Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

[Foreign Language] Good evening, everyone. Thank you for joining Tongdao Liepin Group 2022 Interim Results Conference Call, and for your long-term support to our group. The complex economic conditions and resurgence of the pandemic have imposed tremendous pressure on the economy and job market this year. Despite the challenging situation in the second quarter, our group continued to achieve steady growth with the tireless efforts of our team. In the second quarter, our total revenue reached RMB722 million, up by 7% year-on-year. Our non-GAAP operating profit was RMB187 million, up by 44.1% year-on-year. In terms of the first half of the year, we achieved a total revenue of RMB1.37 billion, up by 14.4% year-on-year. Our non-GAAP operating profit was RMB243 million, up by 45.8% year-on-year, and our net profit increased by 131.2% year-on-year. The rapid improvement of our profitability resulted from the firm execution of our group strategy and the flexible adjustment of our operations. The particular market condition has also further demonstrated the resilience of the mid-to high-end recruitment market. We will continue to fulfill our mission to help enterprises and talents achieve greater success by providing better products and services. [Foreign Language] Resulting from the impact of the Pandemic and policy adjustments, sector rotation was notable in various industries. We continuously analyze and gain insights from the changing recruitment market. According to the data on our platform, certain industries still showed strong recruitment sentiment, although many of them faced downward pressure to varying degrees in the second quarter. Energy and chemicals, automobile and manufacturing and telecommunications and hardware remain the top three Tier 1 industries in terms of the growth of new job postings. And the new energy industry obtained the most significant growth among Tier 2 industries with a year-on-year increase of over 54%. In June, as the disruption caused by the pandemic was gradually eased, the normal operation of corporations and residual consumption were sourced step-by-step, in particular, medium and large enterprises, which were more experienced in combating the pandemic and enjoyed stronger business stability, restored their recruitment demand and picked up confidence level at a relatively faster speed. Taking Shanghai, as an example, by June, the amount of our cash collection had largely recovered to the same level as last year. Among them, the key account customers have fully recovered compared to last year. As a long-term partner of these outstanding enterprises, we continue to focus on their diversified needs, helped with their digital transformation in the recruitment process and safeguard their organizational and talent upgrades. [Foreign Language] At June 30, our revenue generated from business customers was RMB1.2 billion, up by 17.5% year-on-year. Our registered business users reached nearly 1.08 million, up by 22.4%. Based on the development phase of different regions and industries, we have flexibly implemented the One CV One Policy and targeted expansion as our sales strategies, which allow us to deeply explore the needs of our existing customers while selectively expanding into key industries. We provide our customers with a high quality talent pool, diversified recruitment hub products and in-depth professional services, especially for state-owned enterprises and leading private enterprises at the front line of promoting employment stabilization. We deeply identify their specific needs by focusing on policy guidance, industrial clusters and other directions. In terms of new customer acquisition, we implemented a target sales strategy to firmly grab the business opportunities in policy supportive and rapidly developing emerging industries, hereby continuously solidifying our competitive edge in the mid- to high end recruitment market. Despite the pressure in the first half of the year, our paying business customers reached 67,000, up by 0.8% year-on-year and the ARPU of our business customers reached a new high of RMB36,000, up by 16.5% year-on-year. [Foreign Language] In terms of individual users, although recruitment demand was subdued to certain standards here, job seeking demand was boosted. In the second quarter, the job-posting-to-talent ratio of public employment service providers dropped to 1.37x, down by 0.21% compared to the same period last year. It was also noticeable that the difficulty of talent and locating ideal jobs increased dramatically, especially the structural imbalance of employment among youth. To navigate such issues, a package of employment stabilizing policies, including encouraging HR service providers to collaborate on special employment promotion activities are being gradually implemented. In the second quarter, we cooperated with the Ministry of Education, ACFIC and other organizations to hold a number of campus recruitment activities. We actively allocated platform resources to deliver high-quality positions and talent development services for students. For example, joining hands with the Peking University's Guanghua School of Management, we launched an employment-related public activity named The Management Trainee. Multiple well-known enterprises were invited to provide students with well-rounded [ career process ] training. At the same time, in partnership with the local government, we established the Guangdong-Hong Kong-Macao Greater Bay Area Youth Internship and Employment Public Service Platform to provide services such as study