Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to Tongdao Liepin Group First Half 2020 Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your first speaker today, Mr. Tim Tian. Thank you. Please go ahead.

Thank you, operator. Hey, good morning, good evening, everyone. Thank you for joining us on today's conference call to discuss our interim results for the 6 months ended June 30, 2020. I remind you that this call may contain forward-looking statements made under the safe harbor provisions. Such statements are based on management's current expectations and current marketing and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors is included in the company's filing with the Hong Kong Stock Exchange. The company does not undertake any obligation to update any forward-looking statements as a result of the new information, future events or otherwise except as required under law. On today's call, Mr. Rick Dai, the company's Chairman and CEO, will kick off with our business operations and highlights. After that, Mr. Lili Xu, our CFO, will continue with detailed financial review. After the prepared remarks, we will be available to answer your questions. And now I will turn the call over to Rick.

Okay. Thank you, Tim. Good morning, everyone. Thank you for joining our 2020 first half earnings calls. During the first half of 2020, we generated solid growth, mainly driven by our technology-driven products, operating with a strong focus on the talent service. Overall, despite of the impact of COVID-19, we have delivered solid results in the first half. Our revenue and gross profit came in at RMB 808.1 million and RMB 646.1 million, representing a growth of 13.4% and 13.3%, respectively. Our profit from operations increased to RMB 57 million from a loss of (sic) [ profit of ] RMB 55.5 million in the first half of 2019. Our non-GAAP operation profit was RMB 114.4 million in the first half of 2020, a 42.6% growth from the first half of last year. As a pioneer of human resource service market, our vision is to build a high-tech human resource service ecosystem to connect individual users, business users and headhunters and other ecosystem partners. During the first half, we leveraged well on the technology and big data to provide online SaaS service across the HR value chain, for example, training and assessment and survey service. Moreover, our big data team also launched many projects to improve algorithms, to improve matching efficiency between the jobs and talents. Especially, we successfully redeployed traffic of job seekers and recommended jobs which are more suitable to them. These technological improvements have successfully navigated us in the market downtrend and empowered our business growth. For business users, we offer diverse service, including talent acquisition service and other HR-related service. Through our platform, liepin.com, we provide a wide range of talent solutions as well as customized subscription package. We also provide headhunter-assisted closed-loop talent acquisition service namely Interview Express and Onboarding Express to help business users conduct more efficient hiring online. The number of our verified business users increased from 456,000 to 626,000 in the first half of 2020 year-over-year. As a pioneer in human resource service market with strong social responsibility, we have served and will continue to serve as a key platform to help business customers to identify suitable candidates and help them help alleviate the concerns of unemployment issues. Since the outbreak of the pandemic, we collaborated with the Ministry of Human Resources and Social Security to host online job fairs in the past few months. For individual users with diverse product lines, we now provide a full spectrum of talent service solutions for different demographics of talent. The number of registered individual users increased from 51 million as of 30 June 2019 to 59.2 million as of 30 June 2020. And our traffic reached a record high in June 2020. We expect that the level of engagement of our registered individual users will continue to grow in the near future as we have been working on the improvement of recommendation and matching efficiencies. The number of our verified headhunters increased from 151,000 to 164,000 in the first half year-on-year. The business of headhunters was impacted by COVID-19 and experienced some headwinds during the first quarter, but we noticed the trend of recovery across headhunter companies and expect a recovery for the following months. As part of our ongoing growth strategy to build up the ecosystem more from previously, we launched new initiatives to penetrate into the segments, including video-based talent platform, training and assessment, flexible staffing and survey services. These business initiatives helped us to capture the different needs in talent services by our business customers and thus achieved robust growth despite the COVID-19 pandemic. For instance, our video-based talent platform and its online video function has made interview possible during the pandemic, which is very well received by our business and individual users. This platform allows for the video job discussions, video CV and also online interview. Interview reports can be generated based on the interviewers' feedback and AI analysis. We will continue to work on the product innovation and have more tech-driven features we will create to empower the upcoming campus recruitment. With regards to the other human resource service market, we also provided diverse SaaS solutions to capture different needs of business customers. Our flexible staffing SaaS platform helped us -- helped our business customers to deal with the fluctuation of staffing demand during the outbreak of COVID-19. Our training and assessment app and SaaS platform, adopted by our business customers during the first half of 2020 to conduct online training and performance evaluation, to meet this end, the human resource department can assign training schedule, conduct assessment questionnaires to track the completion status of employee training, employers -- employees are able to use this innovative product to conduct various training online over the period of work-from-home during the first half of 2020. Our service business also delivered very promising result after initial integration as the leading survey platform in China during the time in combat with COVID-19. Wenjuanxing has become an important tool for companies, schools, health care institutions, government and communities to collect health information and travel history in China. For the rest of 2020, we will continue to invest on research and development to drive product upgrade and the business integration. We plan to further improve our talent recommendation and matching efficiency, which is very important to stimulate the level of engagement among individuals, headhunters and business users. Based on the past performance, we are confident that our innovative business model and long-term strategy will generate a suitable (sic) [ sustainable ] organic growth. Now let me turn it to Lili to walk you through our key financial highlights. Thank you.

