Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Good day, and welcome to the Tongdao Liepin Group 2023 Interim Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Wang. Please go ahead.

Thank you, operator. Hi, everyone. Thank you for joining us on today's conference call to discuss our results for the 3 and 6 months ended June 30, 2023. 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. After that, Mr. Tim Tian, our CFO, will continue with detailed financial review. The remarks will be in Chinese followed by English translation. 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 the current market and operating conditions and relates to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which may be on 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 are 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 new information, future events or otherwise, except as required under law. Please also note that all financial measures are in RMB unless otherwise stated, and certain financial measures that we use on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings release price. I will now turn the call over to our Chairman and CEO, Rick. Please go ahead, sir.

[Interpreted] Hi, everyone. Welcome to our Second Quarter and interim 2023 Earnings Release Conference Call. In the Second Quarter, our total revenue amounted to RMB 590 million, narrowing the year-on-year decreased by 4 percentage points compared to the previous quarter, and our non-GAAP operating profit was RMB 63 million. In the first half of this year, our national economy has entered a recovery stage. As the government has placed employment stabilization as a national strategy, the employment market has been attached great importance. However, we have also observed that the challenges and structural mismatches in the important market are still prominent. Enterprises recruitment demand recovers at a relatively slow pace in the first half of the year, indicating that entrepreneur's confidence still needs more time to build up. Regarding different industries, as off-line activities continue to revive, contact-based service industries maintain relatively high demand. Meantime, we observed turning points in industries such as consumption and media in the Second Quarter, with the growth of their new job postings turning positive. Overall, in the Second Quarter, the top 3 industries in terms of the number of new job postings on our platform were chemical and engineers, trade and logistics and consumption. These sectors drove relatively robust recruitment demand. On the other hand, traditional large recruitment industries such as internet, real estate and finance were still quite cautious in scaling up their hiring efforts. Now that our initiative is undergoing a profound industry transformation and the regional migration of enterprises and talent has gradually taken place. Overall, the aggregate recruitment demand is still under pressure, but there are still structural opportunities, particularly the increasing demand for quality talents from emerging industries has placed higher requirements on the process matching capability of human resource industry. To better cater to our customers' dynamic demand, we continuously optimize our matching capabilities, product design, sales tactics. As of the end of the second quarter, we have accumulated 1.217 million registered business users, a year-on-year increase of 12.9%. The number of business customers decreased by 9.6% compared to the same period last year, amounting to 50,000 customers. Regarding the enterprises activity level, we have observed that enterprises were less active during the first half of this year compared to last year. Mid-to-small size enterprises recovered slightly faster than large-size enterprises, which can be attributed to industry-specific factors and differences in the recruitment decision processes. In an endeavor to serve our customers, we intensified our efforts in optimizing customer segmentation and sales tactics. In addition to introducing live online packages, we remain committed to investing in R&D to enhance our process management capability and streamline enterprise recruitment processes. On the algorithm front, by fortifying the sharing of computing power and the modernization of various basic functions, we have improved the debility and flexibility of our fundamental technical capabilities while achieving better cost efficiency. In July of this year, we were invited to the World Artificial Intelligence Conference held in Shanghai, where we share thoughts and practices on applying AI in the recruitment industry and we are going to keep exploring in the field. Talents are very noteworthy in this year's employment market. On one hand, there has been an increase in active job seekers. As of the end of the second quarter, we have accumulated nearly 90 million talent on our platform, representing a year-on-year growth of 13% and the rate of complete CVs has also reached a record high. In the second quarter, the platform's activity level increased by 13.5% versus last year and the MAU for each month reached historical high. It is evident that our one-off large-scale marketing campaign have brought us more quality talent. However, we