tours, internship opportunities, employment guidance and professional trainings. [Foreign Language] As the adverse impacts of the pandemic is gradually eased, the confidence level for future employment is rebounding. But job security and stability are still talent's biggest concerns. We have noticed that mid-to-high end talents are more cautious in making clear changes this year, where our lower-ends talent has greater job competition and salary reduction expectations. In response, we continuously track and analyze our users' intentions and behavioral changes, improve our talent match and optimize the user experience during their job-seeking journey on our platform by leveraging our big data and AI technology. By the end of June this year, the number of registered individual users on our platform reached 79.49 million, an increase of 16% year-on-year. Among the number of revenue updates in the past 18 months has increased by 25.6% year-on-year. The number of users and their activity levels show continued growth, as we have focused on attracting rare talent in key emerging industries this year. The accumulation of such high-quality talent has significantly enriched the talent reserve of our platform. [Foreign Language] In terms of our product strategy, we fully upgraded Liepin Pro, who played an important role in strengthening our user stickiness. By improving the user collaboration functions, optimizing the user engagement interface and streamlining the recruitment process, our upgraded products efficiently enhanced recruiters' activity level and user experience. In the second quarter, we introduced more recruitment process managing functions, such as collaborative CV evaluation modules and easy account management. With the updated features, we have made recruitment smoother and more convenient and efficient. Meanwhile, we actively responded to the government's call to promote the innovative recruitment models by thoroughly upgrading our innovative live-streaming recruitment products, enhancing our technical capability and accumulating valuable content in an effort to further improve the conversion of our live-streaming recruitment activities. In the first half of 2022, we co-hosted live-streaming recruitment activities with the local government, top-tier universities and well-known enterprises, creating a solid user foundation for our brand building and long-term business growth. [Foreign Language] Technological innovation provides a solid basis for efficient and accurate talent-job matching, especially in the mid- to high-end recruitment market. Talents have higher recruitment for the quality of [ national ] results. As such, we keep establishing a data and technology-driven talent source platform in order to take a deep guide into the mid- to high-end market. In the second quarter of 2022, as we further improved our labeling system and deepened our algorithm's natural language understanding, we also integrated our digitalization capability and solidified our advantages in every recruitment procedure. On the business user front, we distinguished and analyzed their recruitment needs at an early stage by enhancing our digital sales capability so as to provide our users with more tailored products and services. This capability will further empower our business development through a higher sales conversion and result in a better user experience and a clear value creation. On the individual user front, we introduced a separate set of tags to label the unique career considerations of students and help them to identify the most suitable career development path. In addition, we continue to pursue a more efficient, mutually beneficial an innovative ecosystem with headhunters. As of the second quarter, the number of registered headhunters on our platform amounted to nearly 210,000, an increase of 15.8%, of which more than [ 88% ] of them are active. In the first half of 2022, we achieved healthy growth and development amid challenging conditions by virtue of our effective business model and long-term strategy. In the second half of the year, we will continue to focus on our core mid- to high-end recruitment business, strengthen our Platform + SaaS + Service strategy, reinforce our recruitment business and dig deeper into our core customers' needs. At the same time, we will flexibly adjust our sales strategy, make timely adjustments corresponding to the market changes, focus on emerging industries with high potential and target highly in-demand talents in order to expand our user coverage in these sectors. Operationally, we will pursue efficiency improvements, actively pursue business growth with caution from low market segment with higher efficiency and build a solid basis for our sustainable development. In the second half of the year, the pandemic is expected to continue to disrupt the market recovery. As the company that has cultivated the mid- to high-end online recurrent market for more than a decade, our group will actively make use of our intelligent talent-job matching capability and profound insight into the important market at this particular moment and provide enterprises and talents with professional and efficient products and services. We will spare no efforts to assist in stabilizing employment and continuously create value for our users and the whole society. [Foreign Language] Once again, I would like to express our sincere gratitude to our shareholders and investors for your long-term trust and support. [Foreign Language] Now, I will turn the floor to our CFO, Tim, to walk you through our financial performances in the first half 2022.

