Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Please stand by. Good day and welcome to the Tongdao Liepin Group 2024 Q1 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Xueni Wang. Please go ahead.

Thank you. Hi, everyone. Thank you for joining us on today's conference call to discuss our results for the first quarter of 2024. 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 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 filings with the Hong Kong Stock Exchange. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under law. Please also know that all financial measures are in RMB, unless otherwise stated, and certain financial measures that we use on this call are expressed as a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. I will now turn the call over to our Chairman and CEO, Rick. Please go ahead, sir.

Okay. [Interpreted] Dear investors, good evening and good day. Welcome to Tongdao Liepin Group. First quarter 2024 earnings results conference call. First and foremost, I would like to extend our heartfelt thanks to all the investors for your unwavering [ attention ] and support over the long term. In the first quarter of this year, the group achieved a total revenue of CNY 471 million, a year-on-year decrease of 6.4%, with non-GAAP net profit attributable to equity shareholders of CNY 1.3 billion, turning losses into profit compared to last year. In the first quarter of this year, the real estate-related investments and sales continued to face pressure, and industries such as finance and Internet are still in the cycle of personnel adjustments. Coupled with the relatively late spring festival this year, these factors have all affected the performance of the mid-to-high-end recruitment market at the beginning of the year. Therefore, overall, the demand for mid-to-high-end white-collar recruitment in the first quarter is still relatively weak. The mid-to-high-end positions released by enterprises in the first-tier cities were still mainly fragmented replacement recruitment demand, with a small amount of expansion recruitment demand continuing to shift to non-first-tier cities and basic job categories. Facing a market environment that still poses challenges, we have intensified our research on marketing users and fine-tuned our products and sales strategies. On one hand, we have expanded our diversified sales leads acquisition channels, increased efforts to capture business opportunities from enterprises, and open the incremental market with lightweight packages, these efforts help us to continuously attract more enterprises to join us, promote conversion rate, and enhance platform activity levels. On the other hand, we continue to focus on the recruitment plus AI strategy, constantly innovating product functions and deepening their application on Liepin Pro. Among them, our AI-enabled intent communication product, Super Chat, has been widely used by business users since its launch at the end of last year, achieving promotion from pilot cities to nationwide. So, far, a quarter of our paying customers have tried this product. Super Chat can help enterprises quickly, conveniently, and intelligently obtain the intention of high-quality talent for positions through an AI calling system. At the same time, through the embedded recall strategy, it will also better [ awaken ] existing candidates to return to our platform, driving bilateral activity level. As of the end of the first quarter, our registered business users reached 1.327 million, a year-on-year increase of 12.9%. Registered individual users reached 97.81 million, a year-on-year increase of 7.6%. In addition, the AI video tool, digital interviewer, Doris, which was upgraded and launched in the first quarter, has played a very good complementary role to our existing business. Doris is a self-developed AI interview product based on McClelland's Iceberg model and competency model theory. Combined with the Liepin's years of professional knowledge, practical experience, and precise digital accumulation in the recruitment industry, it can be widely used in various talent selection scenarios such as talent recruitment, probation evaluation, talent assessment, and personnel transfer and promotion. Whether for large enterprises or SMEs, whether for social recruitment or campus recruitment, it's suitable for all scenarios and all groups of people, especially covering students' blue-collar and gray-collar markets that have been difficult to penetrate. By integrating multiple open-source large language models on the market and a [ self-built industrial ] model, we have improved the accuracy and professionalism of products, achieving process, identification of candidates, and efficient product use. Currently, Doris' scoring system has a consistency rate of over 90% with senior interview experts, and intelligent question-asking and multiple follow-up functions have reached the level of senior interview experts' questioning capability, truly achieving a personalized interview experience. At the same time, our all-around intelligent anti-cheating detection system has a high accuracy rate of 95%. Most importantly, it can help enterprises significantly reduce cost and increase the efficiency in the interview process. According to our calculations, the cost of using this product at scale can be controlled to be 1/5 or 1/8 of traditional interviews with an [ onsite rate ] of 85%, and the average time for enterprises to conduct interviews has been reduced to 60% to 70% of what it originally was. From our observations, the market acceptance of online AI interviews is very high, which also provides us with a good opportunity to expand our recruitment business in the industry such as consumer goods, urban services, and manufacturing. Another new initiative of ours, Duolie RCN, has seen more progress in the first quarter. In the first quarter of 2024, the headhunting market was still in the bottoming-out stage. Despite this, we continue to refine and upgrade the Duolie RCN product, attracting more headhunting firms and headhunters to join and close more cooperating cases. As of 31st March 2024, Duolie RCN has covered more than 1,900 headhunters, and more than 77% of the cooperating headhunting firms have participated in order delivery. The number of job positions under the operation has exceeded 550,000. What's worth mentioning is that our exploration in the field of AI has also extended to Duolie RCN products. We are developing a digital feature, which can empower headhunters to intelligently filter resumes, gauge jobseekers' interests, and obtain contact details. This feature significantly reduces the time and cost associated with the research process, enabling headhunters to focus more on matching positions with the right talent. Consequently, this reduces their order delivery time and improves their efficiency. During the internal testing stage, the efficiency of the headhunters' order delivery has been improved by approximately 25% due to this digital assistant. This product will be officially promoted to more headhunting firms, helping headhunters improve efficiency in assisting headhunting firm [ bosses ] in optimizing organizational structures and management processes. This will fundamentally lead to cost savings and revenue enhancement for headhunting firms. In the past 2 years, with the change of [Technical Difficulty] new jobs, we have continuously increased our cooperation with government and state-owned enterprises across different regions to expand business opportunities in line with the trend. In the first quarter, we initiated diversified cooperation models with local governments in cities such as Shanghai, Shenzhen, Hangzhou, and Guizhou. These initiatives included signing strategic cooperation agreements, holding special recruitment fairs, and establishing AI recruitment experience zones to assist local enterprises in attracting talent. In the meantime, we have continued to deepen our cooperation with the Hong Kong region. Our high-end Talent Carnival recruitment event has significantly expanded its reach among enterprises and jobseekers after 1 year of development. This year, the number of participating enterprises on-site exceeded 200, doubling the scale from last year. Among the jobseekers at the event, over 60% had a master's or doctorate degree, and 48% were local jobseekers from Hong Kong and overseas jobseekers. We have seen the brand effect of Liepin rapidly expand in the Hong Kong region, which will continue to accelerate valuable experience for us as we explore the recruitment business internationally in the future. This year continues to present numerous challenges for the mid-to-high-end recruitment market. However, we have observed the national efforts in fiscal, monetary, employment, and industrial policies since the second quarter. These initiatives have established a foundation for stabilizing the employment environment and bolstering the confidence of entrepreneurs. Key industries that represent new quality productive forces, such as information technology, high-end manufacturing, and new energy, have also received strong policy support and promotion. We will closely follow the transformation of the industrial structure, actively capture the mid-to-high-end recruitment demand, and actively explore the deep empowerment of cutting-edge AI technology in the recruitment industry, to enhance the efficiency of talent and position matching. In the short-term environment where we are [ relatively ] under pressure, we will continue to focus on refining our products and optimizing services, consolidating our competitive advantage in our field, while also implementing cost reduction and efficiency improvement strategies to ensure stable operating profit margins and cash flow. And that concludes my prepared remarks for today. Next, our CFO, Tim, will discuss more about our financial situation for the first quarter of 2024.

