -- who's going to take us through the gaming business.

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Lin Xin, NetDragon Websoft Holdings Limited - Gaming Operations CEO [4]

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[Interpreted] Thank you very much for coming to the meeting this morning. I will briefly talk about the gaming highlights in the first half of 2019.

For the first half of the year, we have achieved a very healthy growth in all our major IPs. Well, basically, the growth of revenue comes from the following areas: first, we have a lot of return users. There is a significant number of return users. We try to optimize our brands and also our games, so there are a lot of return uses for the first half of the year. Well, including Eudemons, Heroes Evolved and Conquer Online, et cetera. There are a lot of not just new players but also return players. So comparing with last year, first half of the year, we find that we have a lot of MAU and also DAU. And they -- there were new players and also return players because we have enhanced our content. It's vigorous content enhancement, and we have also a very good word of mouth. And we have launched multiple expansion packs. So different kind of games, including EO, Heroes Evolved and Conquer Online. We have a lot of different contents, increased contents, over 8. For instance, for EO, in October last year, we started it. And then for the -- up to the first half of this year, we also -- we're still continuing to increase its content.

And also, the third reason, because we have new playing features. There are a lot of innovative features, for instance, the (foreign language). This is a very popular mobile playing feature. And through this kind of enhancement, we are able to attract new players as well as return players.

And next, because we have optimized our customer service. So this has contributed to our increase in revenue. We have a lot of IP crossover as well, different IPs, different brands that have collaborative effects. And we have done a lot of trials and tests, and this has proved to be very effective. We have attracted a lot of new users as well as return users because of the new kinds of playing features and also new contents through the IP collaborations. We have actually a lot of new games in the pipeline. And actually, about 12 of these new games are in the pipeline. They are actually under development or in testing stage, well, including overseas and PRC testing.

Next, I will go into details of the major games for Eudemons Online. In the first half of the year, the -- we have reached -- achieved a record high in the user numbers, including in PC and also web games, and also mobile and HTML5. So for these products, in the first half of the year, they have achieved very good results. We have increased user numbers. And -- well, this also enhances content, for instance, EO2. And there are also new playing features. And there are some, for instance, EO Century and EO Legends, they are undergoing enhancement. So we're very confident in the business in this area.

We will also try to have a lot of crossovers. In our PC games, so we have tried new ways of playing features. We also -- so every server will include new innovations so as to collect the feedback from our users, and we will then put it on trial. If the effect is good, we will then introduce this kind of new features into the game. Coming up, we will also continue to invest into this area, including enhancing the existing contents and playing features as well as developing new games and new playing features. We are confident we'll be able to maintain our leading position in this field.

Well, these are the campaigns that we have conducted in the previous months. We have invited some artists and also very famous movie stars to be our spokespersons. And we have also done some collaboration with the important institutions in China. We hope to be able to extend the influence of IPs in the country.

And for the mobile games, we have achieved very good results as well. And we believe that in the coming half year, we'll be able to try new features and new contents. I believe that in -- for Heroes Evolved, we are able to achieve higher revenue growth in the second half of the year. We have collaborated with some Japanese major brands and injecting new vitality to our existing IPs. So the -- we have more Heroes figures involved.

And for Heroes Evolved, we are staging a lot of global contests, leading to record-high activity, where we have the live broadcast of these contests. And the viewer numbers have also achieved a very high record. It's only -- we have also staged some contests, which are very popular. So these are not for professional players. Actually, all players are able to participate in these contests, and that's why the viewer number is very huge. And for the first half of the year, this -- viewer numbers have reached record high.

Next, we'd like to talk about the gamings -- the games that are in the pipeline. For new games, we are focusing on 3 major types versus MMO and multiple players. And also, we will also put an effort in developing SLG kind of model, the SLG model. For MMO, we have started collaboration with Bilibili, and they will try to promote these products. And we also have established an IP committee. We hope to be able to build this IP into a very strong IP and also a core IP for us. Because for the entire game, from design to application, its all in-house design. Bilibili is very experienced in this field, so they will be able to help us in enhancing our design and also in designing the characters, et cetera. So these are very important products.

For SLG, basically, it's Heroes of Ages. And it is kind of multiple-heroes game, and it's real-time battle strategic mobile. We're trying it out in Vietnam now. And also, we have Legends of Ocean. It is a grand naval strategic mobile game, and we are also trying to test it out.

And for Moba, M-O-B-A, we have Heroes Evolved "Thrones" and also Cyber Legends. Cyber Legends is an open-world mobile. It's new, so we will collaborate, late -- test it out with Tencent in September, and for the new games, including the Battle of Giants, EO Legends and also Treasure Hunt Heros. So these are the kind of leisure games, and this will also be introduced worldwide.

And Treasure Hunt Heroes is a kind of new line. It is very popular recently. And the feature is that there is a kind of ad hoc-type maps, road maps and also ad hoc way of playing. So this has great potentials because it's proved to be very popular.

So when can these games are to be introduced to the market? It all depends on the results of our testing and also some technical backup. We -- for Hero of Ages and SLG, it's already available in Beijing. So what we have to do is to -- we have to go through some formalities within the country. So all these games will be able to be introduced to the market very soon. So I believe that in the second half of the year or beginning of next year, we'll be able to introduce not just the 3 major IPs but also some new games. And we are very confident that the market will respond very positively to these new games.

So we also look forward to your continuous support. Thank you.

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [5]

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Hi. Good morning. I'm Vin Riera, and I am the CEO of Promethean. I'm going to spend a little bit of time to you -- today talking to all of you about our Q1 highlights and the business. I want to talk about the market landscape in education, talk about our new initiatives, and then wrap up with our outlook for the rest of the year and looking into 2020.

The first half of the year was a very exciting time for us. We launched our V7 element product. We end of life of V6, we brought in V7. V7 was significant in a lot of different ways. The highlight was we brought in 3 different product lines in V7 to make sure that we're meeting the needs of the market on a global basis. These 3 product lines aren't necessarily used in every single market around the globe. They're used in their position in the markets. They're positioned in a way that the product is in the market where that's what that customer wants to buy. By giving us a broader set of products to sell, it gives us greater reach into the markets.