Thank you, Rick, and thanks again, everyone, for joining our 2022 interim results release conference call. We are glad to see that our group achieved healthy top line growth and further improve the operational efficiency during this challenging macro environment. Our total revenue in the first half of 2022 was RMB1.37 billion, a 14.4% increase from RMB1.2 billion in the same period last year, revealing the effectiveness and resilience of our business model with a unique market position in the mid-to-high end segments. More specifically, the revenue generated from talent acquisition services and other HR services was RMB1.2 billion in the first half of 2022, up by 17.5% versus last year. The lift was mainly driven by our high-quality user base, diversified product mix and flexible sales strategy, like Rick just mentioned. Our revenue generated from talent development services for RMB168 million in the first 6 months of this year, slightly dipped by 3.5% versus last year, mainly due to the lower willingness to pay among the mid- to high-end talents facing various authorities, as well as delay in the exam schedules caused by the COVID-19 restrictions. Our gross profit was RMB1.08 billion in the first half of 2022, up by 13.7% versus last year, and our gross margin was 79.1%, slightly lower than the same period last year due to the change in our product mix. We are providing more result-oriented products catering to recruitment needs of our business customers during the challenging period. Turning to operating expenses. Our sales and marketing expenses were RMB618 million in the first half of 2022, up by 6.8% versus last year. The sales and marketing expenses margin decreased from 48.3% to 45% on a year-over-year basis. The optimization was primarily due to: one, the one-off brand upgrade cost occurred at the beginning of last year, which didn't repeat this year. Second, we were able to sufficiently save our marketing expenses and achieve a higher return on marketing investments. Third, we kept pushing for a sales team structure upgrade and endeavor to build a sales team with strong digital capability. Together with the targeted sales strategy we adopted this year, we are glad to see a noticeable improvement in our sales efficiency. Our general expenses were RMB165 million in the first half of 2022, down by 4.2% versus last year. Our G&A expense margin in the first half of 2022 and 2021 were 12.1% and 14.4%, respectively. The decreased G&A expense margin was mainly driven by the improved effectiveness and efficiency within our internal control. We continue to invest in R&D to improve our IT infrastructure, optimize our matching algorithm, launch innovative functions and strengthen the data security capability in the first half of this year. And our R&D expenses were RMB184 million, up by 28.4% versus last year. Our R&D expense margin was 13.4%, up by 1.4 percentage points. Despite a complex and challenging macro environment, we continued to invest in ourselves and solidify our advantages in the mid- to high end talent service market. As a result, our profit from operations in the first half of 2022 was RMB180 million, up by 92.9% versus last year. Our net profit for the period was RMB184 million, up by 131.2% versus last year. And our non-GAAP operating profit, excluding share-based compensation expenses and amortization of intangible assets resulting from acquisition was RMB243 million, up by 45.8% versus last year. The great improvement in the profitability illustrated our resilience business model, effective expense control strategy and internal management, as well as our commitment to obtain sustainable development. The first half of this year was a very challenging period for many of us. As mobility restrictions are eased step by step and enterprises return to normal operations, the market sentiment will gradually recovered. As we actively seize the opportunity in a slowing recovery job market, we also remain cautious of the uncertainties brought by the resurgence of the pandemic. We will always keep a sharp mind and react swiftly to the market dynamics. And internally, we will keep pursuing management excellence and efficiency improvements. Our dedication to delivering sustainable growth and creating long-term value for our customers and shareholders remains unshaken. With that, operator, please open the line for questions.

[Operator Instructions] We will take our first question from the line of Melody Chan.

[Foreign Language] I have 2 questions. First, how should we see about the business outlook in second half with the high unemployment rate and the low job-posting-to-talent ratio? And second, how should we think about the OpEx as a percentage of revenue trend going forward?