have also observed that as enterprises recruitment demands were suppressed high-quality positions are still relatively scarce. The professionals are therefore cautious about clear changes. To address this, we have strengthened our user operations. This year, in terms of attracting new users, we have explored marketing channels with higher ROI, optimize our marketing strategies and upgraded the equation for evaluating marketing channel efficiency. We have also streamlined the registration process for users within the WeChat ecosystem. For our existing users, we have fine-tuned the resource and traffic allocation mechanism based on data accumulation and behavioral analysis to achieve greater user coverage and more efficient user retrievals. In the second half of the year, we will continue to optimize our operating strategy, improve user experience and activity level and also enhance user stickiness. Headhunter ecosystem is always a very important gradient of our business model. We have attracted nearly 220,000 registered headhunters to our platform at the end of the second quarter, representing a year-on-year increase of 4.6%. However, due to the constant turbulence in macro conditions, the headhunting industry has been under significant pressure in recent years, especially as our nation undergoes industrial transformation, some senior headhunters are facing challenges in expanding or switching domains of their expertise. On top of that, there is a limited number of new job postings and top talents are reluctant to make clear changes, making it even more difficult for headhunters to successfully bring our candidate on board in the short term. So against this backdrop, the headhunting industry is eager for technological and business model revolution, which is why we have devoted ourselves to developing the RCM product. As a third-party platform that focuses on the mid- to high-end market, we have worked closely with the majority of headhunting companies and headhunters for over a decade. We have also accumulated abundant resources and build up technical capabilities in the mid- to high-end recruitment market. We are confident in improving the operation and matching efficiency of the industry, together with our friends along the way, and we expect to officially launch this product by the end of September. Our group has diversified its business coverage since 2019, gradually improving our risk resilience during the pandemic. Since the beginning of this year, although the diminishing user traffic has brought a certain impact on our online service business, the brand awareness and volume of traffic for this business are still way above pre-pandemic levels. And the contribution of SaaS-related products to total online survey revenue has increased to around 50%. Additionally, we have been focusing on the application of AI technology in survey services. Leveraging the large language model, we have already launched functions such as automatic questionnaire generation and automatic results standardization and analysis. These new functions will help with enhancing our product efficiency and improving our user experience. This year, we will pay more attention to front-end synergistic opportunities, especially the sharing of sales capabilities and user traffic to meet the diversified demands of our users and capture greater cross-sell opportunities. This will also help us achieve better cost reduction and efficiency improvement. Unless along with the rejuvenated inbound and outbound economic activities, we are also exploring business development opportunities beyond boundaries. In May 2023, the Director of Hong Kong's Labor and Welfare Bureau visited our group and had a profound discussion with us regarding Hong Kong's talent attraction policies and new trends in talent development. Furthermore in August, Liepin was honored to become the first online recruitment platform from Mainland China to join the Hong Kong Talent Service official website. We believe this will create new opportunities for promoting talent ability between both regions. Meanwhile, we are putting more efforts into implementing our social responsibilities. To help use embark on their clear path, we hosted the 100 days, 10 million opportunities recruitment campaign for fresh graduates led by the Ministry of Human Resources and Social Security for 4 consecutive years. We also assisted local governments in conducting student-specific recruitment activities, successfully attracting more young talents and diversifying enterprises to our platform. We've also jointly launched the 2023 employment and development of talent studying abroad white paper with the China world use mid to help various regions and enterprises attract more outstanding talent from both home and abroad and to assist these high-quality talent in achieving more exciting career development. So overall, there was still pressure on the recurring market in the first half of the year, and we look forward to exploring more development opportunities as the macro economy gradually recovers. And thanks again for your long-term attention and support. This concludes my prepared remarks. Our CFO, Tim will share with you our financial performance next. Thank you.