We had 28% unit growth in the first half of the year, which is fantastic. It speaks to the acceptance of our V7 product, and it also speaks to the interest in our V6 products. We end of life of that, and we burned down all that inventory. 6% revenue growth overall in our core business. You heard both Simon and Ben talk about our core business and then our tender business. The Russia business did not repeat itself in the first half of the year, but we continue to work on major tenders in Russia and in other parts of the globe. And we expect to talk more about wins that we have in those markets in additional earnings releases. And then we maintained our market leadership position in education, which we're extremely proud of.

V7. We launched V7. Why was V7 so significant for us? Well, to start with, it's another iteration of product that we have brought into the market, with over 20 years' experience that is designed for teachers. It ships with applications that are in place. The teachers use it on a daily basis. And it has the tools needed for teachers to interact with their classroom. Aside from having our award-winning lesson delivery software with ClassFlow and ActivInspire, every single one of our V7 products is now a connected device. What that means is all of these products can connect to the Internet, we can do over-the-air updates and it allows us to give a different and improved user experience over time to the customers that buy those products. This is a big step for us in not only how we bring our products to market, but the way that we can continue to engage with our customer base moving forward.

It's one thing for me to talk about the success of the product. It's another thing to look at the numbers that say we had fantastic user growth year-over-year or unit growth year-over-year. I like to look at third parties outside of us, recognizing what we've accomplished with our new product line in the first half of the year, which is a global stage. At that, we received the Company of the Year Award, specifically because of our V7 product. That was in Q1 of this year. In Q2 of this year, in our Americas market, at our ISTE event, we received Tech & Learning's Product of the Year award. So super proud of that. Super proud that we had such quick adoption of this product line and recognition and awards associated with it.

In the past, I've talked about the growth of the interactive display market within education. I want to spend a little bit more time on this just to make sure we all understand the opportunity that we have in front of us in education. There's 43 million teaching spaces globally, and there's only 31% of those that have some type of front-of-class device within them or front-of-class -- yes, front-of-class device in them, meaning an interactive flat panel or an interactive whiteboard. What that means is we still have lots of opportunity to put our technology on the walls of classrooms around the globe.

In addition to that, this market is going to continue to grow. And by 2023, we expect that the interactive flat panel market is going to have approximately -- of all the interactive flat panel devices that are shipped, 57% of those are going to be in education market. So education is continuing to grow. We're going to be able to participate in that growth, and we have a product line and a customer base that knows us on a global basis.

The second half of the growth in education has to do with the replacement cycle. We're on a second and third variation with our interactive flat panels. The original technology was interactive whiteboards. If you just take a snapshot and take a look at the U.S. market, there's 1.8 million interactive whiteboards in classrooms within the U.S. market. These are all technologies that are going to be replaced with interactive flat panel technology, which give a much greater and improved use case.

If you look at the opportunity just in the U.S., and again, I'm carving out just the U.S. as a discussion point, we have a strong embedded base of customers that use Promethean products that use our ClassFlow and ActivInspire lesson delivery that will convert from interactive whiteboard technology into the interactive flat panel technology that we sell today. On top of that, and another part that I happen to be very excited about, is that as the market leader in this space with a differentiated product, with experience and with a track record, customers that might have bought a competitor's interactive whiteboard seriously consider moving to our Promethean technology. So not only do we have our own replacement cycle, but we have the ability to compete and win for new business within that replacement cycle in the U.S.

We spend a lot of time talking about education. This is a learning business. One thing that we are very aware of is that there's a huge opportunity in what we consider to be a closely adjacent market, which is corporate. Corporate has been a market for the last few years that has been evaluating interactive technologies in their meeting spaces, but they haven't necessarily moved and begun to buy those technologies. We have seen since 2016 that the growth in these markets -- that this growth in these markets are starting to take off. And there is interest in incorporating interactive technologies into meeting rooms. We've learned a lot over the last couple of years. We've watched the market, and we feel now is the time to enter into it in a meaningful way. We're extremely excited about our ability to participate in the corporate market because we have a core expertise in designing and manufacturing, building and distributing these types of products. We have a reseller base that understands how we work with them, that also sell into corporate so we can leverage our reseller base there. And then we have a strong, proven track record of supporting customers in complex environments in education systems around the globe that we're going to be able to replicate into the corporate environment. So I'm introducing this to all of you today as something that we are introducing it and letting you know that we're going to be entering into the market, and we'll have products in the market in 2020.

So overall, from an outlook from the Promethean business, we're going to continue to grow at a healthy pace in all of our core markets. We're also going to continue to compete, and I expect to win large tender business like we have done in the past. In the first half of the year, there was not any large global tenders that were awarded. So it was not that we didn't compete and win, but there are large tenders that are in the works right now that we are actively engaged in.

I think the volume that we saw in the first half of the year really speaks to the strong reaction the market has had to our V7 product. And I absolutely continue to see that extend into the back half of the year and well into next year. And we're going to continue to compete and win in highly competitive environments. There's a lot of different competitors in this space. And the reason that we continue to lead the market is because we know how to build and position products for our market, and we've done that successfully in the past. And then also, we're going to start to venture into the corporate space to enter into a new line of business and, therefore, new revenue stream.

Thank you very much. And I'm going to turn it over to Garwin Chan.

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Garwin Chan, NetDragon Websoft Holdings Limited - Edmodo CSO [6]

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Thanks, Vin. So my name is Garwin. I'm relatively new to the company, so it's very nice to meet everyone. It's also my pleasure to share with you what we've been up to and what we've been working on at Edmodo.

I'm happy to say that Edmodo now has more than 106 million registered users globally. Important to know, we are the first mover and the largest player in quite a few really interesting markets. We believe that this international presence and this footprint is really a strategic advantage as we continue to scale up our monetization efforts.

