Prepared remarks
Thank you, operator. Good morning, and welcome to ECARX third quarter 2024 earnings conference call. With me today from ECARX are Chairman and Chief Executive Officer, Ziyu Shen; Chief Operating Officer, Peter Cirino; and Chief Financial Officer, Phil Zhou. Following their prepared remarks, they will all be available to answer your questions during the Q&A session that follows. Before we start, I would like to refer you to our forward-looking statements at the bottom of our earnings press release, which also applies to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to GAAP financial measures can be also found at the bottom of our earnings release. With that, I'd like to hand the call over to Ziyu. Please go ahead.
Thank you, Rene. Hello, everyone, and thank you for joining our third-quarter earnings call today. The solid growth momentum we picked up in the first half of the year continued into the third quarter. The global automotive industry is rapidly evolving towards software-defined vehicles, which we are uniquely positioned to benefit from, and I think our results this quarter reflect that. Let me start with a brief market update. Looking at the broader automotive landscape internationally, the sector continues to face a challenging environment globally. Despite the headwinds, the overall trajectory remains positive, particularly for electric vehicles and intelligent car technologies, with the automotive industry still projected to reach approximately 88 million vehicle sales in 2024. In contrast, the Chinese automotive market has been gradually picking up. Total sales from January to September increased 2.4% from the same period last year, among which China's export data showed a much more positive outlook with overall export volume rising every month this year.
China exported 4.3 million vehicles from January through September, an impressive increase of 27% year-over-year. Electric vehicle sales in China during the same period increased 33% year-over-year, accounting for 39% of total new car sales. The market continues to yield significant opportunities for us despite headwinds. This underscores our unique positioning to drive growth in China and overseas. Regardless of market cycles, our evolving product portfolio, diverse customer base, and strategic global partnerships and operations are key factors that enable us to capitalize on these opportunities. By the end of the quarter, there were over 7.3 million vehicles on the road incorporating ECARX technology, with 442,000 vehicles added this quarter alone. This translates into an increase of approximately 31% year-over-year or 6% sequentially. Our global reach across the sector remained stable from last quarter, with 17 OEMs across 26 brands.
Notably, the number of project wins from existing customers increased substantially as we deepen our relationship and build upon the success of existing mass production projects. Revenue during the quarter increased by 31% year-over-year to RMB1.4 billion on the back of recent vehicle launches such as the Geely Galaxy E5. Competition remains fierce, with ongoing pricing pressures causing gross margins to decline to approximately 17% during the quarter. Despite the challenging competition and impact on margin, we remain firmly on track with our top line continuing to outperform the broad market as we scale and build a path towards profitability. We have a very strong track record of growing our top line with new vehicle launches, and have a robust and healthy pipeline with over 40 vehicle models currently in development. To offset the impact of pricing pressure on our margins, we are working aggressively to optimize our cost structure by taking greater vertical control of our manufacturing and supply chain, optimizing our product portfolio, and improving engineering and operational efficiency.
At the same time, we are expanding our global footprint to provide us with the flexibility to mitigate geopolitical risks. I'm highly confident in our ability to drive significant growth throughout the year and beyond. Our strategy has not changed, and we remain on course for success as we focus on sustaining revenue growth momentum, capturing sales volumes, and improving margins. Our flexibility to adapt to a changing market environment ensures that we can see new opportunities as they arise, leaving us very optimistic about the future. I will now pass the call over to Peter, who will go through operating results of the quarter in more detail.
Thank you, Ziyu, and good day, everyone. Our customer base remained diverse and stable during the quarter as our business continues to scale and gain momentum. We secured two new design wins from existing customers during the quarter, further deepening our relationships with them. Both vehicles are for the China market and will deploy a version of our Antora series computing platform, some integrated with Flyme Auto OS. These wins showcase our ability to deliver customized, cutting-edge technology solutions and reflect the growing value proposition we offer automakers with our unified computing platforms for China and overseas. Our global ecosystem of strategic partnerships forms the backbone of our strategy to reshape the global automotive technology value chain. We entered into a formal partnership with MulticoreWare at the end of August, having initially worked together to optimize our intelligent driving software algorithms used in the Lynk & Co 08 earlier this year.
