Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Good day, and welcome to the Tongdao Liepin Group 2024 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to [ Catherine Chen ]. Please go ahead.

Hi, everyone. Thank you for joining us on today's conference call to discuss our results for the second quarter 2024. The company's financial and operating results were published and were posted on the company's IR website at [email protected]. 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 to 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 made 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 statements as a result of new information, future events or otherwise, expect 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 reconciliations 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.

[Foreign Language]

[Interpreted] Hello, everyone. Welcome to Tongdao Liepin Group earnings release conference call for the first half of 2024. Thank you all for your continued attention and support. In face of ongoing [ display ] of domestic industrial structure adjustment and the uncertainty of the external environment, we have been more cautious in the development of our overall business this year, paying more attention to cost control and efficiency improvements across various business lines. At the same time, we will continue to promote optimization of our Group's organizational structure to achieve comprehensive efficiency improvement in management. In the first half of the year, we achieved a total revenue of CNY 1.02 billion, a year-on-year decrease of 7.2%. Benefiting from strict cost control, the gross profit margin has rebounded to 78.8%, an increase of 2.8 percentage points compared to the [ central row ] last year. In terms of profit, our non-GAAP operating profit was CNY 93.95 million, a year-on-year increase of 100% and the non-GAAP net profit attributable to equity shareholders was CNY 66.61 million, a year-on-year increase of 58.8%. For the second quarter alone, we achieved a revenue of CNY 540 million with a non-GAAP operating profit of CNY 95.43 million, a year-on-year increase of 52%. Now the overall demand in mid- to high-end recruitment market is still closely tied to the recovery of our country's macro economy. This year, in a market environment where the total recruitment demand is still under pressure, we've noticed a more pronounced differentiation in recruitment needs across different industries and types of enterprises. Looking at different sectors, the primary sector like electronics and communications, automotive and high-end manufacturing continued to see steady growth in the second quarter. Secondary industries such as sports and cultural education and live service have more new jobs posting on our platform. Recruitment in finance and real estate remains sluggish, but the year-on-year decline in the new job postings in the Internet sector has noticeably narrowed. In terms of job types, there is a noticeable uptick in demand for manufacturing and technical positions, especially in areas like artificial intelligence and hardware. Back-end IT positions are also showing sign of recovery from a downturn, but the demand for mid- to high-end management positions still remain relatively weak. In terms of characteristics of recruitment demand, the trend of slowing recruitment demand and extended recruitment cycles is still quite obvious. Companies pay more attention to the cost effectiveness of recruitment channels. Additionally, in our communications with enterprises, we found that medium to large enterprises continue to show a high interest in the application of new technologies in recruitment channels. In response to this, we actively addressed the market changes. On one hand, we continue to attract more SME customers through lightweight packages. We also focused on developing key account customers in new first-tier and core second-tier cities around the Greater Bay Area and the Yangtze River Delta region. The aim is to explore incremental phase for mid- to high-end recruitment business in the relatively lower tier markets. On the other hand, we strengthened our professional service capabilities and increased the promotion of AI products like Intelligent Interviewer Doris to deeply explore the diverse needs of medium to large enterprises. This reinforced our depreciation advantages by strengthening our products and services. In the second half of the year, with the peak season for campus recruitment approaching, Doris is expected to take on more interview demands. Since the launch of this product, there has been a promoting effect for us in terms of customer acquisition and adoption by more brand customers. At the 20th China Human Resource Survey Industry Summit and the 10th Asia Pacific Human Resources, Technology and Survey Expo, we were honored with the Smart Technology Application Practice Case award for these applications. Moreover, in cities like Beijing, Shenzhen and Hangzhou, we have already participated in local government recruitment activities and Doris is being implemented in various industry sectors. We will also continue to expand into more nonfirst-tier cities in nonwhite-collar positions, penetrating into fields like urban service industry, blue collar manufacturing industry and medical service industry, et cetera, broadening the scope of our services. This targeted sales and product strategies have helped us gain more business customers since the beginning of the year. By the end of first half of the year, the number of registered business users on our platform have reached 1.37 million, a 12.4% increase compared to the same period last year. The number of paying business customers for the first half of the year