Edited Transcript of 777.HK earnings conference call or presentation 1-Apr-20 2:00am GMT

Apr 2, 2020 (Thomson StreetEvents) — Edited Transcript of NetDragon Websoft Holdings Ltd earnings conference call or presentation Wednesday, April 1, 2020 at 2:00:00am GMT

* Vincent P. Riera

Dear friends, good morning. Thank you for joining NetDragon Websoft Holdings Limited today for our 2019 annual results presentation.

Our 2019 annual results presentation, PPT, will be broadcasted on our webcast platform. The PPT is also available for download on our company website, www.nd.com.cn, under the Investor Relations tab, IR Webcast section.

Before the start of our presentation, 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. Wang Song, Group Senior VP (foreign language); Mr. Vin Riera, CEO of Promethean (foreign language); Ms. Susan Kim, CEO of Edmodo (foreign language).

Now let’s pass our time to Dr. Simon Leung to host our presentation today.

Well, thank you. Good morning, good afternoon, good evening, depending on which part of the world you are. So well, thank you for joining us at the call today.

I just realized when I get up this morning, we are doing this on April 1. I have to admit, I did not pick the date. And I can also assure you, there’s no April fools joke when I talk about our earnings in 2019.

So we have about an hour. I think you guys have seen a lot of the data. So what we would do is that you will — we’ll kind of go through the high level — hit the highlights and then I would save some time for Q&A.

Before we do that, so let me kind of make some comment on the presenter today. There’s a lot of old faces, old as in you have met them before, maybe with the exception of me. So Ben and myself has actually been on this call for quite some time. The other one is that you have Vin, our CEO, Promethean, who’s been doing this for quite some time.

We have 2 kind of “new faces.” It’s actually — one is actually Wang Song. It’s actually, we affectionately call him (foreign language). It’s actually — he is actually in the company who knows a lot about our gaming business. So we’re so happy to have (foreign language) joining us today.

Last but not least is the only female on the call. So [I chose] Susan, thank you for joining us, because she is going to add some class to this presentation. So that’s the introduction. And you kind of hit the highlights. And let’s take a look at our results.

So this is actually Chart #5. It’s actually, needless to say, I mean, we grow our top line and grew our bottom line, which is at the — it’s kind of expected because we did the profit alert.

So if we can switch to Page 6 very quickly. It’s actually is a record high for both earnings and for profit, which we are very happy about.

And then on — I’ll just hit the highlight on the gaming business. It’s actually we see a very balanced growth in 2019. It’s actually both mobile versus desktop, which is really exciting. I think the other exciting part, which I probably talked ahead of the slide already, is actually our international business as that you’re also picking up steam. So yes, it’s really truly is a real balanced growth performance.

Promethean is our flagship in our education business, continue to maintain a global market leadership. Vin is going to talk a little bit about that.

The next 2 points is actually to get kind of together is something that we’ve been working on because we have different assets within the company. So we started kind of looking at how we can implement a countrywide or kind of like a district-wide or province-wide strategy to really leverage all our asset in the education business that we can help either an area or a country to grow. It’s actually — Egypt is actually a prime example. I’ll talk a little bit more about it later on. Even though the announcement is actually made in 2020, however, we’ve been working on this. So a lot of the hard work has actually been put in in 2019. And of course, to kind of thank our investor of believing in us, so we’re going to — we are looking at a whole year of dividend of HKD 0.40.

Next one on gaming, I think I did hit the highlights. So just one more point I wanted to talk about is actually is the broad-based revenue growth across all our major IP. I’m not going to steal the thunder from (foreign language), so I’ll let him talk more about that.

So on learning, again, I did talk a little bit about it. I’ll just kind of hit the highlight. On Promethean, it’s actually, if you look at the shipment increases, actually it’s quite a bit business — actually above — rev ex-Russia because I think for those of you who’s very familiar with us is actually we have a tender business which (inaudible) make the quarter look a bit uneven. So we purposely take it out so you can kind of track our core business. A very strong growth. It’s actually — Egypt is one of the prime example and we have more than that in the pipeline that we are kind of basically rolling on all cylinders.