We are strengthening our partnership and expanding the scope of our collaboration to cover all projects to reduce the time-to-market for mass production of Skyland Pro and provide global OEMs with unique vehicle experiences. In addition to leveraging our global ecosystem of partnerships to improve our performance of our leading hardware and software stack, we continue to strategically invest in R&D while at the same time, improve R&D efficiency. We are investing in our lower cost R&D centers. We are engaging AI tools to improve efficiency and quality, onboarding new partners with innovative and cutting-edge support models and completing a deep dive of our entire cost structure. Our ADU solutions now feature real-world rendering capabilities compatible with mainstream 3D engines such as Unreal and Unity, and are expected to be integrated into Hongqi and smart models currently in development.
We deployed ECARX AutoGPT by adopting Microsoft's Smart Occupancy Monitoring system to track and monitor in-vehicle behavior of children to ensure safety while we continue to work closely with ecosystem partners to explore more in-vehicle scenarios under ECARX AutoGPT. We also developed an automotive hypervisor that allows multiple vehicle systems to run on the Makalu platform using AMD chips. Our technology leadership continues to strengthen as a result, with our robust intellectual property portfolio now expanding to include 613 registered patents and 656 pending patent applications globally as of September 30. On the product side, we had several new exciting vehicles launched this quarter that showcased our technological strengths and demonstrate our remarkable versatility to replicate and scale our solutions across various brands and models. Demand for the Geely Galaxy E5 since its launch in August has been particularly strong, with over 12,000 vehicles sold in that month alone.
Notably, the Galaxy E5 is the first vehicle to integrate digital cockpit and parking capabilities into a single board using the Antora 1000 computing platform under Geely's new EE architecture, which serves as the foundation for their next-generation vehicles. On top of that, the Antora 1000 SPB, which integrates digital cockpit parking and driving capabilities on the Antora 1000 platform has also been launched and can be replicated and scaled with any AI chip, providing a highly cost-effective and streamlined solution that aligns seamlessly with evolving EE architectures. This broadens the Antora 1000's appeal as the central computing platform of choice for automakers globally. Lynk & Co's flagship Z10 began mass production during the quarter following its debut in June. This vehicle showcases the strength of the Makalu computing platform powered by AMD Ryzen V2000 processors and our self-developed hypervisors, which I mentioned earlier.
Our extensive experience in digital cockpit design, combined with AMD's advanced computing capabilities has resulted in a vehicle that sets a new benchmark for in-vehicle technology and user experience. The smart #5 officially launched on October 27, following its global debut in August, also comes integrated with the Makalu computing platform. I'm happy to see our Antora and Makalu series widely adopted across various vehicle models, ranging from entry-level to premium. This demonstrates our strong competitiveness in the market and ease with which our solutions can be scaled and replicated. The Lynk & Co 02 known as the Z20 in China debuted in Milan on October 11 and has since launched officially in Europe. Integrated with our Galena computing platform, we are committed to support the state-of-the-art model as we explore market opportunities globally for this tailor-made solution. Lastly, our Pikes computing platform officially launched this quarter, utilizing Qualcomm's Snapdragon 8295 SoC.
This solution will first be integrated into a new Geely model planned for the start of production in 2025. We are making solid progress in establishing ourselves as a partner for automakers, as they transition to software-defined vehicles by delivering solutions that are scalable and cost efficient. Our expertise in commercializing and deploying these integrated vehicle solutions on a global scale, not only optimizes costs, but also speeds up market entry for manufacturers around the world. We attended the third Global Digital Trade Expo in Hangzhou at the end of September, where we showcased the Makalu and Antora platforms, and signed an agreement to further expand our Fuyang smart facility. Fuyang represents a critical step in our strategy to integrate manufacturing and supply chain processes. This facility is opening at the highest industry standards, deploying the latest in connectivity, advanced analytics, automation, and advanced manufacturing technology.
Production capacity has quickly ramped up since production started in April, with about 30,000 Antora 1000 units produced and shipped for the Galaxy E5 in August and September. In 2023, we were deeply engaged in the supply chain management, but all our end product manufacturing was completed through partners and joint ventures. Now by the end of 2024, we have taken control of our manufacturing and we should end the year with about 15% to 20% under our own control. By the end of 2025, we expect that metric to be over 50%, with a long-term target in the range of 70% or more. By improving our control over costs, product quality, and operations, we will be able to further enhance our competitive position in the market. I'm pleased with the progress we have made and remain highly optimistic that we will continue to see tremendous growth going forward as our investments, technological innovation, diversification of customer base, and global expansion begin to generate significant returns. I will now turn the call over to Phil, who will go through our financial results.