Thank you, Rick. And thanks again, everyone, for joining our first half of 2020 results release call. During the first half, our total revenue was CNY 808.1 million, a 13.4% increase from CNY 712.4 million in the first half of 2019, which was mainly driven by the growth of number of paying customers and average revenue per user. This is because we have been able to cross-sell diverse HR-related products to our key customers successfully. Our gross profit was CNY 646.1 million in the first half of 2020, up 13.3% year-on-year. Our gross margin was 80.1%, and it remained almost flat in the first half of 2020 compared with 80% year-on-year. This is due to our high-margin SaaS products in our product mix. Turning to operation -- operating expenses. Our sales and marketing expenses increased 6.2% year-over-year to CNY 383.7 million in the first half of 2020. Our sales and marketing expenses as a percentage of revenue decreased significantly from 50.7% to 47.5% in the first half of 2020. While we invested aggressively on funding the user acquisition in the first half, we improved our operation leverage significantly, which was driven by the increase in the efficiency of our sales and service team. For example, we continue to optimize our sales dividend payout ratio as a result of a higher proportion of recurring revenue. Our general and administrative expenses was CNY 133.4 million in the first half of 2020, a 16.3% increase from CNY 114.7 million in the first half of 2019. This is because taking the potential negative impact of COVID-19, which is prudent estimation of our top forecast receivables and increased our impairment losses. Our general and administrative expenses has expanded revenue in the first half of 2020 and in '19 with 16.5% and 16.1%, respectively, which remained flat. As part of our ongoing R&D activities, we continue to invest aggressively in our R&D team as part of our key growth strategy, which resulted in a 39% increase by CNY 85 million in the first half of 2019 to CNY 118.2 million in the first half of 2020 for the research and development expenses. As a percentage of revenue, our R&D expenses increased from 11.9% from the 6 months ended June 2019 to the 14.6% for this year, primarily as a result of product innovation, existing product upgrades and further integration of a development system for our acquired subsidiaries. As a result, our profit from operations in the first half was CNY 57 million compared with CNY 55.5 million in the first half of 2019. Meanwhile, our non-GAAP operating profit, excluding share-based compensation and amortization of intangible assets resulting from the acquisition, was CNY 114.4 million in the first half of 2020, a 42.6% increase from CNY 80.2 million in the first half of 2019. During the first half of 2020, despite of these challenges imposed by the volatile macro economy and COVID-19 pandemic, we managed to deliver a strong result and achieved a solid growth with our long-term strategy and a strong execution. At the moment, we still have no visibility of the future macroeconomic trend, but we would like to remain cautious about any potential risk, macroeconomic growth and hiring sentiment. Continuous improvement of operational efficiency is especially important for us to stay resilient in this volatile market condition. However, our outlook about the long-term success of the China human resource services industry remains positive. Therefore, we will continue to invest on funding user acquisition and also technological innovation and the data capability to engine the sustainable long-term growth of our business. Now at the end of our prepared remarks, I will turn the call back to the operator to begin the Q&A. And for the guests on the call, if you ask questions in English, we will reply in English. And if you ask in Chinese, we will reply in Chinese. [Foreign Language] So operator, please open the line and we can now open with Q&A session.

[Operator Instructions] And the first question we have is from the line of Wei Xiong from UBS.

[Foreign Language] First, I want to ask that we see strong business customer growth as well as individual paying user growth in this first half. Could management comment on the drivers behind the strong growth? And shall we expect the customer number growth to continue outgrowing ARPU in the second half and be the main revenue driver? And secondly, in our earnings release, management mentioned that we saw improving confidence level and hiring sentiment from the enterprises. Can we expect the online talent acquisition service to return to a more normalized growth sometime in the second half or next year? Or is it still too early to have any visibility?

[Foreign Language]

[Foreign Language]

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[Operator Instructions] And the next question we have is from the line of Melody Chan from Jefferies.

[Foreign Language]

[Foreign Language]

Operator, please go ahead for another question.

There are no further questions at this time. [Operator Instructions] There are no further questions. You may now continue. You may proceed with your call.

Yes. Thank you. Thank you, everyone. Great.

Yes. Thank you, everyone, for joining us. Just one point I would like to highlight. I think in the first half of 2020, it's really difficult for the whole industry, for the talent acquisition and the talent service industry. I think every players in this segment will feel that half is -- we see different competitors, they are different situation compared to us. And I think, making -- we showed our resilient business model. And in the coming future, I think our product and [ new initiative ] can drive us to become a more stable business model. And we will enter the new segment like young and white collar and students. They will give us a lot of incremental and new business like online training that will help us to offset the negative impact of COVID-19 for the talent acquisition. For the long-term strategy, we will still focus on the R&D investment and marketing to acquire more new users and more new segment users. This is our growth strategy. We want to become the biggest platform for talent service in the Chinese market. It's our vision. We didn't change our vision. So all our investment will focus on how to build our vision model first. So this is the whole earnings call remarks. Thank you, everyone. Thank you for your time.

Yes. Thank you. If you have any follow-up questions, you can always reach out to Tim Tian or Rick or myself for follow-up calls. Thank you, everyone.

Thank you, everyone.

Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now all disconnect.