[Foreign Language] In the first half of 2022, against the backdrop of global geopolitical risk and repeated outbreaks of the pandemic massively, the uncertainties of microeconomy imposed greater pressure on the recruitment industry and significant impacts on recruitment processes of enterprise. Although the overall economic conditions started to show positive signs since June, the economic data released by the National Bureau of Statistics for July was still lower than expected. The momentum of economic recovery is slowing down and the foundation of the rebound is still very weak. It can also be seen that the confidence level of enterprises is entering the process of bottoming out, but the overall recovery still needs more time. However, if we look at the medium and large enterprises, they generally enjoy higher business stability and faster digitization so that their future ongoing operations will be more stable as well. So as our core customers, these enterprises provide healthier and more robust recruitment demand to us. [Foreign Language] From the view of the employment policy, the government continued to strengthen the employment-first strategy under the principle of flexibilities and security in 6 areas. A series of employment stabilizing policies are gradually put into action, including the reducing tax payments of enterprises, subsidizing for a stable -- stabilizing job position and et cetera. The Central Government also clearly instructed all regions to fully utilize the advantage of talent service providers in matching the supply and demand and providing the professional and efficient services contributing to the stability of the employment economy and also the social development. Amidst current uncertainties, the professional talent service providers with high-quality service and technical capabilities in innovation will be increasingly demanded by the market. So overall, the recruitment industry will still face considerable pressure in the second half of the year, and the industry recovery might still need more time. We expect to see a recovery by the end of the year or in the first quarter of next year. [Foreign Language]

Sure. I think -- I'll take the second question regarding the OpEx for the second half. So if you look at the first half of this year, the expense structure continued to be optimized with an operational expenditure ratio of about [ 17.5% ], down by 4.2 percentage points year-on-year. As I just mentioned in the remarks, right, the improvement was mainly driven by a decline in sales and marketing expenses and G&A expense margin, down by 3.3 percentage points and 2.3 percentage points, respectively. And if you look at our R&D expense margin was 13.4%, which is up by 1.4 percentage points versus 2021. So basically, we actively adjusted our operational strategy, focusing on expense control and operational efficiency improvement. And we will continue to enhance the operational efficiency of online working by strengthening our digitalization capability so as to deeply contribute to the group's overall expense reduction and efficiency improvement. Particularly, there is still room for long-term optimization of our sales and marketing expenses and G&A expenses. Our sales and marketing expenses mainly consist of sales personnel expenses and marketing expenses. So, we continuously improved the efficiency of our sales team structure and sales personnel, basically adopted more prudent and process marketing strategies in order to maximize the ROI. And in terms of our G&A expenses, the absolute amount of G&A expenses in the first half actually dropped dramatically versus last year. And optimization mainly came from the refinement of our corporate governance and the efficiency improvement within our internal control. In terms of our R&D expenses, we have always focused on investing in our matching algorithm, security, protection mechanism and product innovation I just talked about, especially in terms of new product innovation, investing in R&D will actually help us to provide strong support for group's long-term development. So for this part, given we're in a period of tough time, we will still [ keep on doing ] what we have been doing in the past. So overall, to answer your question right, our expense optimization strategy were mainly initiated around May or June this year. So the effects of our expense optimization might be more visible during the second half of the year, I believe, compared to the first half. So that is my comment on your question.

We will take the next question from the line of Frank Tao.

Two questions here. The first one is regarding the talent acquisition and other HR services. Can management share with us the revenue growth trajectory for core online recruitment services and ultimately for the new business like Wenjuanxing and Xunhou? And maybe also, if you could share more color regarding the outlook would be great. And my second question is regarding the recent discovery regarding the latest trend in online recruitment market, especially maybe for the mid- to high-end talent acquisition, if there has been some signs of recovery and what is our strategy to cope with the recovery trend?