Thank you, Peter, and hello, everyone. Our strong performance in the first half of the year continued into the third quarter as our business continues to grow. Total revenue for the quarter was RMB1.4 billion, an increase of 31% year-over-year. Revenue from the sales of computing hardware was RMB1.2 billion, up 61% year-over-year, mainly driven by continued global demand for the Volvo EX30 and Polestar 4, as well as an increase in sales volume for the Antora series and Makalu platform digital cockpits and autonomous driving controlling units, which contributed approximately 23% and 11%, respectively, to total revenue. Software license revenue came in at RMB84 million, down 39% year-over-year, due to a decrease in the sales of navigation and operating software compared to the previous year. Compared to the last quarter, software license revenue grew by RMB28 million or 49%, with the ramping up of Flyme Auto sales volume and intellectual property revenue growth.
Service revenue decreased 26% year-over-year to RMB161 million, mostly as a result of timing differences in completing non-recurring engineering revenue contracts. Our year-to-date service revenue grew approximately 10% year-over-year. Gross profit was RMB248 million, a decrease of 25% year-over-year, which translates into a gross margin of 17%. Margins on hardware products continue to be under pressure, as we adopt a penetration pricing strategy to drive revenue and volume growth to gain market share and achieve economies of scale and cost reductions against the backdrop of an industry-wide price war in the automotive sector and the ongoing transformation of customers' EE architecture. As I discussed in the previous earnings call, we expect this pressure on our hardware margins to remain over the medium term. To offset this impact, we will continue to focus on driving sales of our unique product portfolio, deepening cost reductions, and improving operational efficiencies.
OpEx during the quarter decreased 2% year-over-year. This was primarily driven by improved global operational efficiencies and lower share-based compensation expenses during the quarter, which were partially offset by continued investment into R&D, core product roadmap, and future technologies. Loss per share was RMB0.97 compared to the previous quarter, RMB0.84. Adjusted EBITDA loss was RMB233 million, up from a loss of RMB181 million during the same period last year, primarily attributable to a decrease in gross margin as a trade-off for the growth in the automotive computing platform business and increased market share, and lower foreign currency exchange gain, partially offset by lower operating expenses and an increase in the fair value of financial assets compared to the previous year. Moving on to our balance sheet. As of the end of the third quarter, we had RMB688 million of cash and restricted cash, which gives us ample resources to fund our core products roadmap, key initiatives, and global business expansion, while we continue to improve our working capital and profitability.
Overall, we maintained robust growth despite intense market competition. We will continue to focus on expanding our customer base, deepening our penetration of both Geely and the non-Geely ecosystem to gain market share, and driving economies of scale and cost optimization. We will also continue to optimize our operating expenses and carefully control the new investments to improve our margin performance and the sustainability of our business in the long run. That concludes our prepared remarks today. I would now like to hand the call back to the operator to begin the Q&A session.
Questions and answers
Can you hear me? Thanks for taking my question. So, my first question is regarding the sale of goods margin. We've seen a decline Q-over-Q and year-over-year to around 9% in the third quarter. Can you maybe talk a bit on the factors contributing to that? And how should we think about it in the fourth quarter and into next year?
Okay. Sure. This is Phil. I'm happy to address your question regarding the margin performance in the third quarter. Yes, there's a fierce market competition, which drove the hardware solution margin deterioration in the quarter, from last quarter's 14% to the current quarter's 8.9%. Actually, we chose to drive the volume increase and maintain stability in our key accounts and customer base. We also want to have an opportunity to further work on the supply chain and cost optimization. As I mentioned, it's all about economy of scale. The other reason is the product mix which also impacts the current quarter's margin performance. Normally, 50% of our profit comes from our services and software. Their margin performance is pretty stable, ranging from 57% to 60%. Due to the software selling ramp-up and the service booking seasonality issue, the mix from services and software changed from 30% to 17% this quarter. All of these are the key factors that impacted our overall margin performance. However, moving into Q4, we foresee that we will rebalance the portfolio of sales on services and software, and we are able to restore our margin performance through that. Meanwhile, we will be able to further drive our cost optimization, which can help uplift the hardware margin performance as well. So, that is the answer to your question on the margin performance in Q3.