A very quick one on Edmodo. As much as — I mean, this whole virus outbreak has actually created a lot of problem for a lot of businesses in a lot of countries. I think the reason why we are all over the place and doing this call is because of that. But that turned into a very interesting business opportunity to us. It’s actually — since the outbreak, our traffic has grown in multiple times. So it’s actually our DAU is actually approaching more like 5 million as a total. It went from kind of like 1 million plus. So it actually is a lot of opportunity. For those of you who’s been following us, Egypt, the Ministry of Education has announced putting 22 million students and over 10,000 teachers on Edmodo to allow them to deal with the current situation.

And one other thing I want to mention right now is actually, to me, this is not a kind of like a stopgap solution, what I call this — anything more about distance learning, remote learning, I think is what I call the new normal. I don’t see people retreating from it after this virus situation. I think this is actually going to be here to stay. So I think that works into the advantage of our business and our capability.

So quickly about China, it’s actually very similar than outside of China. It’s actually our DAU went up. We did support a few of the provinces like Hubei and Fujian in terms of the remote education. So — and then we also started doing — pushing our product of Promethean in China last year in and you will see the traction coming up in 2020.

The last one I want to go through before I hand it over to Ben is actually our dashboard, if you will. I think the exciting part is actually if you look at — on the learning side is actually the DAU is actually like 5 million plus. It’s actually — I had a joke around with Susan. It’s actually every time we talk, I mean, that number goes up. So we will take a good advantage of it. And then on the gaming side, it actually is — always been very strong, but I want to highlight the upcoming titles that actually we do have quite a bit in our inventory, which is actually quite exciting.

So with that, I’m going to hand it over to Ben, our CFO, and he will take you through the highlights of the numbers, and then he will hand it off to (foreign language) to talk about gaming. So Ben, please take it over.

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Kwok Hei Yam, NetDragon Websoft Holdings Limited – CFO & Senior VP [3]

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Well, thank you, Simon. Hello, all. I’m going to take you all through the financials. So if we can go to Slide 12.

Well, first of all, let me draw your attention to the top line and bottom line. So in terms of the — in terms of record high, right, I think Simon talked about record high. We — in 2019, we’ve set the record high on 2 fronts. Our first is our revenue, which has since gone up by 15%. And the other is our net profit, which has gone up by 48% to over CNY 800 million. Further, if you look at the bottom line though, we can also look at the EBITDA, which is a closer approximation to our operating cash flow that we generated. EBITDA is over CNY 1.2 billion. And if you look at the non-GAAP operating profit, it’s also close to CNY 1.1 billion because we do have a number of accounting or GAAP adjustments, and this non-GAAP figure would be — would more closely represent our core operating profitability.

So if you look — if we go back to the revenue, I think Simon mentioned gaming continues to deliver very solid growth with close to 40% year-over-year growth on the back of broad-based increase across all of our major IPs. If you look at the education top line, we dropped by 6.6%, but this is due to the timing of our Russian tender.

So to elaborate a little bit more, in 2018, we won Phase 2 tender with the City of Moscow, which is over USD 60 million, and that is all recognized in 2018. And the Phase 3 of that tender, we are actually expecting that to be released in 2020. So that’s why we exclude Russia when we do the comparative presentation. And if you exclude Russia tender, our revenue went up by 12%.

And that growth is actually driven by a continuation of us maintaining our global market leadership, our increasing — the increase in penetration of intelligent classroom technologies and also the increasing traction we’re seeing in the emerging markets. And Vin will go into a lot more details.

Going to my second slide, which is Slide #13, I believe, there are a few things I want to highlight. So in terms of education, I want to highlight that we actually had a great second half with our education business as our education revenue sequentially actually increased by 28.5% from first half to second half. And in second half, the revenue actually grew year-over-year by 14%. And the second half growth is — was on the back of very positive reception of our new Promethean Elements Series, or we’d like to call it V7, and — as we started the shipment of that product towards the end of the second quarter last year. So that growth also has — gave us a lot of momentum going into 2020.