So in terms of our strategy for monetization, it actually builds upon what Edmodo does well. So if you look at the left-hand side of the slide, classroom tools, i.e., homework assignments, posting quizzes, et cetera, that's a core functionality for us. We also have a very robust social network. So we have the world's largest online community of educators and teachers. These core features does really well to drive new users and organic traffic onto Edmodo. So you can see by having more than 100 million Edmodo registered users over the years, that's a testament to how power these core use cases are.

Now on top of that, NetDragon is going to build upon more innovative features. So for example, assessment tools. When I was a student, doing assessments, quizzes was very, very boring. We want to tap into NetDragon's gaming DNA to actually make that learning process a lot more fun and a lot more engaging. So we're launching gamified quizzes and assignments to provide much more social atmosphere for actually doing these assessments and provide more positive feedback for the students as well as for teachers.

Now once we aggregate more information and better understanding as to how that student is doing, how they're understanding that specific knowledge concept, then we can actually introduce or recommend curated content to address their needs. So we'll have smart technology to better match content for a more personalized learning environment within Edmodo.

Now with these features, we now actually strengthen that engagement for not just teachers but also students as well as parents on Edmodo and better prepare the platform for areas of monetization. The first one that we have already been launching is for services. Now services also includes what we call marketing solutions, which is essentially our version of advertising but done so in a way that's much more healthy for our mission as education platform.

So what does that mean? One example of a deal that we recently closed or completed this year is for the U.S. FDA, the Food and Drug Administration. We actually ran a $1 million campaign with them to fight against e-cigarettes and vaping for young people. So what we ended up doing was build a arts contest, kind of a art poster contest, for students to trade their own artwork, submit it through Edmodo, explaining to other students why vaping is actually harmful for them. So that's a very successful campaign, and now we're in conversations with the FDA to continue a subsequent program with them. Online tutoring services is something that I'll talk about in the next couple of slides. But just know that this is something that we're launching by the end of September, early October.

Teacher marketplace is also a very interesting idea that we've been working on, and it really builds upon the large community of educators that we have. So we want to create a platform that allows teachers to better monetize from the content that they create as well as give them access to the gig economy. So whether it's for our online tutoring jobs or other kind of freelance or part-time opportunities, we believe that a lot of employers, a lot of companies will be looking for teachers because they are highly qualified.

And then content kind of builds upon what we've been working on for the core use cases. So once we actually know more about the users, we can also introduce some premium content that we can sell for a subscription. So this will be a very interesting element for our platform going forward.

So this is the first product that Simon had mentioned, and that we are launching later in September and public launch in October. I think anyone that's been a teenager in the past can probably relate to this product where you're staying up late at night, you're trying to finish your homework, but there's a problem that you're just kind of stuck on. So what we want to introduce is a product called AskMo, which is a combination of AI-assisted self studying, plus a live tutor, that gives you 10- to 15-minute sessions to really walk you through how to solve that problem. So this could cover Math problem. It could also cover Science, Physics, more of the core STEM subjects. It'd be very helpful for a lot of students. So instead of just giving you the answer, the live tutor actually will walk you through step by step how you can actually solve it, what are concepts that you need to know in order to solve it. And if there's something that you don't understand because it's a live person on the other side, you can actually double click and dive deeper. And also important to note that this platform is going to be 100% mobile interface app-based, which is more relevant for today's world.

Now that first product, AskMo, is actually our product, what we call, the reach product for the mass market. So that's going to be priced around -- it's a freemium model, starting from free to $50 a month. And once again, this is something that we feel excited and has a lot of PO2, a lot of people who can also afford this. We're also planning on rolling it out in a very near future, what we call the mid-premium to premium products. So this includes 1:4, i.e., 1:few online tutoring. So think of it as online office hours. We have highly qualified tutors on specific subject matter as well as premium 1:1 online tutoring. And then the online tutoring subject area that we'll be focusing on are core subjects, so once again, Math, Sciences, English, et cetera, as well as test prep. So it's going to focus on a wide range of ages, from primary school where they can also get concepts for basic Math and English, as well as for older students preparing for their college entrance exams.

And with that, I'll turn it back to Simon.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [7]

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Is it on? Okay. Thank you. Thanks, Garwin. So -- well, welcome to the team. You've been here, what, a few months? So a veteran by now, right? So -- okay. Actually, he's been working very hard on Edmodo, among other things. That's actually -- he's also involved in some of the big tenders that we're working on. So I'm sure you'll ask some question later on, but we -- I'm not going to give out any answers, by the way. Only kidding, see if you're awake.

Anyway, I'm going to wrap up. It's actually, if you follow Garwin, I want to look -- I want to make an announcement. Actually, we -- the person you met, Vibhu, the CEO of Edmodo, he's going to be retiring. So it's actually -- but he will remain an adviser to us, but we have recruited somebody called Susan Kim who is going to join us early next week. She has a tremendous background. She went to Harvard, both undergrad and graduate school. By the way, same thing for Garwin, but there's a little bit of time gap there. But the reason we recruited her is not because of Garwin but because of her credentials. She started in eBay and then Google, and then she spent a lot of time working with startups. The last 2 startup she worked on, they're all like very famous BC-based. The last one is actually -- is Greylock-based, is a community called EatWith. She turned it around and then grew it and then exited. So very happy to have her joining us next Tuesday, actually, technically. So stay tuned for more news from her.

Just to wrap it up. This is really a summary. I'll -- really quick. I think the gaming, you know it better than I do now. So we'll continue what we are doing. On the education side, Promethean side, so this is really a summary of what Vin is going to -- what Vin talked about. We'll continue to also ramp up China with -- which is actually quite important. And then we talked about enterprise. We spent -- Vin and I, and actually Steve, our new VP for Products for Promethean, is actually spent the last 3 days working on that. We are getting -- we are very excited about the prospect. Garwin talked about the online tutoring service.

The last point is actually really more teaser for you. So we are planning something, I think, is very exciting for kindergarten. I can't give you all the detail, but the way I will position it is actually is a B2B, B2C and OTO implementation, so actually leveraging all the assets that we have in the company, including Edmodo, including Promethean, including Jumpstart and including our presence around the world. It really give a very interesting offering to the kindergarten kind of area across all countries.

