Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Good day, and welcome to the Tongdao Liepin Group 2024 Q3 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rick Dai. Please go ahead.

[Foreign Language]

Hi, everyone. Thank you for joining us today's conference call to discuss our release for the third quarter 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 the 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 as statements -- and based on management's current expectations and current market and operating conditions and related 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 and achievements to differ materially from those in 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 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.

[Foreign Language]

[Interpreted] Hello, everyone. Welcome to Tongdao Liepin Group's earnings release conference call for the third quarter of 2024. Thank you all for your continuous attention and support. This quarter, the recruitment market continued the overall trend from the first half of the year with mid-to-high end recruitment market still under pressure. Our group achieved a revenue of CNY 503 million in the third quarter, a year-on-year decrease of 10%. In response to the current market environment, on the one hand, we actively satisfy the recruitment demand of new quality productive forces in the new era, and on the other hand, we continue to implement cost reduction and efficiency improvement strategies, enhancing operational efficiency through organizational restructuring and optimization of marketing strategies. Based on this, our group's gross margin continued to rebound in the third quarter of this year with non-GAAP operating profit rebounding to CNY 85 million, a year-on-year increase of 28.3%. Non-GAAP net profit attributable to equity shareholders was CNY 56.2 million, a year-on-year increase of 13.8%, and profit has achieved a year-on-year rebound trend for 2 consecutive quarters. According to data from our platform, the overall new job posting in [indiscernible] following trends are worth noting from a structural perspective. Firstly, looking at cities, the first tier and new first tier cities are still relatively strong in terms of talent demand. In addition to Shanghai remaining the top city for new job postings, we have seen active recruitment demand in cities such as Hangzhou, Suzhou and Chengdu. From the industry perspective, in the third quarter, industries such as electronics and communications, semiconductors, and new energy vehicles saw a year-on-year growth in new job postings. At the same time, industries like logistics, warehousing and home appliance also experienced a rise in new job postings, stimulated by the policies promoting large-scale equipment renewal and trading of consumer goods. Moreover, in new job postings of this year, companies with the high-tech labor accounted for more than 55%, especially with a stronger demand of talent in areas such as technological innovation and digital transformation, logistics and supply chain efficiency, and medical and biotech knowledge. This further strengthened our determination to actively expand high-quality corporate clients in emerging industries and new quality productive forces in line with economic structure and industrial adjustment trends. As of the third quarter, the number of registered business users on our platform have reached 1.4 million, a 10.9% increase compared to the same period last year. This year, we have adopted diversified sales strategies for different industries and types of clients. For industries with upward recruitment trends, we increased user coverage through high-quality talent resources, differentiated product positioning and rich product metrics, exploring upselling and cross-selling opportunities. At the same time, we have been attracting small and medium-sized customers with limited budgets through lightweight online packages, thereby reducing the entry barrier for purchases and acquiring potential high-quality customers. For the traditional advantageous industries on the Liepin platform such as the Internet, real estate and finance, with our professional recruitment service capability and stable customer relationship, we also captured changes in the industry's recruitment demand to enhance the lifetime value of customers on our platform. At the end of September, the government released a set of fiscal monetary and key industry stimulus policies. We also look forward to the gradual transmission of the policy effects, which will help to restore corporate recruitment confidence. This will drive the total recruitment demand in our existing advantages in industries and the newly expanded cutting-edge fields to stabilize and rebound. In the third quarter, we continued to embrace advanced technology and focus on product innovation, and we implemented a strategy focusing on upgrading product interaction, upgrading business strategies and upgrading services to enhance the product experience for our mid-to-high end recruitment service customers. To better serve our diverse user base, in the third quarter, we not only upgraded the product interaction method of Liepin Pro, but also developed the HarmonyOS version, which will be launched later, achieving a high proportion of code commonality among the 3 mainstream operating systems in the current market. This will form a long-term and powerful support for improving our group's R&D efficiency, reducing development and maintenance costs. At the same time, based on the AI+ Service product [indiscernible], we deeply integrate algorithm models with the manual services and try to launch more cost-effective innovative products to