Thank you. That is very clear. And the other question I had was – we've seen Geely, the Galaxy brand launched two vehicles, the Galaxy E5 and the Star Wish sedan. And we know the company has disclosed that the E5 uses the Antora platform and the Flyme Auto OS system. Can you maybe talk about the Star Wish then? Does ECARX also supply the hardware for that model as well?
Yes. This is Peter. I'll grab that question. I mean, yes, the Galaxy E5 uses our Antora 1000 platform along with the Flyme Auto software as you mentioned? And the Star Wish's platform uses our Venado platform. So, that's our E02 platform where we have a very robust product that we've had in the market. We have more than a million units lifetime on that program. So, they both use solutions from ECARX.
Thank you. That is very clear. And maybe a last one for me. After the Lynk & Co Z10 and the smart #5, can you maybe give us some outlook on what other vehicle models will the Makalu platform be used on?
Yes. I'll grab that one as well. I mean, the Makalu platform is really a benchmark lighthouse project for us. It's a deep strategic cooperation with AMD. We're the first automaker to adopt the V2000 platform, which is AMD's newest automotive platform. And we've built up a unique hypervisor that extends our software capabilities and drives a very tight software-hardware linkage to have fantastic performance. We've got great user feedback from the vehicles. The Z10 has been in production, and Smart is in a ramp-up phase right now. We will continue to promote that to both – to future vehicles for smart for Lynk & Co as well as others in the market.
Dear management, this is Tony from SPDB International. I have two questions. My first question is about the gross margin outlook for 2025. Are we expecting the gross margin, particularly for hardware products, to improve compared to the third quarter? Additionally, I believe that our in-house manufacturing is enhancing, especially for 2025. Will this positively impact the gross margin for next year? This is my first question.
Thank you, Shen, Dai. This is a very good question. I'm happy to address this one. We observed that the market competition started from September 2023 and we keep seeing aggressive pricing pressure from our customers. But again, as I just mentioned, we also would like to drive the volume uplift and maintain our installed base in our customers. This is very critical because we want to drive the economy of scale. Only with that are we able to further negotiate cost optimization from a supply chain perspective. And yes, you mentioned that we – for sure, we will try our best to keep our overall gross margin performance over 20%. That is our goal as well because half of our profitability comes from the services and software, and their margin performance is pretty stable. As long as we can keep the reasonable sales mix from the two products, then we should be able to keep the overall margin performance at a reasonable level.
However, I agree that the pricing pressure on – especially on the hardware solution is a challenge right now, but we have a plan to recover that first. We will keep innovating; we are focused on R&D, and we will keep innovating. We always can bring our best-of-breed solutions for our customers. Within the time window, we can charge a price premium as well. So, we are pioneering in this hardware solution in the market sector. And we will also drive lean operation as well, with a focus on SG&A optimization, which is a highlight in the quarter. SG&A OpEx actually declined 19% year-over-year. This also reflects our ability to control the expense as well. So in general, I would comment that we will try our best to keep our gross margin performance above 20%, but that depends on our execution on services and software sales, and at the same time, how to bring the higher-margin hardware solution to the market to delight our customers while controlling operating expenses tightly. In the end, with the scale of our business, we are able to achieve breakeven very soon. So, that concludes my answer to your margin questions.
That's very clear. A quick follow-up on the in-house manufacturing. And is it positive to gross margin?
Yes, for sure. So right now, we adopt an OEM manufacturing model. The good thing is we keep receiving orders from our customers. We would like to achieve the scale as well. So as long as we keep optimizing the CapEx investment and the expenses happening in supply chain sites and manufacturing sites, we should be able to control our manufacturing cost within a reasonable level, which is also very competitive in the market. So, I can share with you that that’s also on our radar.
Okay. It's very clear. And my second question is about the overseas business. Can we have an update on our overseas expansion and also on the overseas customers? Do we expect any revenue or profit from overseas customers for 2025?