With that, I think we're going to go to Q&A. And then I think they want me to sit down and shut up while they're setting up.

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Unidentified Company Representative [8]

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Thank you, Dr. Leung. Dear staff, please set up our Q&A session. Now it is time for our Q&A session. If you have any questions, please raise your hand, and our colleagues will pass the microphone to you. Before your questions, please also tell us your name and the firm you are representing. (foreign language) We welcome English questions. (foreign language)

Welcome, management.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [9]

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Okay. I'm glad we are multi-talented. So English, Mandarin. (foreign language) Susan have a (foreign language) that will be fine. And a little bit of Spanish. (foreign language)

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Questions and Answers

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Unidentified Company Representative [1]

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Now may I have the first question? This lady, please. Please wait a moment.

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Susanna Chui, DBS [2]

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I'm Susanna from DBS. Congratulation for the very good results. Yes. I mainly have 2 questions. The first question related to the online games. Management did a very good job for the first half. So -- and the update on the revenue guidance on online games in second half or for the full year and then also 2020 would be great.

And I would like to know the growth driver as well. Any plan to launch the expansion pack of Eudemons PC in the second half or 2020? And can you share the exact time line of the launch of the much anticipated Eudemons Mobile 2 will be in the first quarter or second quarter of 2020?

And the second question will be about the...

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [3]

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I thought that was your fourth question already.

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Susanna Chui, DBS [4]

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Okay. Okay. That's all for my questions.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [5]

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Well, it sounds like Susanna know our business better than we do. Exactly, we don't give out guidance, I mean, as you know very well. But we are very confident in our momentum in gaming will continue. (foreign language)

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Lin Xin, NetDragon Websoft Holdings Limited - Gaming Operations CEO [6]

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[Interpreted] Well, on Mainland China, for new games, so we have to be -- we have to go through some formalities. So we really need to go through these formalities. But for the new games, we will start launching it on our overseas markets first because we see very rapid growth in overseas market, and we know that this kind of new games, for instance, in North America and also Middle East, we have started entering those markets. But then for other markets, we are still quite new. So we -- for new games, our direction is that we will try to globalize them, globalize, so we will go to different markets, not just localization in those markets, but we will also try to introduce our new games to new regions and new markets.

So if you want to know about the timing of the new games, first, for Mainland China, we have to go through all the formalities and formal application. So we don't have a rigid timing. So we don't know yet. We will have to wait. For every quarter, they will give us some feedback, so we have to wait in line. And it depends on when we submit our application and look and see whether the content have been approved. So we have to wait. But we are very experienced in this field. We -- in Fujian, the Fujian government, it's going through our applications. So we are keeping close contact with them. So we know their regulations and requirements. We're experienced in this. So in submitting content, that's okay. I believe that it's all right for EO II and also other new games, that depends on the approval process. We can't do anything, but have to wait.

A word of supplement. First is about this application, it all depends on the authorities. So we really can't speed it up on our own, right? It's fair game. Everybody have to go through these formalities. They have to apply through these -- go through these application process, even Tencent and other companies are the same. So everybody has to wait in line. So the government will go through these applications one by one. Well, actually, there are a no new -- IP dev people will just be playing out at -- existing games. So to us, there is no great effect. It will not influence us a lot because there are still existing games that they can play with in the interim. And for overseas markets, we have game studio, we have JumpStart. So we are now concentrating on expanding the overseas market. And we are also trying to leverage on the experience that we have gained in North America, for instance, the JumpStart resources that can be used in other markets, so especially in the Asian markets.

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Unidentified Company Representative [7]

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[Interpreted] Thank you very much for your answer. Next question, please. The gentlemen in blue shirt.

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Hillman Chan, Citi [8]

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I'm Hillman from Citi. I have a couple of questions. Firstly, on Promethean could you share more on the colors for the new tenders from the emerging markets going to second half?

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [9]

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Actually, they're all blue. So it's actually -- it's okay.

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Hillman Chan, Citi [10]

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Yes. And separately, for our [firm-up] strategy in China, what are the hurdles that we are facing and how will we go about resolving them? And how we should think about the volume of Promethean in China in the near future?

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [11]

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Think about the volume?

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Hillman Chan, Citi [12]

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Yes, potentially. If we were to...

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [13]

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Okay. So why don't I have my good friend Vin talk about the tenders, and then I'll talk about China. Yes.

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [14]

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Great. So I'm going to give you some information on the tenders, but I'm going to keep some of it to myself, just because I would rather not have it be public.

For those of you who follow how we go after the tender business, we have relationships that we continually nurture in MOEs, which are ministries of education around the globe. When it's time for a country to do a tender, we tend to be in front of that and we tend to help them write the specs for that tender. Right now, we have 3 tenders that we're working on for the back half of the year and into 2020. Exact timing on those and exact sizing on those is not confirmed, but they're in the process of -- the government are in the process of working through the funding on those and locking it down. I think what's most important to take away is that we're in -- we have a seat at that table. We're meeting with those ministries of education, and we're part of those discussions.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [15]

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Yes. Just to add to it, as I told the people on the panel, 4 out 5 are actually somewhat very involved in those tenders. So yes, so we are very optimistic about seeing it through.

In terms of China, I can't give you all the details because then we'll end up giving a guidance. So we announced last meeting that we are launching, so we are in the middle of doing that. So basically, we're doing 2 things. One is actually we lay out the channels so we can cover the entire market. The other one is that we are looking at strategic tenders that we can go after. So it's actually no different from what we are doing outside of China. It's actually -- so we're doing that. So it's something that we do know how to do well. So that's why I mentioned about the Fujian tender. It's the first phase of the implementation of putting technology in all the schools in China. So we're going to wrap it up in the next few months. So the big impact will be in 2020 from a revenue and profit standpoint.

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Hillman Chan, Citi [16]

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And just one quick question for Edmodo. As we are going to roll out the 1:1 and 1:4 tutoring soon, how should we think about the competition? And our differentiation in our products and distribution versus the existing products in there?