[Interpreted] Thank you, Rick, and thank you, everyone, for joining our earnings release conference for the first quarter of 2024. The recruitment market at the beginning of 2024 has largely continued the momentum from 2023, with ongoing pressure on mid-to-high-end recruitment demand. Full recovery still needs to gather more steam. Therefore, despite our great efforts in product upgrades, market development, and business innovation, we still face certain pressure in business development, and our cash billings for the first quarter have not yet turned positive. Looking at the financial results, our group's total revenue for the first quarter of 2024 was CNY 471 million, a year-on-year decrease of 6.4%. Among this, the pressure was particularly felt in our talent acquisition and other human resource services provided to our business customers, which saw an 11.2% year-on-year decline to CNY 401 million. On a brighter note, revenue from talent development services for individual users increased by 35.7%, to around CNY 69.2 million. This was largely driven by deep commitment to our psychological counselor training course provided by our online certification training business, and the successful expansion of psychological-related courses. As social awareness of mental health continues to grow, we anticipate this growth trend to persist throughout 2024. Our gross margin for the first quarter stood at 77.6%, up 1.5 percentage points versus the same period last year. The total gross profit was CNY 365 million, a 4.6% decrease year-on-year. This year, we ramped up our focus on profitability across our product lines, implementing strict controls on the gross margin of project-based products. Coupled with cost-saving and efficiency enhancement measures on the personnel side, this dual effect have contributed to a steady increase in our gross profit margin for the quarter. In terms of our operating expenses, our overall operating expenses for this quarter was around CNY 414 million, a year-on-year decrease of 7.7%. More specifically, our sales and marketing expenses saw a 9.3% year-on-year drop to CNY 252 million for the first quarter. This year, we've reduced our overall marketing spending, especially investments in offline advertising, and have focused more on precise online marketing to attract targeted talents and enterprises, enhancing our marketing efficiency. Our sales team remains primed to respond to any market upturn, and we've further enhanced their efficiency with improved internal digital capabilities. But looking forward, we will also make flexible adjustments to our sales force based on the business conditions throughout the year. Our cost-saving and efficiency improvement measures in R&D have also been quite pronounced this year. Our group's R&D expenses for the first quarter was CNY 81.3 million, marking an 8.2% year-on-year decrease. On the one hand, the initial investments in our key innovative products are nearing completion. And on the other hand, the internal technological upgrades have driven personnel efficiency improvements and optimization, leading to a decrease in R&D expenses. But in the meantime, we will continue to pay close attention to our research and exploration in new technologies and new products to maintain our competitiveness in the industry. Lastly, in terms of G&A expenses, our total G&A expenses for the first quarter of 2024 were CNY 80.24 million, a slight year-on-year decrease of 1.7%. In the first quarter, we continued strict [ and refined ] control on operations, resulting in reduction in personnel expenses, office expenses, and other management expenses. However, the payment terms for closed-loop offline businesses have been extended due to the market environment. According to accounting standards, we need to make a provision for some accounts receivables as bad debt, offsetting most of the cost optimization benefits brought by operations. In terms of profits, despite the ongoing revenue pressures, we have achieved an optimization of costs and expenses this quarter. This was a result of our proactive adjustments of our marketing investment strategy and steadfast execution of various cost-saving and efficiency improvement measures. Our net loss for the quarter was narrowed compared to the same quarter last year and amounted to CNY 13.2 million, with the net loss attributable to equity shareholders reducing to CNY 10.1 million. The non-GAAP net profit attributable to equity shareholders turned positive, reaching CNY 1.3 million. The market environment has remained challenging this year, and our business in cash flow has not yet returned to a stable state. Beyond the efforts we will make on the business front, as Rick just mentioned earlier, we will also be more rigorous in implementing cost saving and efficiency improvement strategies this year. This includes cutting expenses with lower ROI, streamlining management and business systems, and strengthening internal management. At the same time, we will continue to invest decisively, but with discipline, in areas that contribute to our group's long-term development, further solidifying Liepin's competitive edge and market expansion capabilities. We look forward to serving more high-quality enterprises and individuals as the mid-to-high-end recruit market demand continues to recover to a stable stage. And this concludes my remarks today. Thank you. And operator, we are ready to take questions. Thank you.

