Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Tongdao Liepin Group Interim Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Sunday, 22nd of August, 2021. I would now like to hand the conference over to our IR Director, Ms. Xueni Wang. Please go ahead.

Thank you, operator. Hi, everyone. Thank you for joining us on today's conference call to discuss our interim results for the 6 months ended June 30, 2021. The company's financial and operating results were published and were posted on the company's IR website at ir.liepin.com. On today's call, Mr. Rick Dai, company's Chairman and CEO, will kick off with our business operations and highlights. The remarks will be in Chinese followed by English translation. After that, Mr. Ge Tian, our CFO, will continue with a detailed financial review. After the prepared remarks, we will be available to answer your questions. Before we continue, I would like to 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 market 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 this and other risks, uncertainties and factors is included in the company's filing with the Hong Kong Stock Exchange. The company does not take any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. I will now turn the call over to our Chairman and CEO, Rick. Please go ahead, sir.

[Interpreted] Good evening, everyone. Thank you for joining our 2021 interim results conference call. We are very pleased to announce solid business and financial results in the first half of 2021. We officially launched our first product in June 2011 and after 10 years of development, we have gradually developed from a tech company that focuses on a single business line to a group covering diversified talent services, which powerfully drive our long-term growth. We are pleased to start the year with a solid first quarter, and we continue to see robust growth in the second quarter. In the first half of 2021, our total revenue reached RMB 1.2 billion, a year-on-year increase of 48.3%. Our non-GAAP operating profit increased by 45.5% on a yearly basis. The growth was partially credit to the strong recovery of the whole recruitment industry. And the same time, it also came from our continuously product innovation and brand optimization. According to Liepin's Big Data platform, in the first half of 2021, the number of new job postings on our platform increased by more than 53% year-on-year and by 45% over the same period in 2019. The average salary of [indiscernible] reached RMB 119,000, significantly higher than the last 2 years. In terms of the market, the Internet industry still contributed to the largest amount of new hiring demand and the recruitment demand for computer software, semiconductors, high end manufacturing, new entry vehicles and other industries also grew significantly. On one hand, we can see that the normalization of the pandemic and the recovery of the economy has boosted the company's hiring demand. On the other hand, with the structural change of the economy, enterprise development and talent upgrade, company's demand for high-quality talent also increased rapidly. According to our report, the talent shortage index in [indiscernible] high end talent during the first half of 2021, and the index reached as high as 1.46 in June. Therefore, we can see that the employment issue is still a major concern of people's livelihood and national economic development. China's employment market is huge, but still suffers from structural imbalance. [Technical Difficulty]

Excuse me, this is the operator. Please remain on the line. Your conference will resume shortly.

[Interpreted] Secondly, we've upgraded comprehensively on the individual user side, while solidifying our advantages in the mid-to-high-end market, we optimized the registration and service process for more users, especially young talents or students. For example, we launched a particular matching algorithm. The fully upgraded data text and underlying logic enable all groups to obtain a better user experience on our platform. In addition, the instant messaging function will watch also cater to the use pattern of young users. We continued to pay attention to the outside of young generations in the recruitment market. We launched a series of [indiscernible] entities focusing on young talents in the first half of the year, bringing more new users to further lengthen our user life cycle, in which our customer base and lift the activity level of the platform. We are pleased to see that in the first half of 2021, the proportion of newly registered users under 25 increased to 45%. At the same time, our overall number of registered individual users reached a historical high at 68.5 million as of June 30 this year. Meanwhile, as a leading talent service provider, we are firmly committed to integrating our long-term [indiscernible] with national economic development and the improvement of society and people's welfare. We will continue to promote the standardized development of the industry in assets like cybersecurity and user products in protection. We will continue to empower the development of enterprises and individual job seekers by leveraging technology capabilities so as to create greater value for the society. Finally, with the record recovery of the recruitment industry and the continuous improvement of online recruitment penetration, we will continuously provide professional and high-quality recruitment services for more enterprises and individuals through innovative and diversified SaaS products and services. We will further improve high-efficiency and provide strong support to enterprises by matching their organizational offering needs with their talent development. At the same time, together with our new initiatives such as flexible staffing and online services for business users and online professional education services for individual users, we provide comprehensive one-stop talent services to users from both sides. We finished a strong half year already, we will continue to fulfill our mission of helping our enterprise and individuals achieve greater success. Let's look forward to an exciting second half of 2021 altogether. Now let me turn it to Tian to walk you through our key financial highlights of our group. Thank you.