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Garwin Chan, NetDragon Websoft Holdings Limited - Edmodo CSO [17]

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That's a very good question. So online tutoring is certainly a competitive market in Asia. I think if you look at a lot of overseas markets, including the U.S., it's a more fragmented environment. I think something that really differentiate what we're trying to roll out with Edmodo is the fact there are so many teachers on Edmodo. So the teachers can actually act as 2 functions. One is they could be a very key influencer on our behalf. So to the extent that their students need additional study habits or need additional study help, they can recommend our tutoring services as well. The second function, and this also ties into the teacher marketplace that I was talking about before, is that our teachers could also be qualified tutors on behalf of these students as well. Maybe not for their own students within their classrooms, but for other students. And because it's online, we can easily facilitate that.

I think another thing that we're looking to differentiate our services on the technology side. So given that we have such a large R&D team, not just in China, but also in the U.S., working on really interesting technologies. So for example, for photo -- sorry, for our first product, AskMo, part of the feature there has a photo bot, so it can actually recognize your handwritten question and kind of turn it into a form that the tutor can very easily process and understand what you're trying to solve. That type of AI technology, I think, is quite unique.

Secondly, we're also working on some interactive white boarding capabilities. So whether you're on your tablet or your PC and then a tutor might be on his phone, he can still drop the equations, help you go step by step. So these are all things that we're working on from a technology standpoint that could really help us stand out.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [18]

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Well, let me add to it. I think a different angle to look at it is that it is competitive when you look at the individual market like homework help, very competitive. 1:4, not as much, but a lot of companies are addressing part of the triangle rather than the entire triangle. But we are doing everything. So what we can do is actually we can package the services rather than just saying, okay, for [$9.99], you get some questions. We can really package it and customize it to the student's needs. So because -- don't forget, we have this big student community, and they've been interacting on it. So we understand what they want and what they need. So we can kind of package the individual services and say, okay, maybe for you, the better one is to subscribe to the mass service, the homework help plus maybe 2 individual sessions. So we are the only one who can do it under the umbrella of Edmodo academy, while everybody, if you want to subscribe to other services, number one, you have to do it yourself; and then you have to subscribe to 2 different services. So I think that's a big differentiator from my standpoint.

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Garwin Chan, NetDragon Websoft Holdings Limited - Edmodo CSO [19]

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Sorry, and then one more quick note, just because Simon reminded me, is another big advantage that we have is on a go to market. So Edmodo already has millions of students in our platform, actively enrolled in class, we know their subject matter, we know how old they are. Even for AskMo, we're going to have the same single sign-on. So you can just simply take your Edmodo user credentials and register for the AskMo app. So that's a big advantage that we have in terms of access to understanding where that student is as well as how do we actually get to them so that they know about our product.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [20]

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I think the... actually really, we try to customize or personalize the learning.

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Unidentified Company Representative [21]

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Thank you, management. And our next question, please pass the microphone to the third, to (foreign language).

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Jeffrey Chan, CLSA [22]

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I'm Jeffrey Chan from CLSA. Congratulations on the very outstanding first half result. I only got 2 questions regarding Promethean. I would like to ask what is the life cycle of the Promethean and how would company do to the old version of Promethean?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [23]

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So I can answer the first question. I might need a clarification on the second question. So the first question is life cycle of our products. Yes, our products come with standard 3-year warranties. You can extend into a 5-year warranty. We find at the end of 5 years, it's hit its useful life. The products will continue to work, but oftentimes, the technologies that integrate with the front-of-class device would warrant a reason to change. So we think about a useful life of approximately 5 years on that.

The second half of your question, I'm not sure I understood. Can you repeat that?

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Jeffrey Chan, CLSA [24]

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How would the company do to the old version of Promethean? Would it be like selling in a discount or would customers still do a tender on the old version of Promethean?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [25]

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So when they upgrade. So when customers have... yes. So that's a great question. That really depends, and it depends on the type of market. It depends on the -- not the type of market, the geography and what the buying behavior is. Oftentimes, they will bring their new buying decisions to tender, and they will do RFPs on that. But if they're a Promethean customer, oftentimes, they incorporate things like ActivInspire use cases or use cases specific to Promethean. So the bid is aligned. It's almost written for us.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [26]

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Vin, I think he's talking about the replaced product. I think that's what he's saying. So if, let's say, Miami-Dade like upgrade their older technology, what do they do with their old devices or whatever?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [27]

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It's recycled. Yes, the old devices are recycled.

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Unidentified Company Representative [28]

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Thank you for your questions. Any questions? (foreign language)

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Winston Chu, Hinrich [29]

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Winston Chu from Hinrich Foundation. Nice to see you guys have more comfortable chairs this time. So on ActivInspire, right, last time you guys mentioned that with ClassFlow and ActivInspire, you guys were kind of doing integration given that the teachers seem to prefer using ActivInspire. So I just want to understand what form that has taken and what the progress on that is.

And then with the new ActivInspire Elements series, I'm just trying to understand, given the design superiority around the product, have you guys been seeing better engagement on the ActivInspire software from the teachers' app from the new teachers who are using the Elements product.

And then finally, on the meeting room opportunity you're talking about, I'd like to understand kind of how you guys think about, again, the software side of it, where you have to -- how much of it do you have to build anew? How much can you adapt? Whether you have a separate team for it? And if you do, then what does that do to your profit margins going forward?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [30]

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Yes. Okay. So let's start with ActivInspire and ClassFlow. And I think V7, our Elements series, speaks to how we're starting to incorporate this into the same story. Users of ActivInspire and users of ClassFlow are very passionate about their use cases and the materials that they've created within those systems. What we've recognized, though, is there are certain applications that both of them have that are common, that we now incorporate into the panel in the form of an app, right? So there's ways that we can take use cases out of both and create it into an app on the panel that gives both users a common experience. And therefore, in many ways, a better experience.

As far as building on that and then understanding the adoption of it, V7 allows us to incorporate some telemetry so we can understand how that panel is being used and how much time that our users are spending on certain applications. So that's important for us for a couple of reasons. First is to understand actually how much time someone is engaging with a panel in a certain way allows us to steer our investments to creating better user experiences that way. Also, where we see them toggle between use cases, that helps us understand where we need to create dependencies between the products. So I would say that we've made considerable progress in combining the ActivInspire and the ClassFlow user bases together.