[Operator Instructions] We will go first to CICC.

[Interpreted] I will translate my question. So firstly, for our RCN product, how do we expect [ business sale ] this year, and how will the average take rate be? And the second question is, for the long run, could you give us more color on how the AI technology will reshape our service and our product ecology as a whole?

[Interpreted] Okay. I'll take the first 1 regarding the financials about RCN. So we launched the Duolie RCN in the third quarter of last year, and it has attracted widespread attention in the headhunting industry. According to the data as of May this year, the R-CNN platform has covered more than 2,000 headhunters and 60% of offers are closed within 1.5 months, indicating that the delivery efficiency of the consultants on the platform is quite good. So based on this, we expect the GMV of Duolie RCN in 2024 to be between CNY 200 million and CNY 300 million with around 3,000 headhunters covered. So regarding the revenue split, as I shared with you before, RCN mainly adopts 2 revenue models: 1 is the collaborative network fee, which is commission-based on the GMV of the headhunting firms at a rate of 1% to 5%. The second is a service fee based on how much Liepin has participated in the case, with a rate varying from 30% to 70%. So, currently, the participant rate of Liepin in corporations is around 60%, and we are still continuously optimizing the RCN products. With the ongoing efforts in our product enhancement, [ rule ] refinement and operational efficiency improvements, we believe more headhunting firms will join the platform in the future. And this will also assist these headhunting firms in enhancing their efficiency and also drive further growth in our platform, GMV, and also the rate of participation.