[Interpreted] Thank you, Rick, and thanks again, everyone, for joining our second quarter 2023 earnings release conference. Our financial performance in the second quarter was dragged down by soft macro condition and relatively weak recruitment demand, which weighed on our revenue recognition. But compared to the first quarter, we saw a narrowing revenue decline, and there was also a certain improvement in our cash billings this quarter. Specifically, in the second quarter of 2023, our total revenue was RMB 590 million, a year-on-year decrease of 18.4%. Among them, the revenue from talent acquisition and other human resource services from our business customers was RMB 526 million, a year-on-year decrease of 19.2%. And it is noticeable that enterprises, especially mid-to-large sized ones are still conscious about reopening hiring at scale. We are looking forward to the implementation of more supportive policies to boost enterprise recruitment confidence. The revenue from talent development services provided to individual users was RMB 63.17 million in the second quarter, an 11.4% decrease compared to the same period of 2022. The rate of decline narrowed by 36 percentage points on a quarterly basis. As talents maintain a high activity level, their willingness to pay for job posting related services also gradually improved, particularly the cash billings from our online professional certification training business have returned to a positive trend. In the second Quarter of 2023, our gross profit was RMB 439 million, a 22.2% decrease compared to the same period last year and the gross profit margin decreased to 74.5%. The decrease in gross profit margin was mainly due to relatively stable cost and the increase in demand from business customers for more result guaranteed services, such as [indiscernible] products and product-based services. These products generally require greater involvement from recruiting consultants resulting in a lower gross profit margin and this is how our profit margin was in the second quarter. Regarding our expenses, we continue to strive for cost reduction and efficiency improvement in the second quarter of this year. Our total operating expenses steep to approximately RMB 436 million. The expenses can be broken down as follows: our G&A expenses declined by 15.2% in the second quarter of this year amounting to RMB 76.01 million. The decrease was mainly due to the decline in share-based compensation expenses and the decline in accrued loss of loans for the period as a result of better account receivable management. Meantime, our R&D expenses kept decreasing in the second quarter of this year, coming down to RMB 80.88 million representing a year-on-year decrease of 14.2%. While optimizing our R&D efficiency, we were also obtaining on upgrading our product technology and investing in new products. We firmly believe that our long-term investment in technical capabilities will continuously translate into our competitive barriers and advantages. Our sales and marketing expenses in the second quarter of 2023 were around RMB 220 million, representing a year-on-year increase of 4.2%. Although our sales personnel incentive expenses continued to decrease in the second quarter, the increase of our marketing expenses have brought up the overall sales and marketing expenses. In the second quarter, we continued to take offline and online process marketing approaches and fine-tune effective marketing channels to enhance our brand reputation and promote user growth. But the increase in sales and marketing expenses in the second quarter is just a one-off. So looking at the full year, there will be an optimization in terms of our sales and marketing expenses. In the second quarter of 2023, our non-GAAP operating profit amounted to RMB 52.93 million. Our net profit was RMB 61.14 million and our net profit attributable to equity shareholders of the company was RMB 50.68 million. Due to the decrease in revenue and negative operating leverage, our bottom line performance was under pressure in the second quarter. But despite such challenging market conditions, we will continue to achieve positive profit through cost reduction and efficiency improvement. Since the announcement of our share repurchase plan. As of August 25, this year, we have already bought back over 10 million shares, accounting for nearly 2% of our total shares and the capital used in the repurchase was around HKD 98 million. We will continue to strengthen and improve the shareholder return mechanism in the future based on a good capital reserve, aiming to bring more long-term value to our customers, employees and investors. And this concludes my prepared remarks. Thank you. Operator, we are now open for Q&A.