As far as the corporate space, there's a couple of different ways we can go at this. One is to build everything ourselves from the ground up. Quite frankly, that's going to take too long, and I don't think it's entirely needed. I think there's some core software applications that we're going to be able to license, and there's ways that we can bundle them and do our own development to customize it to get a pretty robust user experience in a collaboration room or in a meeting space. So for us to get into that market is not overly heavy on investments nor would we have to expect long lead times to get to that market because we wouldn't be able to come up with a solution to get in the market quickly.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [31]

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Yes. I think our direction is actually is a very meaningful way for the users. I think that's the most important. Because when you build your own software, it's actually not realistic to ask a lot of people to change their workflow, right? So our goal is actually just so they can maintain their own workflow, but at the same time, we add value on top of it. So for example, like one organization could be using a certain software, another organization using a different set. If you want both of them to move to a new set that we've developed, that doesn't make a whole lot of sense for them. So our goal is actually, in addition to the value that we have which are all around collaboration, to make it seamless for those guys, right? So one can talk to the other without changing anything, but also take advantage of the capability we put into our system. So that's our goal and that's our plan. So we are excited.

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Unidentified Company Representative [32]

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Thank you for your questions. (foreign language)

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Eric Qiu, CCBI [33]

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[Interpreted] In the first half of the year, the gaming revenues have increased very impressively. I'd like to know your views about is there any ceiling for this kind of revenue growth for online gaming? How far are we from this ceiling? That is, can we sustain this kind of growth pace for 1 or 2 years? Or do you have any views about the room for further development? For the first half of the year, very often the revenues comes from return users, as you mentioned. My question is that, for these return users, can they continue to become the growth engine?

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Lin Xin, NetDragon Websoft Holdings Limited - Gaming Operations CEO [34]

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[Interpreted] Well, we come across this question very often. We have actually a broad base of users, including new users and return uses. Well, a lot of people want to know about the room for further development. For the online games, it's actually very popular among people. There are some people who never play online games before, but then they are new users. In the past, it was 15 to 30 years old of users. But now, the demographics have increased from 15 years old to 50 years old. So we have a very broad base of users. We have an interactive version from last year onwards, the online, the mobile and also PC games can be changed over very seamlessly. So last year, we have a lot of active users, and the number have increased very impressively. And there are also a great number of return users. And they feel much better in using different kinds of modes to play our games.

So looking forward, I believe that in the next 2 to 3 years, we will still have great growth for the PC game users. So the market, actually, the market size for PC games is indeed shrinking. But then it will not affect us a lot as some users are still -- they still like to play games on their PCs. So many of them are above 30. And we also have a lot of interaction with users. And we encourage them to learn new ways of playing. But then for those people over 30, perhaps they will stick on to playing the games on their PC. This is their habit, and we do not intend to change them drastically. So these are our core users, they will continue to play our games on their PCs and it is anticipated that they will continue to do so in the coming years. So they're a very stable user base for us.

For new users, as we have mentioned, from the year before last onward, we have started introducing a lot of new games and also new ways of playing. In addition to PC games, there are a lot of other games that can be played on the mobile phone. And also there are web games, mobile games and also different kinds of ways of playing our games. So this is the way that we expand the new user base and different kinds of -- there are different ways of playing on different modes. So we will not depend solely on PC users or any kind of users. So it's a kind of comprehensive growth on different fronts. And we also introduced new products, upgrade our existing products and these are also the ways to increase our user base. And we enriched the content of our games and also we have interactive playing features and also there are enhancement in artistic design.

So actually, there are a lot of existing users that will be encouraged to try new games. But at the same time, we are meeting the needs of the younger and new users, and this is how we expand our IP, and we try to have bigger, wider coverage. And for the PC users, as I mentioned, they are very stable. And we find that they are very loyal, in fact. And about 5% of them will try on different leisure games, but then only a small number of them. Basically, they will continue with their old habit of just playing the games on their PC.

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Eric Qiu, CCBI [35]

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What's the negative impact in first half due to the China-U. S. trade war, tariff things? What the situation would be in the second half for the negative impact?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [36]

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Yes. So the tariff has been active in the news, to say the least. I don't have any visibility into what will happen or what will change, because it seems to change constantly. It's something...

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [37]

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Like every hour?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [38]

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Yes. It's something that we're extremely aware of and something that we talk openly with our customers in the market on. We did have -- we had a tariff impact in the first half of the year. We did not see buying slow down as we saw by the sheer number of units that we're able to move in the market. But it's an open discussion. Obviously, we have a couple of options with the tariff. One is to increase our prices to maintain margins. That's certainly something that we'll constantly consider.

Another thing is we work very closely with our providers and help them understand the stress that we're under as an impact of a tariff and work with them to lower our COGS. But yes, it's an open, active discussion in the business on a daily basis.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [39]

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So just to be clear, it's actually the tariff will impact the U.S. market, right? But we are a global company. So it's actually the point #1. Point #2 is actually, I mean, we are really passionate about education. So, so far, we are consciously not passing the cost onto the customer because we don't want them to suffer, because this is really impacting the next generation. So Vin and his team has been looking at that. So hopefully, we can resolve that problem so we don't really have to pass on the cost to our customers. So that's what we'll do.

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Unidentified Company Representative [40]

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Thank you for question. (foreign language)

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Aily Yang, GF Securities [41]

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(foreign language) I'd like to ask Dr. Leung, because I know that the company has invested a lot on education. And we also know there are kind of monetization strategy in the next half of the year. I'd like to know your -- any prospect in the revenue on the education products. Are there any goals in this front? I've been following your company for many years, and I really hope that there will be some improvement in the revenue for education, for the education products.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [42]

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[Interpreted] Yes, this is a long-term investment in education, because education is not something that can have overnight return. And so we view it as a long-term investment. We do have strategies and long-term goals. And because we do not provide guidance, so I'm really sorry, I can't give you any specific replies for that.