Yes, I'll grab that. This is Peter. So, the company has been driving down this global expansion road for a number of years now. As you remember, earlier this year, we established our office in Stuttgart to help expand our customer intimacy with the German OEMs. Presently, we're engaged in a number of RFQ processes with new customers there. So, we're quite excited about the progress. The European OEM business moves on a very rigorous structured timeline. So, we might see some NRE service revenue towards the end of 2025, likely in 2026. The SOPs, we're looking at are probably on the horizon of 2027, which is the standard development cycle that the European OEMs follow. We definitely see a lot of strong customer intimacy and engagement. As I said, we have a number of very tangible programs that we're working through the RFQ processes with. So, we're very excited about the progress we're making there.
Okay. Thank you very much. Thank you, Phil. Thank you, Peter. That’s all my questions.
Hi, my name is Jiaqi Zhang from CICC Auto. So, I have three questions for this quarter. The first one is regarding the Geely Group. We have seen Geely Group has performed a very strong quarter. And also for October, Geely has delivered the single most number of deliveries in a single quarter. And my question is regarding, what is the percentage of revenue actually currently contributed by Geely? And what is ECARX's expectation for the percentage of revenue contributed by Geely in the year 2025 and maybe the years coming?
Sure. Thank you, Jiaqi. This is Phil. Regarding the business mix from Geely and the Geely ecosystem and non-Geely business, in 2024, the expectation is still that 90% of our business will come from Geely and the Geely ecosystem, including Geely affiliations like Volvo, Polestar, smart, and Lotus. Yes, we still have lots of opportunities to further improve our non-Geely business mix. In 2025, we foresee that the mix will keep improving, including new business from FAW. We also foresee more business from our international OEMs, which is a highlight of our non-Geely business expansion, especially from a global OEM perspective. By moving into 2025 and 2026, we will keep focusing on our non-Geely business expansion. Our goal is to have nearly 40% of our business from non-Geely by the end of 2026 and 2027.
Thank you so much. Then just one quick follow-up. Could you give us more color on the projects dealing with FAW? Because previously, you mentioned that we are going to expand into a wider spectrum of models. So, how is the progress on this? Thank you.
Yes. Sure. I can address the question, and maybe Peter can chime in with additional information. So, everything is on track, Jiaqi. We are delivering two flagship vehicle programs from the FAW Hongqi project, and the contract has been signed. The team is working diligently to make traction, and we are on track to deliver our program. The SOP is expected by the end of this year and the beginning of Q1 of next year. We foresee more FAW Hongqi vehicle programs coming, which also can significantly contribute to non-Geely business in our portfolio.
Well, this is Ziyu speaking. I would like to add more information here about the Hongqi FAW program. Right now, we have two models under development, and we will make their SOP at the end of this year and the beginning of next year. Not only the full vehicle model, but also the platform, because that will be very similar to what we are deploying in Geely already, that Antora plus Flyme Auto platform. This will be a very unique computation platform for all FAW Hongqi future vehicle models.
Right. Thank you so much. That's very clear. My second question is regarding the progress in ADAS. We have seen from the news that the AD1000 chip has picked off. So, a big congratulation on that. So from the management perspective, how can we evaluate the breakeven point for the chip, like how many deliveries can lead to breakeven? And is there any new contractual design wins that can be shared? Or is there any technology breakthrough regarding the chip that can be shared? Thank you.
Okay. The AD1000, that's very successful; we tape out at TSMC. I would like to share more information with you because right now, all performance records have been achieved regarding the design point of view. From the investment point of view at ECARX, we will start computing system R&D with this SoC. For SoC investment, it's 100% in SiEngine, which is a separate company from ECARX. We are a shareholder of that separate company. So that means ECARX will invest in the AD1000 computing platform over the next two to three years to accelerate our ADAS portfolio. Yes, that is our plan. This SoC is very competitive, the 7-nanometer technology with 512 TOPS AI capacity. We already have 7-nanometer experience, having shipped SE1000 with over 0.5 million units in the market. That's why we're quite confident that AD1000 will go to market production soon.
Thank you so much. That's very promising. Just one quick follow-up. So, are we going to develop the algorithm software by ECARX ourselves? Or are we going to collaborate with external partners?
Yes. The AD1000 platform will be the open platform. Of course, we will finish our platform integration and engineering. But that open platform can support some customers like OEM in-house software or also third-party software on top. Very similar position to NVIDIA's platform in the market.