[Operator Instructions] We will take our first question. Caller, please go ahead.

[Interpreted] I have 2 questions for you. And the first is, could you share us some color about the recruitment demand of the enterprise since July to August this year? And how do you look forward to the industry trend this year? And the second question is we start to launch some products for small and medium-sized enterprise in the third quarter. So what is your thinking and strategies?

[Interpreted] So as you can see, although the macro economy has been repaired to some degree in the first half of the year, the rate of recovery has not reached what we expected at the beginning of the year, nor has the recruitment demand recovered plus enough, enterprises confidence still need to be more -- still needs more policy and macro support for further buildup. And in terms of the industries with the reopening of off-line activities, the recruitment demand of urban service industries have been resumed pretty well and the number of recruitment has rebounded significantly. But for our big industries that gather mid-to high-end talent such as Real Estate, Internet, Finance and Medical, the demand for white collar and gold color positions is still relatively weak, which also affects the high-end headhunting industry. Therefore, the overall pressure still linger during the first half of the year.

[Interpreted] In terms of job categories, most of benchmarks, new recruitment demands are oriented towards business development and centered around cells. And the budget for this kind of recruitment is relatively abundant. But although there is a high turnover rate for these front-end positions and the recruitment frequency is also high. The recruitment price per unit has not yet returned to the previous level. So as for the middle and back office supporting positions, right now, most of the recruitment demands are for small-scale replacement needs and the overall approach is relatively cautious with a slow recovery pace. Of course, in addition to the domestic market, we have also seen some new opportunities such as the substantial increase in the talent recruitment needs brought by enterprise globalization, especially in the third quarter when some overseas players in the mid-to-high end online recruitment market withdraw from the Chinese market. The change in the competitive landscape has placed us in a more unique position as we can undertake the recruitment demand of quality talent at home and abroad.

[Interpreted] The direction of the recruitment industry will still be highly correlated with the macro economy in the second half of the year and next year. We initially projected that Q1 will be the bottom of our business, with narrowing declines in Q2 and Q3 and gradual improvement in Q4 and the following year. This assessment has not changed. However, the [indiscernible] degree of the recovery still needs to be evaluated in conjunction with the overall economic condition. So now the situation still remains very cloudy and this is a general consensus of the state and this conclude my answer to the first question. So expanding the number of paying customers has always been our core strategy but this year, due to the special circumstances, we have seen inconsistent recovery across different industries and type of enterprises. So therefore, in addition to stabilizing our existing major customers, we need to actively acquire small-and-medium sized enterprises that recover their recruitment demand in a faster speed. To addressing the decreasing number of paying customers on our platform in the first half of the year, we have proactively made adjustments to our product tactics, leveraging our mature user segmentation system where we have launched online recruitment lightweight packages that are more suitable for small-and-medium sized enterprises, and these packages aim to meet the recruitment demand of companies that are totally more active that have limited short-term recruitment budgets. By looking at the business development in the past 2 months, the introduction of light online recruitment packages have indeed been quite effective. But of course, we hope to establish partnership with more enterprises and expand customer coverage through the launch of this like packages in preparation for the upward trending macro conditions because we always believe that more customers and more users will encourage our growth. And we believe that by leveraging our platform's diverse product mix, we will be able to identify the upsell and cross-sell opportunities faster in the future and thereby increasing the ARPU and gaining growth momentum. So to answer your question, this is our long-term strategy, by leveraging customer segmentation, we can dig in deeper needs of our key customers and also expanding our user coverage. Thank you. We can now take another question, operator?

[Operator Instructions] We will take our next question. Caller, please go ahead.

[Interpreted] First, in the past few months, there are a lot of graduates entering the market looking for a job, and we've seen our platform had a really nice growth in the individual user side. But at the same time, the enterprise hiring demand is gradually recovering. So just wondering the new supply and demand relationship how will that affect the enterprises hiring efficiency, paying willingness as well as the marketing expenses on our platform? And secondly, just on the expense and margin side, as we continue to do more in the cost control, how should we think about the cost trend as well as the margin trend in the second half of the year.

[Interpreted] So thank you for your question. Indeed, the growth of individual users in the first half of the year was very encouraging, with a year-on-year increase of 17% in the number of newly registered users on our platform, especially the year-on-year growth of newly registered users among college students remain about 30%. And the year-on-year growth of newly registered users from national top universities exceeded 45%. The drop sick in demand of overseas students who was also very strong, with a year-on-year growth of DAU above 34% in the first half of the year. And this can be attributed to our continuous promotion of the rejuvenization of our branding match, optimization of customer acquisition channels and our efforts in supporting the government to help with youth employment. But as you mentioned, the recovery of the enterprise recruitment demand is still quite slow. In the first half of the year, the total number of new job postings released by enterprises decreased by 7.6% year-on-year, but the number of job seekers reached by each enterprise increased by 7.3% year-on-year. And this shows that our user stickiness on the platform have increased but it also reflects that the decision-making process for hiring is more cautious and slow and the number of candidates being viewed and considered is increasing. So in this situation, enterprises have higher requirements for the accurate matching capability and the quality of talent pool of the recruitment platforms. So this year, large enterprises have been relatively active in recruiting students, which is also reflected in the growth of our campus recruitment business. But overall, enterprise demand for recruitment and wellness to pay, especially for white collar and gold collar social recruitment is still quite slow and still needs more support from the micro recovery. And this is my answer to your question. Tim will address the question related to the marketing expenses and the second question.