Thank you. Thank you, Rick, and thanks again, everyone, for joining our 2021 interim results earnings call. We continued to see a strong growth during the first half of 2021. Our total revenue was RMB 1,198.5 million, a 48.3% increase from RMB 808.1 million in the first half 2020, which was mainly due to increasing the number of paying customers and driven by strong hiring contingent, the improvement of online talent service penetration and our brand recognition. Our diversified business streams also allowed us to continuously capture upsell and cross-sell opportunities. More specifically, our revenue generated from talent acquisition services and other HR services was RMB 1,023.5 million, which accounted for 85.4% of our total revenue and was up by 34.2% compared to the same period last year. Our superior products advanced matching algorithms and deepening customer relations enabled us to serve our customers more competitively with better user experience. Since we were able to capture more market share with a strong market momentum. Our revenue generated from talent development services was RMB 174.2 million, which increased by to 97.2% compared to first half of 2020. It was mainly due to the consolidation of our professional certification training business starting from the fourth quarter of last year. As the government and society obtained greater attention to the professional education industry, we look forward to a further [indiscernible] business segment while providing more diversified value-added services to our individual users. Our gross profit was RMB 953.6 million in the first half of 2021, up by 47.6% year-on-year. Our gross margin remained at high level at 79.6%. Turning to operating expenses. Our sales and marketing expenses were RM B578.6 million in the first half of 2021, 50.8% increase from RMB 383.7 million in the same period last year. The risk was mainly driven by additional marketing expenses related to the branding campaign as planned at the beginning of the year and increasing the sales personnel in response to the purging business demand. Our sales and marketing expenses as a percentage of revenue slightly increased to 48.3% in the first half of this year compared to 47.5% in the same period of last year. As we're heavily investing in branding programs in the first quarter, a relatively stable ratio illustrates our improved sales efficiency with our organizational upgrade and deeper customer relations year-over-year. Our G&A expenses were RMB 172.6 million in the first half of 2021, 29.4% increase from RMB 133.4 million during the same period 2020, which was primarily due to the increase in management costs as a result of our business expansion. Our G&A expenses as a percentage of revenue in the first half of 2021 and 2020 were 48.4% and 16.5%, respectively. Our improved G&A cost margin was mainly driven by the scale effect of our fast-growing top line and decreasing the loss allowance for expected credit losses as a result of better internal control on trade receivables. As a market-leading player, we are always seeing our technology advancement, and we keep investing in R&D as part of our key growth strategies. Our R&D expenses resulted a 21.4% increase from RMB 118.2 million in the first half of last year to RMB 143.4 million this year. Our R&D investment was continuously focused on product innovation, product upgrade, data security improvement and system integration of our business segments. Our R&D expenses as a percentage of revenue in the first half of 2021 was 12%, down by 2.6% compared to the same period last year, and the decrease was mainly driven by the scale effect of our business. As a result, our profit from operations in the first half of 2021 was RMB 93.2 million, down by 63.4% compared to RMB 57 million in the first half of 2020. Our net profit for the period was RMB 79.8 million up by 19.6% compared to RMB 66.7 million in the first half of 2020. Meanwhile, our non-GAAP operating profit, excluding share-based compensation and amortization of intangible assets was RMB 166.5 million in the first half of 2021, a 45.5% increase from RMB 114.4 million in the same period of 2020. Overall, we delivered a strong result in the first half of 2021, both in the business perspective and a financial perspective. It is notable that our business layout, technology advancement and some continuous efforts from the management team provide us with a solid foundation to engine our future growth. We are also supported by outstanding economic activity level and strong market demand. We will remain committed to delivering sustainable growth and creating long-term value for our customers and shareholders. With that, operator, please open the line for questions.

[Operator Instructions] And our first question comes from the line of Frank Ye Tao from Huatai Securities.

Congrats on the solid set of results. And I have 2 questions. The first one is we see robust expansion on business user and business customer base in the first half of 2021. Can management share with us some of the reasons behind? And also, maybe which product or services are exactly the one in converting business customers from business users? That's my first question. And my second is on matching efficiency. Can management share with us some of the detailed data to help us understand like connecting matching efficiency between candidates and also drop vacancies and also some details regarding the value-add to business customers. Any color would be great.