significantly improve the delivery efficiency of intelligent matching services. AI intelligent interviewer, Doris, was also upgraded in this quarter with the interactivity of the interview and the personalization of smart follow-up questions continuously improving. At the same time, the consistency between the Doris scoring system and the senior experts has reached over 95%. Currently, Doris has covered nearly 1,000 enterprise users, and this product is a strong lever for us to expand into more industries and reach out to blue-collar and red-collar job seekers. In addition, I'm pleased to share a good news that our self-developed specialized large language model has been registered with the National Cyberspace Administration. This also represents a more solid step for us in applying artificial intelligence technology in the field of human resources. In the third quarter, our talent development services achieved a total revenue of CNY 76.8 million, a year-on-year increase of 23.7%, mainly due to the continuous stabilization of online professional training business in Liepin's psychology business, promoting the revenue of talent development services to maintain 4 consecutive quarters of growth. As of the third quarter, number of registered individual users reached 103 million, a year-on-year increase of 12.2%. At the same time, despite a reduction in marketing campaign this year, our platform's user activity still showed an upward trend this quarter with average month active user growth of 11.5% year-on-year. Among them, young people are still highly active. And in the current recruitment market, people aged 20 to 35 are still the most active in applications, which is related to this part of the population being in the golden period of career development and exploration. In terms of industry choice, industries such as machinery and manufacturing and automobiles have become more appealing to graduates. And more and more high-caliber talents have flocked to strategic emerging industries such as the electronics, semiconductor and integrated circuit industry against the backdrop of the development of new quality productivity, which is the employment hiring for overseas returnees this year. However, on the other hand, we have also observed that due to the overall market reduction in new positions, most people, who are already in the job, care more about career stability and are still more cautious about job changes. In terms of headhunters, as of the third quarter of this year, the number of verified headhunters reached 210,000, which is relatively stable overall. This year, the release of job positions in enterprises is still more cautious, and higher requirements for talent quality have been proposed. Thus, the headhunting market still faces significant pressure. Against this backdrop, our Duolie RCN platform provides free SaaS to and an AI digital assistant for headhunting companies, helping them improve management efficiency, save operating costs and increase personnel efficiency. At the same time, by expanding market volume to the recruiting corporation network, it provides a greater possibility for every headhunting firm to huddle together to obtain additional benefits. At present, the RCN business has been officially launched for a year. And from the results, we have received more and more recognition from headhunting firms. As of the end of the third quarter, the proportion of headhunting companies that have participated in cooperation in Duolie RCN network has increased 5 percentage points to 90% and the number of positions in operation has nearly 90,000 covering the Internet, automobile, machinery, manufacturing, healthcare, energy and other new quality productivity industry. Additionally, this year, we have focused on promoting the integration of Duolie RCN with the group's internal product delivery system. This integration has expanded and refined the customer acquisition channels, and the unified operation system is anticipated to boost management efficiency, thereby releasing capacity for saving in management costs. As an innovative business of the group, Duolie RCN has continued to gain in-depth insights into the operating rules and the business needs of headhunters, while maintaining stable operations, and has enriched the platform's product offerings, thereby helping to continuously improve the operating efficiency of headhunting firms. The current recruitment market is still full of challenges. In the face of industry cycle pressure, we will continue to focus on optimizing organizational structure and improving operational efficiency. We believe and we seen that the application and investment in AI technology have been very helpful in improving our internal organizational efficiency, which will also help us continue to implement cost saving and efficiency-enhancing strategies and release potential vitality. At the same time, we will continue to spend more efforts to deeply research in the recruitment market, actively grasp the industry opportunities in the new era and strengthen our differentiated competitive advantages in the market. Around product innovation and professional services, we will deepen our service efforts in industries related to new quality productive products and actively explore new development opportunities in the recruitment market, especially under the [indiscernible] of the current series of incremental policies, we will capture market signals with a more sensitive state and be ready for the recovery of the mid-to-high end talent recruitment industry at any time. That concludes my prepared remarks for today. Next, our CFO, Tim, will discuss more about our financial situation for third quarter of 2024.