[Interpreted] So I'll take your second question regarding the AI application. Since the emergence of the generative AI, we have placed great emphasis on empowering the recruitment industry through these large-language models and also continue to explore specific application themes. We have leveraged the capability of large-language models on our platform to gradually enhance features such as natural language search, intelligent intention communication, and others, including the previously mentioned Super Chat, all of which has been implemented and are gradually being commercialized. And also we are exploring AI applications to serve individual users, including resume optimization, job recommendations, and career coaching services. All of those are currently in the beta phase. So, I have also introduced the application of AI in our new initiatives. So this year we launched Doris, an intelligent interviewer, and the digital assistant products on the Duolie RCN platform, both of which utilize AI technology to help recruiters and headhunting firms improve efficiency. And also, in addition to integrating AI to our products, we are also using AI tools to empower ourselves and R&D teams to improve their efficiencies. It is also worth mentioning that, as the exclusive human resource service provider, we hosted the 2024 Global Developer Recruitment Conference, which was held at the Global Developer Conference in Shanghai this year, helping more enterprises and [indiscernible] developers achieve process matches through online and offline channels. The emergence of AI will bring changes to enterprises' organizational relationships, team sizes, and capability development. And this transformation may lead to a decline in some existing markets and the rise of some incremental ones. So, for example, the existing market that relies on manual labor services will become smaller, while the incremental market driven by technology and human resource management will become larger. So, accordingly, our mid-to-long-term product and service ecosystem will continue to involve the changing trend of this enterprise needs in the new era of technological innovation by leveraging the comprehensive capabilities of large-language model and the expertise of our recruitment industry models. We will also help enterprises to implement HR-related strategic goals and facilitate their cost reduction and efficiency enhancement. So this is our answer to your question. And operator, we can open for another question.

We will go next to Citi.

[Interpreted] I will translate it myself. I have 2 questions. The first is about the current competitive landscape on the online recruitment platforms. And the second question is about your global business. Could you share more details about your strategies, about your current overseas business, and which market will you focus on in the future?

[Interpreted] In the past 2 years, with a significant adjustment in the industrial structure and changes in the supply-demand of the talent and job positions, the performance of each segment of the recruitment market has varied greatly and the investment strategies of various companies has also been very different. The recovery of the white-collar sectors has been relatively better for the lower-tier market, with job types also tending towards entry-level and sales and operation positions. And last year there was an explosive growth in the demands for blue-collar urban service industries. And this year blue-collar manufacturing recruitment has also improved. But for us, this part of the market is mainly served by our flexible staffing business. So, in recent years, we have also gradually established service capabilities for some blue-collar positions such as urban service industry. And this year, through this product like AI interviewer Doris, we have also increased our presence in industries such as consumer goods, retail, and manufacturing to gradually entering this incremental market. The situation in the mid-to-high-end recruitment market is somewhat different. With enterprises continuing to emphasize on cost reduction and efficiency enhancement, the demand for mid-to-high-end recruitment are represented by the headhunting market still suppressed. And this situation is expected to last for a while. So, our marketing strategy will still be relatively cautious. Compared to the scale of marketing spending, we will pay more attention to the precision and necessity of marketing, preserving our strength and waiting for the industry to recover. Liepin has been deeply cultivating the mid-to-high-end recruitment industry for more than 10 years. During the downturn of our sector, we still have a unique and hard-to-replicate competitive advantage. We will continue to refine our recruitment products and innovate new business models like RCN, strengthening our position in the mid-to-high-end recruitment market, even amid headwinds, and accelerating the industry's online penetration rate. So, this is my answer to our first question. Your second question is about the oversea market. In recent years, expanding overseas has been a very important direction for Internet industry to explore their growth potential, and we've also had a lot of internal discussion and thoughts on this topic. In 2023, we launched a new overseas brand Liepin in Hong Kong and have established a team there to help enterprises connect with high-quality domestic and international talents, promoting this 2-way talent mobility between the mainland China and Hong Kong, and also our AI interview products, like I just mentioned, Doris, currently supports multiple languages such as Cantonese and English, and we will also launch additional languages in the second quarter to further expand our service scope. So, at the same time, we are also assisting the market demand for such recruitment tools overseas. But, of course, in terms of selecting overseas market and finalizing the specific business models, we are still continuously researching and exploring. And personally, I think we are still in a very relatively early stage. Of course, we will share this with all of you in a timely manner once we have a more defined product and solution.