reached 63,000 or 5.1% increase year-on-year. In terms of our individual users by the end of the first half of the year, our Group as a whole, including Liepin and Saiyou platforms has surpassed 100 million registered individual users, marking an 11% increase versus last year. Our Liepin [ main ] platform also reached a milestone of 100 million registered individual users in July this year. Despite challenges across various industries, we offer clear transition, coaching, skill enhancement guidance and more job opportunities for professionals within our talent development sector. These efforts make Liepin a more professional choice for talent and a companion in their career growth. Although we significantly reduced our marketing expenses this year, our user engagement has still maintained a good growth with an average MAU growing by 10.3% year-on-year in the second quarter. This is mainly due to the improvement efficiency in acquiring new users brought by refined management of our marketing channels. At the same time, through product and recall strategy innovation, we have reactivated and stimulated a large number of talents, revitalizing the high-quality talent crew, which has also led to more efficient job matching on the platforms, thereby optimizing their user experience. In the first half of the year, our talent development services achieved a total revenue of CNY 160 million, a year-on-year increase of 41%, maintaining growth for 3 consecutive quarters. This is mainly attributed to the continued improvement of our online professional training business. With the approach of intensive examination period and the continuous improvement of operational efficiency, we expect this business to maintain high growth throughout the year. Regarding headhunters, by the end of the first half of the year, the number of verified headhunters on our platform has increased to 219,000 and we now cover 70% to 80% of the best headhunters in the domestic market. These headhunters have maintained a high level of activity on [ stack ] contributing a large number of quality positions and reaching out to candidates by 130 million times within half a year. In addition to continuously strengthening our headhunting ecosystem, we have also made sustained progress in our Recruiting Cooperation Network business. In the first half of this year, despite the ongoing macroeconomic pressures faced by the headhunting industry, our Duolie RCN has provided a broad business base and development opportunities for the headhunting firms within the network through continuously refined product and rich corporation models. As of June 30, 2024, the number of headhunters and headhunting firms within our Duolie RCN Network have increased continuously, and the ratio of firms participating in corporation have also seen significant improvements. In the second half of the year, we will further deepen the application of large models and integrate resource of the operation system related to headhunter participation and the delivery with Duolie RCN at the core. We will improve internal efficiency and empower other parties with smoother process management, thereby wisely exploring market demand through technological advantages and further expanding the breadth and depth of headhunting-related service. In the critical moment where our nation is facing multiple external disturbances and internal transformation, we have anticipated that the mid- to high-end recruitment market will continue to experience certain pressures in the short term. However, this challenge also presents us with a valuable opportunity to enhance our internal strength and market shift this year to cope with the structural changes in corporate recruitment needs. Liepin Group will continue to employ diversified sales strategies by optimizing organizational structures and [ fortifying ] services, we focus on the in-depth development of key account customers and extensive coverage of SME businesses. At the same time, we will continuously renew recruitment products that offer highest value for money and more noticeable recruitment efforts to strengthen our professional service advantages in the mid- to high-end online recruitment market, thereby expanding into broader business view. Additionally, our exploration of AI technology is ongoing with a focus on continuous testing in practical industry applications. We firmly believe that AI has a profound impact on human resource services. We also believe that Liepin will keep pace with the time in this field and not fall behind. Moreover, we are committed to continuous investments in the core area of talent assessment to maintain a leading position. Lastly, in terms of our Group's internal operations, cost reduction and efficiency enhancement will always be at the core of this year business decisions and arrangements. This year, we have significantly reduced marketing expenditures and restructured our business lines to achieve more refined team management. Meanwhile, our R&D and other need to backstage support team are also continuously improving efficiency to build a more streamlined organizational structure. Looking at the mid to long term, we still firmly believe that the total volume of our national recruitment market remains very broad. In different economic environments, more business models that feed the current market conditions will emerge, while cautiously preserving our strength, we will also continue to explore and innovate seizing new development opportunities in the changing market and continuously creating more value for the industry end users. That concludes my prepared remarks for today. Next, our CFO, [ Tim ], will discuss more about our financial situation for the second quarter of 2024.