Onto gaming, again, revenue up across all of 3 major IP and we are also seeing very strong growth in both our PC as well as our mobile gaming business and also our overseas gaming revenue also increased very significantly.

And I also want to highlight that in terms of the gaming kind of the revenue trend in the past few years, if you look at the past 4 years since 2015, our gaming revenue has grown at a compounded annual growth rate of 40%. And our gaming segmental profits have increased sevenfold during this period. So I just want to emphasize that our gaming business has been delivering very consistent, very sustainable growth over the past many years. And we’re definitely looking forward to seeing that trend continue in the years to come.

And that is for my section. And I would like to pass the time to my colleague and Senior VP, Wang Song, who’s going to go over the details of our gaming business. (foreign language)

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Wang Song, NetDragon Websoft Holdings Limited – Chief Product Officer & Senior VP [4]

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Okay. (foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [5]

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(foreign language)

Well, I’m going to ask Vin to start talking about Promethean. Vin, you ready?

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Vincent P. Riera, NetDragon Websoft Holdings Limited – CEO of Promethean [6]

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Yes, absolutely. Great. Thanks, Simon. Good morning, everybody. This is Vin Riera and I’m the CEO of Promethean. I’m excited to participate on the call today and share Promethean’s 2019 full year performance. I’ll also provide some context around Promethean’s growth, the interactive flat panel market and some of our new initiatives that we began in 2019.

So let’s begin with our full year 2019 highlights. 2019 was an exciting year for Promethean. In Q2, we launched and began shipping our new V7 Elements Series product line in time to impact the buying season. Our V7 product is differentiated. It’s designed for the education market and packaged with our award-winning lesson delivery software. Immediately upon the launch, V7 was well-received across the entirety of the market.

In addition to the successful product launch, the sales and marketing efforts Promethean had in the first half of the year also supported our full year growth. These efforts, along with the new product line, allowed for 20% increase in revenue from the first half to the second half of 2019.

Promethean has a core competency in selling interactive flat panels around the globe. And we have proven that we can compete, win and implement large-scale countrywide tenders. Egypt was an example of that in 2019.

As I review some of the year-over-year numbers, I’ll focus on the core run rate business growth and will exclude the large Russia project that was done in 2018. Ben mentioned this earlier, but for reference, there is a large — there is no Russia tenders to compete for in 2019 and we believe the Russia Phase 3 tender will take place in 2020.

With that in mind, I’m pleased to report that Promethean panel unit volume grew by 27% year-over-year and revenue grew by 12%.

Within the education market, Promethean continued to be the #1 provider of interactive flat panels globally, with the exception of China. We did that by growing our business in our core markets and competing and winning Egypt as a large tender.

Promethean also set out to enter the corporate market to create a new revenue stream in what we believe to be a closely adjacent market. We’re able to enter this market by adapting our top-of-the-line V7 Titanium product with existing best-in-class conferencing solutions to get into the market quickly and with a quality offering. We believe these efforts in Q3 and late Q — or we started these efforts in Q3. And in late Q4, we received our very first order for our V7 corporate product. We’re going to continue to focus and pursue this market in 2020.

In the next slide, I’ll speak to revenue growth in 2019. There are a few areas that I’d like to draw your attention to on this slide. First, you’ll see the continued revenue growth of our run rate or core business on a year-over-year basis. Next, you can see the impact of growth that Promethean can achieve when we compete for and win large tenders. Notice that — we noticed that the revenue that we won in 2018 in Russia, while there is no Russia tender in 2019, we were able to replace a portion of that revenue with growth in our core markets and by winning a large tender in Egypt in 2019. Egypt was the largest tender in the global marketplace that we competed for and won. Finally, you can imagine the potential growth that we could achieve if multiple countrywide tenders were released that we could compete for and win within a fiscal year.