I'll take the first question and give the second question for to Rick. I think regarding the current outlook of second half, I think we're waiting to see how the macro and the economy and the COVID situation goes in the second half. And for us, I think the second half is really about preparing for the future when everything is back to normal. So for the growth trajectory for other HR services, I think if you look at the revenue growth rate of our core recruitment business in the first half of this year, it is higher than the overall growth rate of the group. And the group's recruitment business mainly consists of SaaS-based subscription recruitment packages supplemented by transactional closed-loop products. And particularly this year, the fully upgraded professional recruitment SaaS product, Liepin Pro, has more efficiently, better digital recruitment needs of our business customers in the special market conditions and basically improving our customers' retention and satisfaction rates, and it also plays a very vital role in terms of driving our recruitment business growth. And at the same time, due to the constant resurgence of the pandemic and the uncertain macro environment this year, we have also observed an increase in the preference for results guaranteed products. And in response, we actively adjusted our sales strategy to focus on things like digging deeper needs of our existing customers and realizing targeted expansion. With our wide and flexible array of products, we actually couldn't meet the dynamic needs of our customers in the past. And going forward, I think we will continue to focus on mid-to-high recruitment segment, broaden our industry and job categories, which will have the advantages with and further consolidate our advantage in the mid- to high-end market. In terms of our other sub-business, the online service business and flexible staffing business, both may turn a relatively stable growth in the first half of this year, accounting for a relatively stable proportion of the total revenue as well. Among them, the revenue growth rate of online service business was slightly lower than the overall growth rate of the group, mainly due to the high base of 2021 and the impacts from pandemic on advertising business, which is quite universal. Talking about the future strategy, I think we will continue to invest in R&D and focus on sales of our Service SaaS business aiming to increase revenue contribution from the SaaS portion of the service business. And the flexible staffing business still achieved very stable growth in the first half of the year as well. So if we think about China's flexible staffing market, I think, it is still very vast and is strongly supported by our national and government policies. So in the long run, we look forward to continuous development and further penetration into the white-collar positions of the flexible staffing market. So, I think -- overall, I think the high-quality resources of our platform will better help the development of this business in the future. Rick, how about the second question?

[Foreign Language] This year, the online recruitment industry as a whole was under great pressure, especially in the junior white-collar and blue-collar markets. The pressure in the junior white-collar market came from the aggressive reduction in junior positions, resulting in a sharp increase in the difficulty of user employments. The competition among leading players in this segment also got fierce. The pressure in the blue-collar market is more due to the closedown of small- and medium-sized enterprises, which will take more time to recover. This year, 2 types of recruitment demands were relatively remarkable. One was recruitment demand from large and medium-sized state-owned enterprises. As a model for shouldering social responsibilities, the SOEs posted a good amount of quality jobs. The other one was high-end -- high [ headhunter ] demand. Enterprises demand for talents in core positions were still very rigid. In view of the recruitment behavior, we noticed a meaningful shift from mass recruitment to targeted talent acquisition. So with business opportunities brought by the adjustment of national economic structure and industrial location, the demand for our mid- to high-end talent was further reinforced. And the demand for our high-quality talents in emerging industries was still to be meet. The enterprises that are moving into the phase of refined management are also more creating for digital recruitment transformation and mid- to-high-end talents. So, this year has once again verified a strong resilience of the metro high-end recruitment market, reflecting the long-term development potential of our sector. [Foreign Language] Based on these observations, our sales strategy for this year is to dig deeper into the needs of our existing customers and improve ARPU with professional services and constantly upgraded products. We focus on talent needs in emerging industries and deploy targeted business development strategy by leveraging our digitalized sales capability. In terms of products, we are always pursuing excellence in talent job matching in the mid- to high-end market. We continue to make technological innovations, optimize our IT structure and improve the labeling system so that our matching algorithms can better understand both the actual requirements of job positions and the profile of talents. So overall, the continuous improvement of our products and technical capabilities will set the most solid basis for us to capture the future opportunities when the market recovers. [Foreign Language] Operator, we can open another question.

We will take the next question from the line of Wei Xiong.