[Foreign Language]

[Interpreted] Thank you, Rick, and thank you, everyone, for joining our earnings release conference call for the second quarter of 2024. The recovery of the employment market in the first half of 2024 continues to be divergent with the mid- to high-end recruitment market still facing pressure. So looking at our business, although we've been continuously innovating our models, integrating our products and expanding our customer base effectively capturing some of the incremental market, we haven't been able to fully compensate for the decline in our original mid- to high-end recruitment business. This has led to a continued downward trend in cash billings in the second quarter. However, we can see that the Group's overall cost savings and efficiency enhancing measures have been well reflected in this quarter, leading to stable growth in profit. First, looking at the top line. Liepin Group's overall revenue for the second quarter of 2024 was CNY 544 million, which is a 7.8% decrease compared to the same period last year. The main reason for this decline attributed to the talent acquisition and other HR services for business customers, where the revenue fell by 14.1% year-on-year to CNY 452 million. On the other hand, we are pleased to see that the revenue from the talent development services we provided to individual users has maintained an upward trend with a 44.5% increase in the second quarter, reaching approximately CNY 91.3 million. Just like in the first quarter, this growth is mainly due to the in-depth development of our online certification training business in the field of psychological counsellor training services, as well as the successful expansion of our general technological courses, we will also further expand the types of courses in this field, enhance cross-selling to increase the lifetime value of customers and continue the growth momentum. In the second quarter, our Group achieved a gross margin of 78.5%, which is a 4 percentage point increase compared to same period last year. The total gross profit was CNY 427 million, a 2.9% decrease year-on-year. This year, on the one hand, we have strengthened the control of the gross margin of project-based products. And on the other hand, we have also taken certain cost reduction and efficiency improvement measures in the delivery team. These 2 factors have led to a steady and increased level of gross profit for this quarter. In the second quarter, we also achieved a good control over our operational expenses, amounting to CNY 372 million, up 14.8% decrease year-on-year. The sales and marketing expenses saw a drop of 17.6% amounting to an absolute value [Technical Difficulty]. We significantly reduced the budget related to marketing since the beginning of this year, while maintaining a healthy platform ecosystem, especially the costs associated with offline advertising. At the same time, we have made more flexible adjustments in the sales staff in the second quarter, streamlining the organizational structure [Technical Difficulty] optimizing personnel, making our organization more suite to the current recruitment market environment. The reduction in G&A expenses in the second quarter was also quite significant with an 18.1% decrease compared to the same period in 2023, bringing our total G&A expenses down to CNY 62.25 million. This decrease is mainly due to further optimization of our offline business management system. As the organizational structure becomes clearer and the business team are streamlined, significant management resources have been conserved laying the foundation for optimizing the efficiency of our management team. In the second half of this year, we expect the G&A expenses to see further reduction. Lastly, our R&D expenses for the second quarter of this year were approximately CNY 79.21 million, a 2.1% decrease compared to the same period in 2023, which is in line with our expectation of a slight decrease in the absolute value of R&D expense for the first full year. In the first half of this year, we still have some investments in the development of new products and features, such as Duolie RNC, the intelligent interviewer product and upgraded features within Liepin Pro. We expect that in the second half of the year, as these products measure and mature and underlying technologies continue to upgrade driving improvements in R&D efficiency, we will be able to further optimize the allocation and the focus of our R&D expenses, achieving deeper cost reduction and efficiency enhancement. Taking into account all the factors, we achieved a solid growth in both operating profit and net profit for the second quarter, reaching CNY 85.55 million and CNY 79.23 million, respectfully, which marks an increase of 73.3% and 29.6% year-on-year. The net profit attributed to equity shareholders is CNY 65.43 million, up by 9.4% compared to the same period last year. The non-GAAP operating profit, which adds back to the share composition and amortization and intangible assets, stands at CNY 95.43 million. In terms of cash flow, affected by the decline in our Group's cash balance and the seasonal mismatch of cash outflows on expenses, our net cash outflow from operating activities was around CNY 120 million in the first half of this year, which has narrowed compared to same period last year. In a still challenging market environment, we sincerely appreciate the ongoing support and trust from our partners, employees and shareholders. In July of this year, our founder, Chairman and CEO, Mr. Dai Kebin significantly increased his holdings by 3.44% with the consideration being approximately HKD 43 million. After this transaction, his director shareholding has risen to 26.2% and his voting rights have increased to 36.4%. This substantial increase in holdings further demonstrates the Board's and management's unwavering confidence in the company's future development. This concludes my prepared remarks. Operator, we can now open the floor to Q&A.

[Operator Instructions] We'll take our first question from CICC.

[Foreign Language] Seeing a significant rebound of the company's profit margin in second quarter, I guess that the company may have optimized cost and operating expense. Could you provide an outlook for the [ 2 ] years profit trend? And how long can this optimization be [ lasting ]?