In the next slide, I’ll review the trends in the business relative to product volume. To begin with, this slide shows 2 different product types. Panels refers to interactive flat panels. Boards refer to interactive whiteboards that are a legacy projector-based technology.

You will notice year-over-year consecutive growth on our panels. In 2019, our panel volumes increased in our core run rate business and in our tender business. Panel volumes increased as we expanded our product lines to include our new V7 Nickel product, which is an entry-level, value-based interactive flat panel that is an attractive — that is attractive to a broad set of buyers across the globe, especially in emerging markets and budget-conscious geographies.

You can see the speed of adoption of the panels as a front-of-class solution is outpacing the decline in interactive whiteboards. This speaks to the accessibility of our products to a broader portion of the market, allowing customers with limited budgets to procure entry-level interactive panels and increasing the speed that customers can afford to replace interactive whiteboards with interactive flat metals. As we exit 2019, interactive flat panel technology is and will continue to be the primary choice for front-of-class solutions.

Next, I’ll speak to Promethean’s global market leadership and differentiation. Promethean continues to hold the #1 position in many of the largest markets around the globe within the K-12 — within K-12 education. We can accomplish this by offering products that span across the largest part of the addressable market.

Our V7 Elements Series has 3 different product lines that are designed to scale from entry-level, value-based for a basic use case through a feature-rich product that meets the needs of complex classroom applications. Some of the — some products are designed for country-specific applications, but our primary 3 product lines, with screen sizes that scale from 65 to 86 inches, will meet most of the needs of an education buyer across the globe.

All of our hardware models are offered with a form factor and features designed to be used in the classroom and are paired with both ClassFlow and ActivInspire lesson delivery software. The hardware and software bundle help Promethean customers when they make the transition from interactive boards to panels and it also helps us compete for new business by having a clearly differentiated offering.

The next slide highlights the large addressable market for our interactive flat panels. To put the size of the market in perspective, there are 43 million classrooms or teaching spaces globally. At the end of 2019, it’s estimated that only 31% of those markets had a panel or board installed. In the mature markets like the United States or some of the countries in Europe, we expect growth rates between 9% and 27%. However, we believe that the largest opportunities for growth will come from the emerging markets over the next several years.

Within emerging markets, we have engaged with multiple ministries of education that are looking for classroom solutions for entire countries. Our products are a great fit for their needs, and I believe that between the mature and emerging markets, there’s ample opportunity for growth in the foreseeable future.

I want to shift gears quickly away from front-of-class technologies and share NetDragon’s intelligent classroom projects that we started at the beginning of 2019. Egypt was looking for a quick and scalable solution to expand classrooms throughout the country. There is a need to provide high-quality education to their K-12 population and part of that requirement was to expedite the building of physical structures to house the teachers and students. However, the time line to build actual brick-and-mortar structures would take too long to meet their goals. So NetDragon and Promethean, working closely together, created an offering of a durable modular structure that is cost-effective, it can be assembled in less than 3 days and comes equipped with a full suite of NetDragon education technologies.

In 2019, the Egyptian Ministry of Education signed an MOU to deploy 265,000 intelligent classrooms in Egypt. In Q4, the first pilot order of 100 classrooms was placed and these units are currently being deployed in Egypt. This comprehensive solution has drawn interest from other countries such as Lebanon, Pakistan, Iraq and Uzbekistan.

Thank you for allowing me to discuss Promethean’s achievements in 2019. I will turn it over to my colleague, Susan Kim.

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Susan Kim, NetDragon Websoft Holdings Limited – CEO-Edmodo [7]

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Thank you, Vin. Good morning, good afternoon, good evening, everyone. As Vin mentioned, my name is Susan Kim and I’m the CEO of Edmodo, and it is my pleasure to share some highlights.

At Edmodo, we consider ourselves and are a truly global online platform, connecting educators and learners around the world across 192 countries, 400,000 schools and 100 million registered accounts.