[Interpreted] Thank you, Rick, and thank you, everyone, for joining our earnings release conference call. In the first 3 quarters of 2024, the recovery of the mid-to-high end recruitment demand has been relatively slow. During this period, we have expanded our customer coverage and captured some incremental markets through adjustments in our product sales strategy and launch of innovative AI products. However, the overall downward trend of the market continued to pose certain challenges to our business. And the group's overall cash billings in the third quarter are still under pressure. Nevertheless, by enhancing internal operational efficiency and optimizing organizational structure in third quarter, we have achieved cost reduction and efficiency enhancement, which is well reflected. And the profit side has shown a recovery trend for the second consecutive quarter. Looking at the financial results, the group's total revenue for the third quarter of 2024 was CNY 503 million, a year-on-year decrease of 10%. Among this, the revenue generated from the talent recruitment and other human resource services provided to business customers in the third quarter was CNY 426 million, a year-on-year decrease of 14.3%. However, the talent development services provided to individual users continued to rise with the revenue for this part in the third quarter reaching CNY 76.8 million, a year-on-year increase of 23.7%, thanks to the expansion of customer acquisition channels and the refined operation in the third quarter, as well as the launch of a variety of psychological consulting courses. Our online certification training business maintained a good growth, which greatly drove the increase in the group's overall talent development services revenue. We will continue to explore product diversification and increase cross-selling and improve the lifetime value of customers. Our gross margin for the quarter stood at 76.6%, up 0.6 percentage points versus the same period last year. The improvement mainly comes from the control of the gross margin of project-based products, as well as cost reduction and efficiency enhancement attached to base period. The improvement in the gross margin in third quarter narrowed compared to the previous second quarter, but it has approached the level of the same period in 2022. Looking this year, the gross margin level will maintain an upward trend. In the third quarter, the group continued to seek opportunities for cost reduction and efficiency enhancement, strictly controlling various expenses. Our overall operating expenses for the quarter were CNY 356 million, a year-on-year decrease of 14.9%. Among this, the sales and marketing expenses saw a year-on-year reduction of 21.2%, amounting to CNY 193 million. The S&M expense ratio for the quarter was 38.5%, a decrease of 5.4 percentage points year-on-year. Considering the supply and demand situation in the mid-to-high end recruitment market, we continue the budget control strategy, established at the beginning of the year, and strengthened the refined management of customer acquisition channels to ensure the health of the platform. At the same time, we made adjustments to our sales team structure in third quarter to improve professional service capabilities and continuously optimize the efficiency of sales personnel. Our group's research and development expenses in the third quarter were CNY 70.2 million, a year-on-year decrease of 21.3%. The R&D expense ratio was 14%, a decrease of 2 percentage points versus the same period last year, although certain R&D investments are still required for businesses such as the Duolie RCN, the intelligent interviewer product and the development of new features within Liepin Pro. Thanks to our in-depth use of cutting-edge technologies like AI, as well as continuous iteration in the underlying capabilities of R&D, there has been an improvement in R&D efficiency. This will also create more room for cost reduction for the company in the coming year. Lastly, in third quarter, the G&A expenses amount to CNY 92.7 million, a year-on-year increase of 10.4%. This increase is primarily due to onetime costs associated with the organizational restructuring of our group sales and R&D teams. After excluding the onetime compensation, the G&A expenses saw a significant year-on-year decrease in the third quarter. As the organizational structure continues to be optimized, management's efforts will be further unleashed, laying the foundation for improved management efficiency and reduction in the expenses ratio in the future. Taking into account all the factors under the in-depth implementation of cost reduction and efficiency enhancement in the third quarter, the company's operating profit and net profit achieved significant growth for the second consecutive quarter, reaching CNY 74.8 million and CNY 60 million, respectively, with a year-on-year increase of 53.1% and 48.5%. The net profit attributable to equity shareholders was CNY 46 million, a year-on-year increase of 43.6%. The non-GAAP operating profit, which added back share-based compensation and amortization of intangible assets resulting from acquisitions, was CNY 85 million with a year-on-year increase of 28.3%. Currently, the demand for the mid-to-high end talent recruitment is still under pressure. As Rick mentioned, we are looking forward to the implementation of a series of economic policies launched in the end of September, which we hope will stimulate the economy and promote the recovery of recruitment demand for mid-to-high end talent. During this period, we will continue to focus on controlling operational and delivery costs. While adhering to product innovation, we will also emphasize improving internal efficiency to unleash operational vitality. Lastly, we sincerely thank all our partners, employees and shareholders for their ongoing support and trust in our company. That concludes my prepared remarks. Thank you. Operator, we can now open the floor for Q&A.