Sure, Frank. I think I'll take the questions first and then maybe Rick would add his points after that. So I think regarding your first question on the first half growth. I think my view is that as the market almost fully recovered from the pandemic, we saw a continuous upsurge in the company's hiring demand for share, leading to the growth of the whole recruitment industry and the market recovery and expansion have set a good foundation for our development. As before, this year, we continue to enrich our user base examples to decide, particularly from the business user side. The series of marketing activities we initiated at the beginning of this year not only help us to cover a lot of business users or also target them more perfectly. In the first half of the year, we improved our offline and online marketing strategies, which allows us to basically attract users from target groups and target regions. With particular investment in marketing and improved marketing efficiency, we were able to attract more business users right on the industry's tailwind. And during the first half of 2021, a number of our registered business users already reached almost 882,000. This actually increased by more than 40% year-over-year. And with a large number of incoming new users, the conversation from registered business users to paying customers were mainly driven by more mature sales team basically and our secure products. If you recall last year, we've made some internal changes to our sales team like dividing our sales team into 2 groups. One is the new customer acquisition, and the other one is the existing customer renewal team. Basically, the reorganization allowed us to be more focused on each team specific type with more well-designed incentive scheme. And basically, these upgrades resulted in a higher sales efficiency and led to effective conversion from the users to our business customers. We also upgraded our product during the first half of the year. So basically, after that, the recruiters can experience more technology supported functions like instant messaging, improved candidates ranking system and so on. That's as a result, the hiring efficiency has been further improved. Is it -- this is my view on your first part, right? Regarding the matching efficiency, following on your second question. I think that's a good question. I think for us, right, as a market-leading player in the mid-to-high-end online recruitment market, one of the key things that we value the loss using matching efficiency. So I'm glad you raised this question. So the matching of higher end talents and provisions is particularly challenging because the job descriptions and talent requirements are much more complicated than the lower end of candidates. We need to identify more data text and human margin to achieve accurate matching. After 10 years of investment in R&D and data learning, our deep understanding of talents and provisions and sophisticated matching algorithms have already become our key competitive advantages. There are many dimensions to understanding the matching efficiency. I can start by sharing some numbers. The accuracy of AI job recommendation is more than 90% on our platform and the accuracy of recommendations through job searching is more than 95%. And the ratio shows that, first of all, we have big enough database to understand all the requirements. The second, our algorithm is modeling up from our past learnings to come up with a current results to mix of both the recruiters and the talent demand. At the same time, we also put more attention on AI-driven matching and design differentiated matching algorithm for different groups of users, which further improved our matching efficiency and build up the entry barriers from our competitors. I think the last one I kind of want to mention is headhunter assisted closed loop services. So basically, we've already established a mature mechanism to make sure the recruiters can get the most suitable tenant in a timely manner and supported by this headhunter ecosystem, precise matching around -- so basically, around 25 of the interviews can actually take place within 5 business working days after recruiters posting a request on our recruitment platform. So this is the improvement in hiring efficiency like this plays a very important role in our customers' talent development business expansion. That's why you can tell, we spend a lot of time on the matching efficiency and I hope the examples help. Rick, do you want to add anything?

[Foreign Language]

[Foreign Language] Very helpful.

Our next question comes from the line of Melody Chan from Jefferies.

And congratulations on the results. So I have a -- first improvement in the ARPU. So do you expect to see more new products going forward to meet the diversification of the [Technical Difficulty] to further drive the ARPU? And how should we think about R&D expense? And the second question is about the view of the future [Technical Difficulty] How will it affect the future [Technical Difficulty]