That's very clear. And my last question is regarding the costs and expenses actually associated with developing new platforms. We see there are quite a number of new platforms currently under development, and the R&D expense is actually going up. So, I'm quite curious about the costs and expenses associated with developing a new platform. And what's the point of breakeven regarding each of these platforms? Thank you.
Yes. You're asking a very good question here. The most important thing for the company is that every year, we are achieving 30% growth of revenue. That's very important. We are also maintaining more than 20% gross margin for three years. This is why we are expanding – we are spending on R&D investment each year. We can keep the same percentage, but we can get more total amounts because of our revenue growth. So, that's the logic. So, we're doing this very carefully; 10% R&D investment could drop to like 9% or 8%, but the total amount will be much bigger because our revenue is growing faster. And SG&A will be around 7% or maybe below 7%. We're trying to breakeven as quickly as possible. That's why we want to balance this kind of percentage for R&D and SG&A. Does this make sense?
Right. Thank you. Just one quick follow-up. Currently, we have Qualcomm chip, SiEngine chip, and AMD chip. Which one of these actually contributes the most gross margin, and probably why? Thank you.
I think from a revenue perspective – and gross margin perspective, that will be in very different segments. So, the SiEngine chip will be an entry plan and very strong cost competitor for China and worldwide. I believe we have one global OEM opportunity currently building that we are using SiEngine right now. That's quite an advantage for us due to cost competitiveness comparing to global chipsets. But for Qualcomm and AMD and NVIDIA for the future, that's for the global roadmap and high-end segment. Yes, probably like gross margins are larger for NVIDIA and AMD, even Qualcomm, but for gross margin percentage should be similar.
Right, totally honest. Thank you so much for answering my questions. Thank you. That's the end of my question.
Hey, guys. Thanks for taking the questions. So Phil, you guys talked about new wins. I guess, on the hardware gross margins, just specifically referring to new wins here, these are with existing customers. I'm curious, are hardware gross margins improving with existing customers as you guys are sort of becoming more integrated into their vehicle platforms? Again, I'm specifically asking about the hardware gross margins.
Yes. Thank you, Derek. Again, yes, hardware gross margin; we did see challenges. This is all about the competition, right, because in the China market, the competition is fierce. At the same time, as I mentioned, we are expanding our footprint globally. We want to serve the top customers in global OEMs. That's why we can balance the margin, especially the hardware margin performance from different customer bases and different customer segments. But in China, the competition will always be there. We also chose to – we want to drive volume as much as possible, which is foundational for us on supply chain management. Yes, we are expanding our footprint into other OEMs, such as FAW Hongqi, which can help improve our hardware margin performance. So, it's all about the portfolio play from different customer bases and different products like hardware, services, and software.
Got it. Got it. And then on the software side, pretty good margin there. You guys have made some good partnerships. What are the biggest growth opportunities looking ahead for that business? Can you talk about ways to maybe expand that over the medium term? Thanks.
Yes. Right now, the core software business in China revolves around the operating system Flyme Auto and ECARX in-house developed software products. We're promoting those software products aggressively along with our customers' demand. For the last generation product, they are at the end of life; that's why there's a transition. As you can see from the software revenue year-over-year perspective, there's a slight decline there. However, in the longer term, we foresee that our software from Flyme Auto and Cloudpeak will climb up for sure and will replace the traditional old generation software, and the growth will be there. As seen from a quarter-on-quarter perspective, the software revenue from Flyme Auto and Cloudpeak is outstanding. So, that momentum will continue. Thank you. Thank you all for attending today's earnings call. We are on track to deliver our commitment to the customers. The growth momentum will definitely continue through solid execution on pipeline conversion and new business acquisition, both from non-Geely and global expansion perspectives.
ECARX always takes a long-term focus strategy. We will keep investing in R&D, keeping innovating and bringing the best solutions to the market and delighting our customers. We will take multiple initiatives to optimize the cost structure, drive lean operations, and improve our profitability. Our global business expansion will carry on, and we will keep diversifying our customer base. We are on the right track to deliver our profitability improvement and achieve our breakeven point in the very short term. This concludes the remarks for today's earnings call from the management side.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.