[Operator Instructions]

[Foreign Language] I have 2 questions. The first is, since late September, the government has introduced the stimulus policies to promote economic growth. What is the company's expectation regarding the pace at which these policies will positively impact the recruitment market, particularly the mid-to-high end white-collar segment? Have you seen any positive trends on the platform quarter-to-date such as the growth rate of active enterprises or newly added job postings? The second question is, as we look ahead to 2025, could management share the company's strategic goals? For example, how will the company balance revenue growth, profitability and shareholder returns? Additionally, how will the company optimize the product portfolio and marketing strategies to better capture potential market opportunities?

[Interpreted] Thank you for your question. At the end of September, the government introduced a package of incremental policies, which have positively impacted overall market confidence and improved expectations. However, considering the current and complex international environment, especially the potential impact of future overseas tariffs on China, export manufacturing may still face significant pressure in the next 2 years. Domestically, we also need to continue observing whether key industries can stabilize and whether domestic demand and consumption can gradually improve. Under the combined influence of these factors, we must remain cautious and in a wait-and-see state, as we have observed through our communication with business customers. But compared to the first half of the year, if these policies can be fully implemented, it is possible that enterprises' confidence in the recruitment market will gradually recover in the next 2 years. Looking at platform data, the positive impact of policies on the short-term recruitment market is not yet apparent, and the mid-to-high end recruitment market continues the trend of the first 3 quarters with overall pressure. The total number of recruitment positions on the platform in the first 3 quarters still declined by 6% year-on-year. The number of new job postings is about 70% to 80% of that in 2021 and has not yet returned to a growth trajectory. Currently, only sporadic recoveries are seen such as the industries of electronics, communications, semiconductors and new energy vehicles, which we have mentioned previously. However, industries that have absorbed a large amount of mid-to-high end talent in the past such as real estate, finance and Internet are still in the downward trend for new positions. Although the market environment is challenging, we have actively conducted a lot of market research and business development from the perspective of recruiting companies. The number of verified business users continues to grow, and the number of active companies remains stable overall. Benefiting from the expansion of lightweight packages and emerging industries, our paying business customers have also seen a slight increase. Overall, the current market challenges are still very significant. While maintaining business stability and a healthy platform ecosystem, we are still actively thinking and exploring new opportunities in the market. We also look forward to macro economy improving under the advancement of policies, thereby bringing more development opportunities to the recruitment market. Second question is about strategy, which is a good question and something we have been continuously considering. From the groups perspective, we will continue to adhere to strategy of developing both vertically and horizontally by synergizing our mid-to-high end talent recruitment business such as flexible staffing, online services and online professional certification training. We aim to meet the diversified human resource needs of enterprises and individual users. From the platform's viewpoint, in the core business area of mid-to-high end online recruitment, we will continue to focus on the Platform + SaaS + Service model, leveraging emerging technologies like AI as the entry point for the product innovation and technological upgrades. We aim to provide more efficient job matching products and more cost-efficient talent delivery services to BHC users. However, in general, the mid-to-high end recruitment market is highly correlated with the macro economy, as we have also discussed our thoughts on the recruitment market for the next year. Therefore, our primary focus will still be on the implementation of policies and the transmission of their effects. After witnessing a gradual stabilization in our business operation, we will then consider pursuing growth. At present, we will continue to strictly control costs and expenses to ensure stable profit and healthy cash flow. Before there are clear signs of recovery in the mid-to-high end recruitment market, we will maintain control over our marketing budget by refining the management of existing market channels and leveraging the brand's influence from years of operation. We will ensure the stable growth of both individual and enterprise users' numbers on our platform at low cost. At the same time, we will continue to strengthen the management of product innovation and technology investment, ensuring that new products are clearly commercialized, widely accepted by users and have a good repurchase rate before making larger-scale investment and promotions. And we will achieve a balance and improvement in efficiency front and marketing to product research and development. Finally, regarding shareholder returns, we sincerely thank all shareholders and investors for their continued support and trust. Despite the current challenges faced by the business, the group has shown a recovery in profits for 2 consecutive quarters through the continuous efforts of the entire company. I believe this is a positive signal, and we look forward to this trend continuing to strengthen, which will provide strong support for us to steady and introduce better shareholder return plans. Okay. Next question, please.