Regarding your question on the ARPU, I think starting from 2 years ago in 2019, with the established multi-stream product lines by vertically penetrating recruitment market centrally expanding to other tenant services from the [indiscernible] other than our core recruitment business, we explored our users' needs and dive deeper into talent service demand by providing free stacking, online services and a SaaS platform for training assessment. And from the 2C side, we provided exclusive talent development services, including career services and professional training services. So basically, after that, our product layout allowed us to provide suitable services to cater to our users' different and diverse needs. This year, we kind of launched a few new functions -- I wouldn't claim new products. For example, we launched a brand-new campus recruitment tool this June, basically still helps us to solve the pain point of traditional campus recruitment by integrating offline and online resources. We help in building employer brand by matching the right talents to the job positions and providing professional value-added services as part of this service. And then secondly, we upgraded our core online recruitment applications as well, basically improved the registration process for student groups and build up on matching algorithm that's particularly suitable to this group of people. Our product basically better cater to younger talents in terms of product design, user flow and the job matching, so that they would feel more comfortable using the service. And you can see that we are dedicated in improving our user experience by providing technology-driven products. Regarding R&D, this year we're kind of keep investing in R&D this year. And in the first half of 2021, our R&D expenses reached a historical high at RMB 1.3 million, we just talked about. And more R&D expenses will occur during the second half of this year since the recover from key R&D provisions are just ramping up, starting from the third quarter. So overall, I think the absolute amount of R&D expenses will increase for sure. But due to the fast growth of our top line, I think the R&D gross margin will keep at a relatively flat or maybe even lower level comparing to last year. Your question regarding the gross profit margin trend, right. I think all of our 2C business are online services with high margins. And they basically accounting for around 50% online for the revenue. And on the 2B side, I think more than 80% of the services are delivered online and making us a tech company in the talent service industry, always try to improve the machine efficiency and power the development of the recruitment industry by using data and algorithm to connect business users, individual users together. Therefore, we will continue to upgrade our online product to improve the user experience. So I would say, pursuing online is definitely quite important as part of our strategy. On the other side, the team has a good number of high-quality K customers with diversified talent service demand. Therefore, we also provide various product and services, including offline services sometimes in response to their need to serve them better. And the offline services supplement our overall service spectrum. For now, I think the mix of our online and offline services is relatively stable, resulting in a gross profit margin. At the same time, with the continuous development of the Chinese enterprise, the demand for efficiency improvement is enhanced. Together with the innovation from the pandemic online recruitment penetration is definitely improved. If we look at the overall foreign Chinese registered companies, I think we are still facing a huge market, and we keep looking forward to serving more users by offering more online products. Therefore, our gross profit margin will be further improved in the longer run as a result. So I think we're pretty comfortable with the current online and offline subject mix. And definitely, we look forward to a better gross profit margin. But in the meantime, we need to make sure we deliver the right services to our customers instead of simply focusing on the margin itself. [Foreign Language]

Our next question comes from Steven Tsai from Morgan Stanley.

My first question is related to the regulations of Internet and real estate industries that are important to our demand. So could you remind us about the revenue contribution from these 2 industries, respectively, in first half of this year? And how we should think about potential impact on the hiring activities from the regulation down there? And my second question is related to the government's increased focus on personal data protection. Will that affect Liepin's ability to collect and utilize these data to facilitate demand and supply management. Any color would be great.

Thanks, Steven. I think first of all, the Internet industry, we heard a lot of news around this segment in the past couple of months. However, this industry only accounting for a very strong portion of our total revenue. Most of the hiring volume in the education industry come from the junior position with high mobility like sales people and tutors. And these positions mostly belong to the less recruitment market instead of our mid-to-high-end market. But definitely they are core industry traditionals. But only accounting for less than 20% or 25% of our total revenue. However, we do not see our revenues are impacted by this more strict regulations from the industry. Couple of reasons. The recruitment platform serving all industries and diversified users, not only on one or 2 customers or industries. Furthermore, our penetration rate in the total recruitment market is still very low, meaning the market is far above us. Most of our customers are leading companies in different industries. So their hiring demand is relatively stable. Hence, our business will not materially impacted by short-term fluctuations. Also, the policy changes have caused more impact on hiring demand as I just mentioned, in mass recruitment market. If we look at the mid-to-high-end recruitment market, there are actually more hiring demand for mutual hiring talents, driven by the structural upgrading needs for by tightening regulatory environment. This is a great chance actually for us to help our customers with either the talent upgrade or the organization upgrade. For the companies that are affected by policy changes, I think the major concerns are among topics like advertisement and marketing but not really recruitment, especially the online retail high end recruiting platform. We just compared with other spending, recruitment budget only at times for very small proportion across the specific company. That being said, our ARPU around RMB30,000 is definitely not significant to our customer's total budget. That's why with all the impact on the regulation and the government, I don't think it will significantly impact on our business and operations. And then your second question is on the data security. I think this is also a very hot topic in the past couple of months as well. I think our company always put a lot of effort into topics like cybersecurity and personal information protection. And we follow the most strict data protection standard among all the other players. If it was not for the data protection concerns, we actually could have done much more upgrades on our product side, but we need to kind of balance it. All of the information needed for our matching algorithm is already under strict control internally. Therefore, the impact both by the positions should be very limited to us because we've already done a lot of things even before the regulation was issued. And at the same time, with upgraded high end function and initiation of the virtual phone number that further protects users privacy. The user's activity level, users getting into the platform actually has been increased in the past one quarter. That gives us a better chance to understand our users and provide even more accurate matching results. We are definitely a tech company in this human resource industry, providing recruitment services. Our job recommendations are not based on talent's personal information but the job related information that the candidates provided for us. I think this is a basic logic. I think last but not least, I want to highlight something, right. I think everybody knows, Hong Kong is part of China, right? As Hong Kong is a company, all of our procedures and disclosures are definitely in line with the Chinese government regulation. So we do not see any concerns from this particular issue. [Foreign Language]

Next question comes from the line of Wei Xiong from UBS.