[Foreign Language]

[Interpreted] So as we mentioned, the recovery of mid to high recruitment demand has been relatively slow this year. While meeting business needs, we are firmly committed to cost reduction and efficiency enhancement. These measures have been well reflected in our expenses in the second quarter with a year-on-year decrease of 11.2% in the total operating expenses in the first half of the year. And it is expected that this trend will continue throughout the year with an optimization of 10% to 15% of our total operating expenses. And among them, the largest expected annual decrease is in our G&A expenses, mainly due to streamlining of organizational structure and the completion of some onetime expenses in 2023. So we are looking forward to seeing more savings in the second half of the year. And next is the sales and marketing expense, mainly due to significant control over marketing and brand investments as well as organizational optimization and efficiency improvements of the sales team. And in terms of R&D expenses, the absolute amount is expected to remain stable or slightly decreased on a year-on-year basis for the full year. So basically, we are seeing some improvements in the first half of the year, and we will have some measures in the second half of the year. And over the past 2 years, we have continuously explored modular upgrades and internal use of AI tools, which have laid a good foundation for us. So looking forward, on the premise of meeting business needs, we will take further management measures. So we expect to see a more visible reduction in our R&D expenses next year. And so many of you are also very concerned about the [indiscernible] margins due to all those cost savings and efficiency improvement measures, but profits are also contingent on revenue recovery. So based on the actual operation of our business in the first half of the year, the revenue for the full year is expected to decline by about 10%, consistent with our expectations in the first quarter. So based on this, the improvement in gross margin for the full year is expected to be consistent with the first half of the year, and the non-GAAP OP margin is expected to improve compared to last year, but the extent is still uncertain. It depends on the time when we take measures in the second half of the year, but we will keep you updated based on our actual business operations. Overall, the current macroeconomic outlook is still under pressure. In a similar macro condition, we will continue to look for opportunities to reduce costs and improve efficiency in combination with business development next year.

That concludes my answer to the question, and thanks for your questions, and we can open up for the next question.

Next, we will go to UBS.

[Foreign Language] I have 2 questions. This is on the revenue front. The company has made positive progress in its innovative business. So could you please provide an overview of the GMV and revenue contribution of RCN in this quarter as well as your outlook on the future development of this business. And the second is we noticed that gross margin has increased meaningfully year-on-year this quarter. So what are the main reasons? And also, how should we think about the future trend of gross margin? What are the key drivers that could impact it?

[Foreign Language]

[Interpreted] And a lot of people are very concerned about our RCN business. Currently, the headhunting market is still under considerable pressure facing the dual challenges of reduced recruitment demand for mid to high-end talent as companies seek cost reduction and efficiency enhancement and the increased difficulty in closing bills due to higher talent requirements. Overall, the high-quality market is still shrinking this year, but the rate of decline is smaller compared to last year. So against this backdrop, Duolie RCN with its full process management SaaS platform, AI digital system and various corporation models has provided a certain pace in employment opportunities for headhunting firms on our platform and has received recognition and support from many headhunting firms. So since last September, the number of headhunters and headhunting firms joining Duolie RCN Network has continued to increase with more than 65,000 positions in operation. In the current challenging headhunting market, this business development is very healthy and hard earned, and we are still very confident in achieving the annual GMV target for the year. In the second half of the year, we will continue to explore the application of AI technology in the headhunting industry and select certain verticals and positions for testing. We believe that the application of AI technology will have a profound impact on the traditional more offline oriented headhunting industry. And we also believe that Liepin with over a decade of industry know-how and advanced technological capability can keep up with the trend and maintain a leading position in the field of talent assessments. In addition, in terms of commercialization, we are still working on it and continuously exploring more opportunities, especially in the application and monetization of AI technology. We will share more details with you when we have more progress. That's my answer.

[Foreign Language]

[Interpreted] So as you can see, the gross margin has shown a good improvement in the first half of the year. The improvement was mainly due to 2 factors. First, the proportion of high-margin online products has increased versus last year, which naturally brings up the margin due to changes in the product mix. And second, this year, we have focused on controlling the gross margin of project-based products. paying close attention to the gross margin in project budget application and also actual execution, controlling unnecessary cost expenditures and enhancing personnel efficiency of project teams. We will continue these efforts in the second half of the year, and we expect the gross margin for the full year to show a certain increase compared to last year. So theoretically, in terms of our industry, the factors affecting the gross margin are mainly the macro environment and product structure. Firstly, when the macro environment is stable and improving, the market recruitment demand increases, the gross margin of project-based products will naturally improve and vice versa. This is because some fixed costs in project-based products are more spread out when demand increases. And secondly, the product structure strategy also affects the overall gross margin level. For example, promoting high-margin online recommend products and strictly controlling the gross margin of project-based products can both contribute to increasing the Group's overall gross profit margin. And lastly, there's internal efficiency improvements that we have been always achieving, which is the direction we've been continuously considering and promoting recent years and especially using new technologies like AI to replace some fixed costs and to improve the efficiency and quality of our personnel. We will continue to deeply implement related strategies to further ensure the stability of our gross margin. Okay. This concludes our conference call today. If you have any further inquiries, please do not hesitate to contact our IR team through e-mail, [email protected]. Thank you for your time today. See you next quarter.

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]