As Garwin has said a lot about this. We are actually one of the major players, and we do a lot for online tutoring. It's not just one-to-many or one-on-one tutoring on homeworks. Actually, there are 2 different types. One is the teachers marketplace, and also in Promethean, we also will continue to enhance its content, and there are steady and healthy growth. So of course, we will also try to increase revenue on this front.

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Aily Yang, GF Securities [43]

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[Interpreted] Can I follow up? I'd like to ask Mr. Lin. We've talked about a lot of new games, some of them are at the testing stage. Are there any that stands out at this stage? Is it possible to let us know if there are any new games coming up? Or how different would it be from other games?

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Lin Xin, NetDragon Websoft Holdings Limited - Gaming Operations CEO [44]

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[Interpreted] Well, actually, for the gaming front, we very often have to do long time testing. We have a lot of collaboration with Tencent, and we also know the development of games in the recent months. And we know that the market is healthy, and it's a big market. For the market, yes, the demand for new games is quite strong, and they have very high expectation of new games. We have to make sure that -- we must test our new games thoroughly before it is launched into the market. We also have new games for the existing games, for instance, the -- we find a new response, a very healthy and good response for our existing games, including SLG and also Heroes Evolved, et cetera. We tested it in Vietnam, and the result is quite good. It actually allow collaboration of different companies.

With these testing cycles, it's really very good because we can very carefully refine the features and the design of our games. The IP -- revenues from IP has been very encouraging and very healthy and steady. So we believe that it will continue to grow in the second half of the year. We do not have much financial pressure on this front. So we will continue to enhance our games and also make the data even much -- even better. So for SLG in overseas market and also PRC market, we are able to achieve about CNY 50 million kind of revenue. This is quite basic expectation.

Yes, we talk about EO, Eudemons, and we -- actually, year-over-year performance has been very good, not just for EO. EO is our flagship game, but we also have 2 other very important games, which are doing very well. Yes, there are a lot of concentration rates for some of our core games. The IP investment is very important to us. The application platforms and IP, et cetera. IP is most important to us because we have to compete with our competitors. And every month, our mobile users, every month is about 2 million to 3 million active users. And this is really very impressive because -- for the mobile games, we have to continue to invest in enhancement of the games. But then our users are very stable. They play the existing games, as well as they like to try out new games, and they use different kind of modules to play games, for instance, on the iPhone and maybe on the PC and sometimes on the web. So this growth have been very steady and healthy.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [45]

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[Interpreted] Shall we give the chance to some new? Someone who haven't asked questions before?

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Steven Nie, Kingsway [46]

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I'm Steven from Kingsway. I have 2 questions on Promethean. The first one is about product mix and ASP. As we can see on Page 24, we have 28% unit growth, but 6% revenue growth. So what's our product mix like and what's the ASP for each models? And the second question is about trade war. As I understand, we have different models subject to different tariff like 10%, 25%, 30%. So what's the different tariffs and different models? And if we are not going to pass through the cost to our customers, how do I mitigate a lot of risk?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [47]

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Yes. So let's talk about the product mix first. That was the first question that you had. I think the first half, well, first, I should say it's important to understand that the heavy buying season for education is really made through September, right? So we're -- there's a cutoff point that happens. So to look at overall ASP, in the beginning of a buying season, it's a tough thing to do and I wouldn't say reflects the true nature of what's happening with ASPs in the marketplace. It's too early.

But that being said, let me just give you a couple of things to think about. In the first half of the year, we end-of-life-d our V6 product and ramped up our V7 product. So the first thing to keep in mind is we wanted to make sure that we didn't carry inventory. And on our V6 products, we were willing to sell some of that to get it out of our inventory profitably, but potentially at a lower ASP than we would have if it was our core product.

Also, certain parts of the world that buy an 86-inch mix have delayed their purchases because of that buying season, right? So still within the buying season. But they -- we saw less 86 inches in our mix during that time period. I wouldn't make the assumption that, that means that the 86 is not in demand, I would just say it's around the cycle of funding and when people are buying during that time period. So I think that speaks to -- I'd say those are the reasons that speak to the lower ASP.

And then the other thing, too, is if you take a look at the Russia order from last year, Russia was all 86. So that was our premier 86-inch custom product at a significantly higher ASP. So I don't look at the ASP and have any flags up around that personally at this point.

Relative to the trade war, I think we talked about that and where our products fit into the mix. The U.S. is only part of where we do business around the globe. I mean, we operate -- I think the last count was 159 countries for Promethean that we operate in. The U.S. is certainly a large market of ours, but one that is not all of our business. And right now, the buckets that we're in are in the lower trade dollar buckets, or the lower tariff amount. So our products are being hit at the lower tariff amount. There is exception process and exclusion process, and I can assure you that us, and along with everybody else in this space, is working through that to see what kind of waivers and exclusions that we can get. And that's an ongoing effort. But I wouldn't say that we're in a position that's any different than any other competitor in the space operating in the United States that's dealing with.

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Unidentified Company Representative [48]

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Thanks. (foreign language)

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Kim Pao, ROCIM [49]

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Vin, I just have a follow-up question on Promethean in Russia. Given the fact that we actually operate in so many different countries. And I guess, for local officials when we enter into tenders, they tend to think of everything in terms of local currency, not in U.S. dollars. So how -- when we go into a tender, how do we compete locally when currency fluctuations can actually mean a great deal to our margins?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [50]

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Yes, that's absolutely part of the discussion. So we have -- we do business outside of the U.S. in U.S. dollar. But we take into account, the type of currency on every deal, whether it's -- it doesn't just need to be a tender piece of business. Some of our resellers, we have agreements with in a fixed currency and fixed exchange rates. So we try to protect ourselves against that.

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Kim Pao, ROCIM [51]

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For example, Russia. In our second tender for Russia, given the fact that ruble is different now, when we get into a discussion with the Russian government, would our margins be slightly different this time?