At Edmodo, we talk a lot about the future of learning, and due to the global pandemic that is COVID-19, that future is now. You can see from this chart the immense growth in daily active users over the past month. Our global daily active users have surpassed over 4 million, representing a 400% year-over-year growth, driven by Italy with 14x growth, Indonesia with 9x growth. It’s worth noting that the numbers shown here don’t reflect the full rollout of our most recent countrywide deployment.

On the next slide. Due to global school closures, we have been busy supporting and partnering with governments and school administrators to bring their schools online. As Vin mentioned, there is an Egypt-wide — countrywide deployment. Similarly, leveraging NetDragon and Promethean, we — Egypt recently designated Edmodo as their online learning platform for the entire Egyptian K-12 school system. We are currently onboarding 1 million teachers and 22 million students.

In times of crisis, true priorities become crystal clear and, in the case of Edmodo, the need to provide an immediate viable distance learning solution enabling communication between parties with next-generation classroom tools is paramount. We’ve been hard at work developing these products and features that not only address current needs, but next-gen features to sustain engagement both in the classroom and beyond, recently launching our first online tutoring service, AskMo, in Q4 of 2019.

On this next slide, you’ll see that AskMo, which represents the first of our online tutoring suite, is off to a promising start. We are seeing strong market response and engagement. Notably, daily time spent on the app. In the past 2 weeks, daily engagement has grown not only beyond this 4 minutes and 9 seconds, but actually beyond 6 minutes.

And finally, our goals and areas of focus for 2020. Looking ahead, we are going to continue to focus on scaling; large-scale implementation on onboarding tools; reporting and analytics for administrators, organizations and governments; fast, iterative product launches to address current needs and deliver on the next-generation classroom, which includes gamified and social learning; and to continue to develop our online tutoring product line.

With that, I’m going to turn it back to Dr. Simon Leung.

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [8]

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Thank you, Susan. So it’s actually — this is actually a wonderful presentation. So what I’m going to do is going to be quickly just summarize kind of how we look at everything in 2020.

On the gaming side, it’s actually (foreign language) talked a lot about it. And it’s actually — I think it’s very clear on our strategy and how we look forward. So we do expect continued growth in that area. The only thing I want to point out is actually a lot of you is actually worried about (inaudible). It’s actually — we’re here, we said that we have 6 new games with approved licenses already.

On the learning side, you heard from both Vin and from Susan on some of the growth initiative within their businesses. The one I want to highlight right here is actually the continued executing of the country strategy.

Let’s take Egypt as the example. And I’ve met them personally, it’s actually — I’m quite involved together with the different CEOs in kind of making that happen. This is actually the classic case of we can provide both hardware and software and infrastructure and also a platform to allow Egypt to not only kind of improve their education, but really lead the flock and become the leader in the area.

So you heard Vin talking about they provide classroom technology to their existing classrooms, but we also created a solution called intelligent classroom to help them address the shortage of the mismatch of the classrooms. And at the same time, Edmodo went in and become the de facto standard, supporting all the students and all the teachers and ultimately connecting all the parents into this platform. They can do learning collaboratively, initially in Egypt, but they can get — go outside of Egypt.

At the same time, we have a lot of technology we can bring in, virtual classroom, a broadcasting system, ability to help them to create content. One of the things we did not talk about is there’s something that developed for the last few years called EKB, Egyptian Knowledge Bank, which will be integrated into Edmodo. So the student connects as a content, but we’re going to give them more tools that they can provide even more content and more premium content on top of it so we can also help them to monetize.

Some of the services that Susan talked about like AskMo is going to be a perfect solution for Egypt because they have a lot of teachers, they all speak arabic, so they can kind of be part of the AskMo solution, providing help to the local students. At the same time, because they speak arabic, they can potentially support the student in U.A.E., in the Middle East, in different places. So again, very exciting development for us.