Rick and Tian, congratulations on the solid results. I also have 2 questions. First is, I want to ask about our talent development services for individual users, which have recorded a very robust growth. So after the consolidation of Saiyou, could management provide an update on the synergies that you have achieved in this business? And how do you think about the strategic positioning of this business? Have you may be seen any impact from the recent regulation around education sector? And second, if we look at medium to longer term, I think many online recruitment platforms, including us, will all want to be able to cover a wider range of users and provide more diversified services. And Liepin has a core position in the mid-to-high-end talent. And over time, it's likely to penetrate maybe more into the relatively lower end of the talent procurement, whereas other peers may start by serving the entry-level or mass market white collar and could consider penetrating into the higher end talent over time. So just wondering if management could comment on the different competitive advantages or strategies between us versus peers?

This is a really long question. All right. I think I'll touch the second part of your first question first, which is regarding the regulations towards the education industry. I think everyone knows that these regulations mostly focused on K-12 training and the marketing activities around it. But our education sector, Saiyou is actually a player in the vocational education industry, which is actually in supportive of our national policy and the development of the Chinese recruitment market. So Saiyou's business was very affected from the regulation point of view. Although the teaching certification training is one of our business, so far, we didn't observe not much impact from them. Besides teaching certification training, we are also offering training counselling certification and MBA. So the overall impact from the change is very limited. In the meantime, we're also putting a lot of effort in upgrading our existing courses and developing new courses, aiming to provide good product user experience for the longer run. In terms of the synergy with our increasing 2C services, I would say, we already extended our service coverage from career services like CV advisory, interview advisory to professional certificate training services in order to establish sort of close to talent development platform. So we consider Saiyou as a supplement to our talent development service after the M&A. It doesn't help us to expand our 2C services from career development to skill set training and this is part of our strategy. Together with our technical support building strong business and operating system, Saiyou will be able to drive the overall growth for our [indiscernible]. Regarding your second question on the competition, right? I think comparing with the mass recruitment players, I would say, we have at least 3 advantages to [indiscernible] enter our sector. I think the first one is the difference in branding and business model. After some years of development, we already spent for Chinese mid-to-high-end online recruitment. And in the first half of this year, right, the average salary of our individual users already came close to RMB 200,000 and the establishment of price image and user recognition has been a long process. And high branding positioning, make sure that we are able to grow rapidly in this comparatively blue ocean market. According to CSD report, basically the size of the mid-to-high-end equivalent market will be around RMB 300 billion in 2 years, which is more than 5x of domestic recruitment market [indiscernible]. In the same time, we are able to penetrate into other markets, leveraging our brand positioning and the mid-to-high-end talent relatively passive, they care more about efficiency as part of the recruitment process and rely on constant simulation and services from people like headhunters. But on the other side, the lower end market pays more attention to the user traffic and activity level of the platforms. Sometimes, the users are against the services from the headhunters. So the business model in the 2 markets are quite different in nature. I think another advantage for us is the good customer base. Basically, I think we talked about this lead time trial. We gathered top companies from different industries already and in the past couple of years, we formed a strong relationship with our customers who have a diversified talent services and ready to demand. By providing comprehensive products and services we can better cater to our customer diversified needs. And the third advantage for us -- for me is the technology capability. Based on the high-quality business and individual users we're able to capture authentic, high-quality and complex talents and job information. And we keep training our matching algorithms through the AI with those information and resulting more accrued matching results. And the job descriptions and CVs for the lower end market, however, are much simpler, and we are fully capable of understanding their need if we tap into that industry. But if a player from the lower end market tries to penetrate upward into the higher end market, basically, it needs a lot of time for them to learn the data from the -- for the high end talent and job postings in order to train the matching algorithm. And the process will definitely cost a lot of money and time. So this is -- this would be my feedback on your question. Rick, do you want to add your point?

[Foreign Language]

[Operator Instructions]

Yes. I think we're already out of time. So if you guys have any follow-up questions, you can follow-up with our IR team at [email protected]. Right. Thank you everyone.

Thank you. This concludes today's conference call. Thank you for participating. You may all disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]