[Foreign Language] So I'm from CICC. I have 2 questions. The first one is about cash billing in third quarter. And considering the situation of the job market right now, do you have any forecast for 2025 in terms of revenue and profit? The second question is about expenses. So we see, in third quarter, the selling expense has been dropped sequentially, while the G&A expenses has been increased significantly. So what do you think of the full year expenses ratio? And last quarter, we mentioned that we are doing the lean management in terms of improving the operating efficiency. So do you have any update that you can share with us?

[Interpreted] Thanks for your question. Just as Rick mentioned, the current recruitment market continues the trend observed in the first half of the year, and the overall pressure remains quite evident. Regarding cash billings, the third quarter still saw a double-digit decline compared to the same period last year, and the cash billing from recruitment business showed great pressure than those of the group as a whole. This is mainly due to the enterprises' low confidence and the contraction of recruitment demand as part of cost reduction strategies. However, since the beginning of this year, our view of the overall market has been quite accurate and the overall trend of the business has been within the forecast range we had said before. We have also maintained the guidance for a revenue decrease of about 10% for the whole year without change. Because of this, our business arrangements, product optimization and management actions such as cost reduction and efficiency improvement have been well implemented. As for the recruitment market next year, it mainly depends on the implementation of government stimulus policies since the end of September and speed of business confidence recovery of this. Currently, based on our communication with business customers, most are still in wait-and-see stage regarding whether to increase recruitment. So we remain cautiously optimistic and hope that recovery will gradually stable next year, and we will see the conference in December. And as for guidance on revenue and profit for 2025, we need to further observe the feedback from the corporate customers and market conditions around in the spring festival before sharing more with everyone. Second question is about expenses. So looking at the first 3 quarters of this year, there is still pressure on the demand for -- continue to implement cost reduction and efficiency improvement. These efforts have been positively reflected in the financial data with a 15% year-on-year decrease in the total expenses for a single quarter. And the comprehensive expenses ratio for the first 3 quarters also dropped from 78.9% last year to 75.3%, a decrease of 3.6 percentage points overall. As you mentioned, there is a significant decline in sales and marketing expenses, both quarter-on-quarter and year-on-year, thanks to our refined budget management strategy and the continuous optimization and adjustment of the sales organization structure and cities since the beginning of this year. At the same time, our R&D expenses also showed a noticeable decrease in the third quarter. The increase in G&A expenses, as I mentioned earlier, is mainly due to onetime compensation costs arising from the group's organization restructuring process. Due to the accounting classification adjustments, these costs have all been included in G&A expenses. Excluding the aforementioned onetime costs, the G&A expenses actually decreased year-on-year in the third quarter. Overall, as we have expected, the optimization range of the absolute amount of the 3 expenses for the whole year remain within the range of 10% to 15%, and the optimization of the expenses ratio depends on the top line. Currently, with the guidance for the full year revenue unchanged, the full year operating expense ratio will be less than last year. Regarding the organizational optimization that everyone is concerned about, we are still in the process, mainly focused on the improving efficiency in order to build a team structure more suitable for the current market environment and to stimulate organizational vitality. In general, the current macroeconomic expectations still need continuous verification and stabilization, and we will continue to track the demand of the mid-to-high end recruitment market, adjust personnel strategies in a timely and dynamic manner, and balance revenue generation and cost control. So that concludes our Q&A and conference call today. If you have any further questions, please reach out to our IR team through the e-mail [email protected]. And thanks for your time and participation. Enjoy the weekend.

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