[Interpreted] Okay. So regarding expenses, we have put a lot of efforts into cost reduction and efficiency improvement lately, which will translate into expense savings in the second half of this year and also next year since it's recurring. For the full year 2023, we expect to optimize our sales and marketing expenses by 10% to 15% versus last year. The savings will mainly be driven by narrow branding incentives. The marketing expenses relating to user traffic and operation will remain flat or slightly higher and the growth of our 2C business will also lead to an increase in online marketing expenses but we will focus more on the accuracy and efficiency of user acquisitions. The sales personnel expenses will probably depend on our actual business recovery and it will be adjusted in a timely manner. And in terms of our G&A expenses, we have negotiated with our suppliers in the past 6 months to lower our main fixed costs, such as improving the utilization of office space and reducing rental expenses. These improvements will be more visible in the financial terms next year. And in the second half of this year, we were considering making certain adjustments to functional positions based on business needs to improve the overall efficiency of the middle and back office. And as for R&D expenses, they are still nearly compress our personnel expenses. And we have done a lot of optimization in terms of our existing business, but because there are still new business that needs R&D investments. So the overall R&D expenses is relatively stable. And on top of that, we are also exploring more cost saving opportunities in areas such as data processing and storage and also cloud service. So besides cost and expenses, our group's profit margin was also mainly determined by our top line performance. Now we don't have a good projection of our full year profit margin. But we do believe that with the gradual recovery of the revenue and optimization of our cost expense, our profit margin will also gradually in the second half of the year and also in the next 2 years. Okay. Thank you for your question. Operator, we can open another question.

[Operator Instructions] And we will take our next question. Caller, please go ahead.

It's my honor to have this opportunity to raise my questions. So the first one is about the recent trends. We see that the decline of job posts on the company's platform since narrowed in Q2. So does this trend continue in the third quarter? And how is the growth of job posts in July and by now in August? The second question is about the top line. We know that the growth of revenue faced some lagging impact from the decline of subscription last year. In terms of cash income post the performance in Q2 and is this somewhere better than that of the report revenue?

[Interpreted] So regarding the number of new job postings, we have shared relevant information before. In the first half of the year, there were significant differences in the recovery of new job postings on a monthly basis, but the trend is still relatively clear when viewed on a quarterly basis. In the first quarter, the number of new job postings decreased by double digits compared to the same period last year, while in the second quarter, it was basically flat compared to last year. However, considering the impact of the low base cost by the pandemic in the second quarter of last year, the trend of new job postings in the second quarter cannot fully represent a recovered market demand. And entering July, we saw a stable total number of new job postings on our platform, slightly lower than last year, but with a higher growth rate compared to June. The number of new job postings in primary industries such as consumer goods, advertising and media, energy and chemical, et cetera, they performed well with growth on a year-on-year basis. However, some industries with a larger employment capacity such as Real Estate and Internet have not fully recovered in terms of new job postings, which also reflects the uneven recovery of recruitment demand across industries. And as we are still in August, more information will be further discussed later. So regarding cash balance at this point, our business recovery is basically in line with the trend of sequential improvement that we expected at the beginning of the year. I would also like to take this opportunity to share with you our cash billings for the first half of the year. In the first quarter, there was a double-digit decrease in cash billings for both our group and our recruitment business, with the recruitment business performing better than the whole group. And in the second quarter, there were improvements in cash flowing for both narrowing down to mid-single-digit decreases. Based on the current recovery momentum, we expect cash billings in the second half of the year continue to improve, but there are still challenges in the third quarter. So the degree of improvement mainly depends on the recovery of the macro-economy and enterprise confidence level and the execution of many policies in the second half of the year. According to the current situation, our group's annual cash billings are expected to slightly decline or remain flat. Okay. Thank you, everyone, and this concludes our conference call today. And if you have any further inquiries, please do not hesitate to contact our IR team through e-mail ir.liepin.com. And thanks again for your time. See you next quarter.

This concludes today's call. Thank you for your participation and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]