Egypt is a big focus, but at the same time, we’re also working on other countries. The other countries may not take 100% of what Egypt is doing, but 80%, I’m — we’ll be pretty happy. So — and for China, we’ll continue to grow. It’s actually, I think, that’s very good.

One thing I will be remiss and to — not to talk about is actually is the COVID-19 kind of impact both — kind of creating some challenges, but at the same time, also create opportunities. We don’t see this has a huge impact on our gaming business. If there’s any impact, it will be kind of a positive because people will be spending more time at home. They will be kind of spending more time on the games.

On the Promethean side, I think the challenges will be more impact of the timing. Because if you remember, our — the purchase kind of season will be more in Q2 and Q3, but with this virus situation, we do see it’s actually got pushed out a little bit. We’re looking at maybe a quarter right now. But the good news is actually we do not see the demand diminish. It’s actually — we’re always still talking to them. They’re very enthusiastic about using the technology. If you remember, I talked about the new normal. It’s actually, with that, they really have to invest into more technology to support distance learning or at-home learning, even when they come back to the “normal state.”

Case in point is actually in the U.S. We do even more — see more opportunity. Now we don’t know when it’s going to happen, but the $2 trillion stimulus package in there, $13 billion is earmarked to invest into education. So trust me, we are looking at that, both from the eyes of Promethean and also the eyes of Edmodo.

So with that, it’s a good segue in Edmodo. COVID-19 not only did negatively impact Edmodo, but it’s actually positively impact Edmodo in terms of the usage because it’s actually, all of a; sudden, everybody realized the importance of having a community, the importance of connecting teachers and students in remote areas. So we see the opportunity not only is actually in some of the countries like Italy and Indonesia. I mean, Susan may not have talked about it. Even in the U.S., we do see it’s actually — increase of the activities is actually by about 30%. I mean, because our base is bigger, 30% is actually — it’s quite a bit.

We’re seeing similar trend in China. At-home learning is going to be big. And we’ll continue to leverage our resources and then we will start monetizing the business.

So with that, thank you for your attention. I hope we did give you not only a good view of what we have done in 2019, but I think we also give you a clear strategy and view of our business in 2020.

So with that, I’m going to give it back to the operator and then we’ll go into Q&A. Thank you.

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [9]

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Thank you, Dr. Leung and management. Now it’s time for our Q&A session. (Operator Instructions)

(foreign language)

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Questions and Answers

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Operator [1]

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Our first question comes from Susanna Chui from DBS.

(foreign language)

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Man Nga Chui, DBS Vickers Research – Analyst [2]

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NetDragon had — did a very great job during 2019. So could we have 2020 guidance for revenue growth of both online games and also education segment? And also the profitability outlook, especially on the education segment. Could we expect the loss from education could stabilize? Or you can narrow it down in 2020? That’s my first question.

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [3]

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Let me take it. Susanna, thank you for the compliment. And we did try very hard and we’ll continue to do it.

In terms of guidance, we don’t give it out at calls like this. So I would suggest when we’re to get offline, you talk to Ben and all that.

So a quick comment on the segmental loss for our education business. You’ve got to read between the line. It’s actually, I mean, Edmodo is going to pick up a lot of student. And we can monetize it in so many different ways by charging per student, per teacher, and the setting up for the ministry, and then we can do advertising, we can offer services. So it’s actually, we do see the momentum really picking up. And definitely, we see a kind of continual narrowing of our losses and then we’ll go into a positive as soon as possible. Okay?

So Ben is your friend, so talk to Ben.

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Operator [4]

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And our next question comes from Zhao Feiya from Haitong.

(foreign language)

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Feiya Zhao, Haitong International Research Limited – Associate [5]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [6]

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(foreign language)

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Wang Song, NetDragon Websoft Holdings Limited – Chief Product Officer & Senior VP [7]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [8]

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(foreign language)

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Operator [9]

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Our next question comes from Eric Qiu from CCBI.