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [52]

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So maybe just generally speaking, some of our larger tenders, we've done in U.S. dollars. Yes. So we negotiate them. Just because it's not in the U.S., doesn't mean that we won't do a deal in U.S. dollars, and we'll agree to do the deal in U.S. dollars. So for Russia, in particular, we did that deal in U.S. dollars.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [53]

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Actually, we are very careful on dealing with local currencies when it fluctuates so much. So a lot of tenders that we do actually is all around U.S. dollars to kind of protect ourself.

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Unidentified Company Representative [54]

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Thank you for your question. Okay. (foreign language)

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Feiya Zhao, Haitong International [55]

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This is Feiya from Haitong International. And I have 2 questions. One is regarding the online games.

[Interpreted] First, about online games. The first half of the year, the revenue has been very impressive. I'd like to know whether it comes from like existing online games or from new games that there is the revenue growth? And excluding the new games in the second half of the year, will the growth momentum continue? My second question is about Promethean.

You have already started your expansion in the China market and already have a project in Fuzhou. So I'm wondering, like, do you have any other plans in other places in China? And what is our pricing strategy? Because for some local providers, they have lower pricing than yours. So what's your strategy to differentiate yourself from others?

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [56]

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Why don't I take that? So maybe I didn't say it clearly in the presentation. So when we expand, we don't only expand into Fuzhou, because it is actually -- it's only a city. So it's actually, I said, we are laying out the nationwide channel network. So it's actually the point on that one is like we're looking at the entire market rather than just a province. I mean, of course, I mean, we are in Fuzhou. So that's the closest we have. So we have early success. That's explainable.

And we never go down to the very, very low market because it's actually that's not what we do, because we have our own brand name, we have our software and all that. So we are really aiming at -- we give the best value for the money they pay. So I think the market in China is going to move up market a little bit because it's actually, after all the big tender, which is the mandate from the government has been done, so they are looking at upgrades. So I think with the new V7 and with the software that we have, that's also tied into localization. So we have some software that we localize and really designed specifically for China, for example, 101 PPT, which is being used by how many millions of users now, 101 PPT...

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Garwin Chan, NetDragon Websoft Holdings Limited - Edmodo CSO [57]

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101 PPT, roughly about (inaudible) 6 million.

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [58]

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Yes, 6 million. So those are the software that a lot of the teachers are used to. So when we put it into our system, so it actually provide more value.

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Unidentified Company Representative [59]

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Thank you for your question.

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Ben Yam, NetDragon Websoft Holdings Limited - Group CFO [60]

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[Interpreted] Well, about games, so for the second half of the year, we continue to have very good growth momentum. For the second half of last year, the growth was also very impressive. So we have a higher base for the second half of the year. But for year-on-year, we also still have been able to achieve substantial growth year-on-year.

Just now you asked about our mobile games, right? Every quarter, the growth for our mobile games are very impressive. Yes, every quarter, it exceeded the growth in the PC games. So we believe that this kind of growth momentum will continue.

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Unidentified Company Representative [61]

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(foreign language)

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Mianlu Zhao, First Shanghai Securities [62]

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[Interpreted] I'm from First Shanghai Securities. I'd like to ask, we have a revenue excluding the Russia bidding -- or Russia tender, and also there is North American and Europe markets, I'd like to know about the positioning, our positioning, market positioning. A lot of people are expecting your penetration on new expansion in new markets. What would be the core markets?

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [63]

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[Interpreted] Sorry. Perhaps, let me repeat. When we look at our Promethean business, there are 2 part: first, core; second is the tender business. It's not in new markets. For tender business, it's whether you win it or you don't. So when we look at the Promethean market business, it's better to look at our core business. Because for tender business, it's difficult to expect. It's cyclical. And it doesn't mean that every month or every quarter and every year will be the same. So if you look at our Promethean business, it's better to look at our core business under Promethean.

And for tender business, we have already completed the second stage, and the third stage is starting. And so it doesn't mean that the results will come out every time in the same month. So if you look at our Promethean business, you better look at the core business and excluding the tender business. But then it doesn't mean that we're not doing this. We are not going to the market. It's just that it's more accurate if you compare our performance by the core business only. And also in all our presentations, we have a very -- one important line, that is we are very excited about the emerging markets. That means we definitely will try to go into emerging markets. For instance, in Africa, we already started some new markets there, and there are also in some other places and countries. So please do not misunderstand that. We will not invest in emerging markets.

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Mianlu Zhao, First Shanghai Securities [64]

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[Interpreted] All right. If that is the case, can you give us a kind of a sort of outlook for the entire global markets?

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [65]

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[Interpreted] Well, we have mentioned many times that -- in our previous announcement, we have already said that we will enter the Chinese market. And now we already told you that we have made some progress in the Chinese market. We have already laid down the channels in the Chinese market, and there are some new projects going on, especially in Fuzhou, some new projects have started, have rolled out in Fuzhou. And in the coming months, we will continue to execute our strategies on the Mainland market for the bigger impact it may serve us next year.

(inaudible) on how you see it finishing the year, just kind of summarize what you said earlier, which actually we see a strong second half and then next year. So yes...

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Vin Riera, NetDragon Websoft Holdings Limited - Promethean CEO [66]

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Yes. So back half of the world, rest of the world, excluding U.S., right, the question? Lots of activity in the core markets that we operate in outside of the U.S., North America, lots of activity in the Middle East that we're seeing. And there's also parts of Africa that we're working on in active engagements as well as Asia and Southeast Asia. So there's not really any market outside of the U.S. that is hitting any -- that is an obstacle for us.

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Unidentified Company Representative [67]

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(foreign language) Any questions?

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Simon Leung, NetDragon Websoft Holdings Limited - Group Vice Chairman [68]

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Okay. Well, thank you. Let me -- well, please allow me one more time to thank you for coming. And let's kind of summarize. We are very confident with our business in the second half of the year, both in terms of gaming and in terms of education. For education, actually for Promethean, we are even more excited about next year because we have executed our China strategy. We see an impact next year, and also our entrance into the enterprise business will kind of give us the further growth curve into the business.

So with that, thank you so much. So we'll see you in another 6 months. Thank you.

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Unidentified Company Representative [69]

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Thank you, management.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]