We will go next to UBS.

[Interpreted] I have 2 questions. The first is, going into second quarter and summer season, what is management's outlook for the recovery trend of mid-to-high-end recruitment industry? And how does management see the impact of this year's upcoming graduation season on the overall recruitment market and the company's business recovery? And the second question is, since this year, we have seen that the overall recruitment industry has a trend of increasing investment in customer acquisition and brand promotion. So, on the expense side, how should we think about the company's operating expenses for this year and also the trend of our margins?

[Interpreted] Since the beginning of this year, the recovery of recruitment demand in the mid-to-high-end segment has been relatively slow, like we just mentioned. We can all feel that this year's peak recruitment season in March and April is not as active as in previous years, only showing patchy recovery. So, from the data on our platform, the growth rate of new job postings in industries such as transportation and trade, film, television and education, and also automotive and machinery manufacturing are relatively flat. And in their emerging popular segments, positions related to AIGC have still maintained a high growth rate. And also looking at the specific job functions, full-stack technology and logistic operations have become the fastest-growing subfunctions so far this year. Like you said, the campus recruitment season is approaching. This year, large enterprises have increased their focus on campus recruitment with an aim of attracting high-quality fresh graduates to reduce overall labor costs. So, we spend we expand our campus recruitment business while ensuring good gross profit margin. At the same time, the AI interviewer Doris launched at the beginning of this year also helps companies to complete batch interviews efficiently, accurately, and also in a cost-effective way. This also gives us a handy tool for expanding our campus recruitment business and entering the blue collar and gray-collar recruitment market. So overall, the campus recruitment only accounts for a relatively low portion of our revenue. Our main source of revenue is still the mid-to-high-end social recruitment business. As mentioned earlier, the recovery in this sector remains quite slow. So based on our actual business performance in the first 5 months, from a prudence perspective, we expect our group's total revenue to decline by about 10% this year. But of course, we have also seen the governments introduce many supporting policies recently. We also hope that these policies can be more quickly transmitted to the real economy, boosting the confidence of entrepreneurs and the recovery of mid-to-high-end recruitment market. When we see more substantial improvements in the business, we will share them with you in a timely manner. So, I'll pass the question about the cost and profit margins to our CFO, Tim.

[Interpreted] After the Spring Festival, we have also noticed that our peers have increased their investment in customer acquisition and brand promotion. But in our primary market, the mid-to-high-end segment, the recovery of demand remains unclear. The supply of talents continues to outpace the supply of positions. So we remain cautious in our investment in customer acquisition and brand promotion. We will make more effective investments when the market demand is stronger. So overall, the absolute amount of our operating expenses this year will be definitely lower compared to last year, and we expect this decline to be roughly in line with the revenue decrease that Rick mentioned earlier. Among them, the largest reduction is in G&A expenses, mainly due to the cost saving and efficiency improvement measures implemented since the second half of last year and some onetime expenses incurred at the end of 2023 that will not occur in 2024. The second-largest decrease in absolute terms is sales and marketing expenses, mainly due to the improved efficiency of sales personnel and reduction of marketing investments. In terms of R&D expenses, we improved the efficiency of expenditure through modular upgrades of internal R&D infrastructures in 2023. Given that there are still ongoing investments in AI and new products, we expect R&D expenses to remain basically flat or slightly decreased in 2024 compared to 2023. This year, we will continue to carry out refined operations, striving for cost reduction and efficiency improvement like last year while meeting the business needs and promoting product innovation. But due to the decline of cash billing and revenue, our profit will still be under pressure. Thank you, everyone. If you have any further inquiries, please do not hesitate to contact our IR team through our email [email protected], and thank you very much for your time today. See you next quarter.

This concludes today's call. Thank you for your participation. You may now disconnect.