[Foreign Language] I have 2 questions as well. First, I want to ask about the model of live-streaming recruitment. Management also mentioned in the prepared remarks that this innovative recruitment model may help us to better serve enterprises. So, I wonder how do you -- what's our thought around this, like new recruiting model? Do we think that could change the current competition landscape in the online recruitment sector? And what's our strategy to better utilize this model to improve the user experience from the enterprise side and job seeker side? And second, just want to very quickly ask about our revenue from individual users. It looks like this revenue line had a little bit of weakness in the second half and also in the second quarter. Just want to understand what's the reason behind it, and any color you can share on the second half outlook?

[Foreign Language] So live-streaming recruitment is essentially the digitization of enterprises recruitment activities. This is representing a product and model innovation, utilizing the mobile Internet. However, due to the time consuming characteristic of live streaming and non-standardized feature of the recruitment, there will be certain limitations for live streaming in the recruitment industry. The model is more suitable for a relatively standardized blue-collar position, the urban service positions and other junior positions. In these sectors, the entrance of players with large traffic will bring disruption to the recruitments of these positions. For example, [indiscernible] and TikTok, already have a mass organic traffic and people spend a lot of time on it. They will bring disruption to the blue collar urban service industries. But those with no experience in the recruitment industry need to accumulate more industrial know-how, such as how to differentiate between business customers and recruitment agents, how to commercialize, how to contact candidates to job matching, et cetera. And there are the aspect that new players that need to work on. So from now, all of the leading companies in the online recruitment industry have put efforts into live-streaming recruitment product innovation, aiming to expand the user industry and rigid coverage through live streaming recruitments. [Foreign Language] From the perspective of mid- to high-end talents, our live-streaming recruitment is unlikely to become a mainstream model due to the contact recruitment process and many non-standard and hidden conditions. But from the enterprise user side, they speak highly of the content and accurate matching results of our live streaming activities, particularly live streaming could help enterprises build their recruitment employer brands, enabling talents to get to know the enterprise directly and deeply understand the corporate culture. Such new products become a handy tool in helping our sales team to deepen customer relations and cross our diversified products. In addition, with the live-streaming model, we can also reach out to more corporate HRs, [ home tours ] and et cetera. Combined with other private operational assets and other tools, we are able to manage more private traffic to capture more accurate sales leads and in turn to improve our sales conversion rate. And this is my view on your question. [Foreign Language]

Okay. Thanks, Rick. Regarding your second question on the revenue for the 2C site, I think, basically, as we all know, right, the revenue mainly comes from the online professional certification training business and our original career services for our talents, so basically affected by a soft second quarter. Our 2C revenue from the first half of the year decreased by 3.5%, a relatively lower growth rate compared to our 2B business and also compared to the group as a whole, right? And especially under the special and unexpected domestic and global conditions in the second quarter, we feel that the talents felt less secure about the macro environment as well as their own employment situation. So as the job opportunities and the consumption sentiment dipped, talent's confidence in pursuing another career or sort of career training services was sort of low, resulting in a noticeable decline in the willingness to pay for online professional certificate training or carrier services, which is quite similar in other business or industry as you could observe. Moreover, the outbreak of certain risks in the professional education industry this year has also put the whole industry under some pressure. With this, I think talents were kind of cautious about the discretionary consumption versus those money they have to spend. Overall, I think there are still some uncertainties in our 2C business in the second half of the year due to the unstable macro environment, and we will try to mitigate the adverse impacts of the pandemic with our utmost efforts and try to leverage continuous optimization of our product spectrum and try to take the advantage of our technical capability to prepare for the overall recovery of the job market in the coming periods. So again, right, we will still see a lot of uncertainties in front of us and in front of everyone, but I think we still need to do a lot of things to prepare things once everything is back to normal. Thanks. And basically, I think we are running out of time. And that concludes our first half conference.

Thank you, everyone. You can always reach out to us through our IR email, [email protected]. And thank you once again for joining our interim results conference call. Good night, everyone.

Thank you. Bye-bye.

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