(foreign language)

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Lin Qiu, CCB International Securities Limited, Research Division – Analyst [10]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [11]

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(foreign language)

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Wang Song, NetDragon Websoft Holdings Limited – Chief Product Officer & Senior VP [12]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [13]

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(foreign language)

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Lin Qiu, CCB International Securities Limited, Research Division – Analyst [14]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [15]

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(foreign language)

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Operator [16]

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And our next question comes from (foreign language) from [GF] Security.

(foreign language)

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Unidentified Analyst, [17]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [18]

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(foreign language)

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Wang Song, NetDragon Websoft Holdings Limited – Chief Product Officer & Senior VP [19]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [20]

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(foreign language) Okay. Next?

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [21]

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(foreign language)

Thank you, Dr. Leung. (Operator Instructions)

(foreign language)

Now let me welcome the question from our webcast platform. This is a question from [Everbright at HK, Mr. Chong]. He would like to ask, what is our sales target on Promethean in China in 2020?

(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [22]

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(foreign language)

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [23]

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Thank you. (foreign language)

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Operator [24]

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Our question comes from (foreign language) from (foreign language).

(foreign language)

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Unidentified Analyst, [25]

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(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [26]

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(foreign language)

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [27]

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(foreign language)

Next question comes from our online webcast platform. It’s from Lawrence from Boston Partners. It’s about our gaming — our game business. So the question is, which country are you seeing traction for international growth? And where do you see contribution in the next 3 to 5 years for our game business?

(foreign language)

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [28]

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(foreign language)

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Wang Song, NetDragon Websoft Holdings Limited – Chief Product Officer & Senior VP [29]

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(foreign language)

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [30]

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So Wang Song just replied that currently, we see most of the traction coming from Europe and the Middle East. And we are also looking at the development and also opportunities in other smaller regions as well. Thank you.

(foreign language) Operator, (foreign language).

Welcome our next question from the teleconferencing system. Thank you.

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Operator [31]

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Our next question comes from Priscilla Chan from Clough Capital.

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Priscilla Chan, [32]

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Can you share with us about — like about Edmodo’s business and also (inaudible)? And then — because like once we can see that the virus outbreak and then it might affect the — like the education about the students, like how they go to school or something? And then about the order goal, could you share with us the business there?

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [33]

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I think we talked about the subject quite a few times, so I don’t know what additional information you’re looking for. So I mean, again, I urge you to go back to Page 45. I’m happy to have Vin and Susan make some more comments, but can I look at our outlook for 2020.

So Vin and Susan, do you have any additional commentary?

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Susan Kim, NetDragon Websoft Holdings Limited – CEO-Edmodo [34]

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No, I mean, I think that with what’s been happening with coronavirus and the fact that, particularly outside of Asia, we’re still fighting the virus, we’ll be on lockdown for quite some time. There is going to be continued demand and that doesn’t show any signs of stopping. And so I think that it is now about sustaining that demand, servicing it, building those next-generation features to deepen engagement, which is a precursor to monetization. But on top of that as well, we have such a huge opportunity working in partnership with Promethean and NetDragon with these countrywide deployments. And actually, just it’s — the deployment in Egypt actually, that’s starting to awaken the U.S. market, which is our most mature market, and has been growing the slowest out of all the other markets, but we’ve had now states approach us that want to do statewide deployments because of the news coming out of Egypt. So I mean, I think it’s just — if you’re looking for the outlook for 2020, it’s — it will be strong and it presents an opportunity for us to start aggressively making moves in this market.

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [35]

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Vin, any commentary from you?

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Vincent P. Riera, NetDragon Websoft Holdings Limited – CEO of Promethean [36]

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I think I just — I’ll just build on what you said earlier, which is we don’t believe that demand is entirely perishable on interactive devices and classrooms. We all fundamentally believe the classrooms are going to open back up again. And when they do, they need to be ready with all sorts of technologies. Interactive flat panels are one of those.

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Priscilla Chan, [37]

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And we can — yes, sorry. Can I ask this one? So that means that because like we have to have our class, like to build a classroom and so on, and then — but just because of the epidemic issue and then so — are we have to hold on the — like on all these kinds of projects. Can I understand it if it’s the case like that?

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [38]

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I’m not too sure what you mean by holding on to the project. So one more time, we — on Promethean, so we — as Vin said, we see the demand is still there. I think there will be some timing impact because it’s actually the bidding, the dealing are what they are doing right now. So they will come back. And then, I think if you — I think what you meant is like if the project is going to go away. We don’t see that happening, but we do see an impact on timing.

On Edmodo, it’s actually a totally different story because of where we are, it’s actually there’s much more immediate need for them to go and address that issue. It’s an issue, what I call the new normal because it’s just I don’t see everything going back exactly that the way it was because people kind of understand, hey, something will happen. It could be a virus and could be a hurricane. It could be something else. So this remote learning is going to be here to stay and that’s why I keep calling it the new normal. So because of that, I see continual kind of like a pressure for us to really support a lot of people, whether it’s in Edmodo or in China using our other asset. So I think that’s how we look at the projects, okay?

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [39]

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(Operator Instructions)

(foreign language)

Let’s welcome our next question from our online webcast system. It’s a question from Jacob from Cable Car Capital. The question is, do you have any update on the anticipated timing and funding of the Egyptian top-up classroom MOU.

(foreign language) Thank you.

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [40]

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Okay. I might as well take that and then I can — the — I said it before. So first of all, we have shipped about 100 of them. They’re testing it out, okay?

In terms of the current budget situation, I’m only going to talk about current budget situation. The Egyptian government has a chunk of money in their budgets starting July 1, okay? So it means for the next fiscal year to do what we call the intelligent classroom. At the same time, they also have another budget, which is within the Egyptian government, not necessarily underneath the Ministry of Education, but underneath the Ministry of Transportation, which is money for them to build physical schools because they do have a plan to — they did have a plan to do that. So that’s also another pot of money that potentially the Ministry of Education can tap into. So I think there’s all the good news. The money is there in the next fiscal year.

We don’t control what they do with the coronavirus. Whether there will be some delay, we do not know at this time. So we are keeping a close eye. I think I can’t — that’s all the things that I can tell you at this point.

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [41]

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Thank you.

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [42]

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Okay. Yes.

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Operator [43]

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Our last question comes from Mr. [Ja] from Everbright.

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Unidentified Analyst, [44]

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Okay. Okay. And this is [Charlie] from Everbright Securities. I want to know the guidance of our revenue and net income for 2020 and 2021? And over the margin between the 2019 and the 2021?

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [45]

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Well, I said it before, I’m going to say it again. We don’t give out guidance at this call. My suggestion is that you go talk to our IR department, either Ben or I think Maggie is on the call or Pat is on the call, and let’s see what we can do, okay?

With that, operator, should I close?

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [46]

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Yes, please. Thank you, Dr. Leung.

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Lim Kin Leung, NetDragon Websoft Holdings Limited – Vice Chairman [47]

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Okay. Thank you, everybody. It’s actually — it’s great to be here with you to share the good news of 2019 and then also to give you some kind of like a outlook of how we see the different businesses in 2020. We are very confident about our business model, both in gaming and also in education. I think — we do not see the demand diminish, but we do see some impact on timing. On the Edmodo side, we do see huge opportunity on — for us to really support a lot of these either governments or states or provinces or whatnot to really address the current issue, and that allow us to start monetizing much quicker than we expected. So with that, one more time, we’re very confident about our 2020 business, barring from some unforeseen disaster around the world, which I hope is not going to be the case.

With that, well, thank you for joining in. And I’d like to thank all the speakers, my colleagues, to spend the time on the call with you. And with that, so thank you again.

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Maggie Zhou, NetDragon Websoft Holdings Limited – Senior Director of IR [48]

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Thank you. Thank you, Dr. Leung, Ben, Wang Song, Vin, Susan. This successfully concludes our presentation today. Once again, we would like to thank you for joining us. We wish you have a great day.

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