Tongdao Liepin Group (6100) Earnings Call Transcript & Summary

Good day, and welcome to the Tongdao Liepin Group 2024 Q4 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.

Well, first, I will introduce. Hello, everyone. Thank you for joining us today's conference call to discuss our results for fourth quarter and full year 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 the safe harbor provisions. Such statements are 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 facts, 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, performances and 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 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 the 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.

[Interpreted] Dear investors, welcome to Liepin Group's 2024 Annual Earnings Release Conference Call. On behalf of the group, I would like to express our sincere gratitude to all investors for your long-term support and trust. I'm also deeply thankful for the hard work of all employees during the past year. Driven by incremental policies, China economy saw positive marginal changes in the fourth quarter. Likewise, our fourth quarter revenue was better than expected. For the full year, the Group achieved a total revenue of RMB 2.08 billion, representing an 8.8% year-on-year decrease, which still outperformed our initial guidance. Meanwhile, through our steadfast implementation of the AI-driven strategy and cost reduction and efficiency improvement strategy, profitability improved markedly with adjusted operating profit reaching RMB 229 million in 2024, a year-on-year increase of 64.9%. Adjusted net profit attributable to shareholders stood at RMB 170 million, a year-on-year increase of 61.1%. The BHC ecosystem also experienced a sustained and healthy growth. The cumulative number of verified enterprise users reached 1.43 million, a year-on-year increase of 10.4%. The cumulative number of registered individual users reached 106 million, a year-on-year increase of 11.1% and the number of registered headhunters remained stable at 215,000, a year-on-year increase of 1.7%. In recent years, technological innovation has been driven the upgrading of traditional industries and the development of new quality productivity, making the transformation trend of China's economic driving forces more evident. This change also profoundly impact the mid- to high-end talent recruitment market despite the fact that the mid- to high-end talent recruitment market has yet to fully recover in 2024. In the fourth quarter, spurred by policies, industries like logistics, warehousing, home appliance and new energy vehicles saw a year-on-year increase in new job postings on Liepin. Meanwhile, with industry transformation, new quality productivity represented by AI, big data and cloud computing continues to emerge, creating more high-quality job opportunities. Taking AI as an example, in the past years, the Internet and electronic semiconductor industries had the most concentrated demand for AI talent, while the home appliance industry saw the fastest growth in demand for AI talent, reaching 94%. In the first week of the 2025 Spring Festival holiday, new job postings in the AI sector on the Liepin platform grew by 18.25% from the already high base of 2024. Currently, AI as the most advanced productive force is crucial. It not only helps enterprises build talent metrics with AI capabilities, but also drives structural changes in the AI plus recruitment industry. Recruitment is one of the most natural scenarios for AI applications as it can effectively solve long-standing problems in corporate recruitment such as low efficiency, long duration and high cost, thus creating space for improvement. As a leading platform for mid- to high-end talent recruitment, we are safely aware that in today's recruitment market, where supply and demand relationships are deftly adjusting only by using AI to reshape the underlying logic of matching talent with jobs can we create greater value for both enterprises and job seekers, leveraging over decades of closed-loop service experience, our platform has accumulated industry-specific brand works and behavioral insights that enable us to better understand user preferences. Over the past years, we have integrated leading large language models, including DC and trained our proprietary [indiscernible] vertical model. We can optimally allocate models in various scenarios continuously infusing our unique closed-loop data and industry expertise, we have built the knowledge gaps of general models in recruitment. Based on multi-round user interactions, we adjust matching strategies, enhancing the feed of large language models in recruitment and accelerating AI application in this field. Based on this technical foundation, we have developed an AI-powered all-in-one solution that covers the entire process for recruitment from demand collection, resident filtering, witness confirmation to precise recommendation. In March this year, our Liepin Pro for business customers was officially upgraded to an AI version, introducing new AI-powered accounts for businesses. This marked Liepin's evolution from an Internet-based online tool to an AI-powered smart agent. The upgraded account includes AI job posting, which cuts time for job posting, AI smart invitation, which can stand up to 1,500 invitations in one batch. Resume Quick Read, which can screen and sort hundreds of resumes in just 40 seconds and intended candidate searching, which can recommend candidates who were willing to communicate in just 4 minutes at the fastest speed. In just 1 quarter since its launch, intended candidate searching has covered over 1/3 of our clients. By February this year, the repeat usage rate across [indiscernible] exceeded 60%, and we expect this figure to improve further in the second half of the year. In addition, our intelligent interviewer Doris, launched in the first quarter of 2024 has been upgraded to version 5.0. We are the first in the market to develop a Q&A model that can handle thousands of questions for each candidate, enabling personalized interview communication with multi-model support. Doris offers a better interactive experience and assessment capability. Compared with traditional methods, it has increased the attendance rate of interviews by an average of 40 percentage points and the consistency between AI scores and interview expert scores remained stable at over 95%. Moreover, for individual users, we will roll out diverse AI-driven products such as resume optimization, market interviews and personalized recommendations. I believe that in the future, there will be more and better AI-powered recruitment and job seeking products in our platform ecosystem. This technology is also catalyzing recruitment industry to evolve from experience-driven to data intelligence driven. Headhunters are crucial for mid- to high-end recruitment. Since the launch of our dual ASEAN network for headhunters, the platform has seen a robust growth in the market pressures, ASEAN offers digital management tools, innovative cooperation models and AI-powered assistance, ensuring stable business space for headhunting firms and boosting headhunters productivity within the network. In 2024, ASEAN had nearly 100,000 job openings, primarily in Internet, energy, chemicals and advanced manufacturing sectors. By year-end, 91% of headhunting firms in the network participated in collaborative projects. Over the past years, we focused on integrating innovative headhunting services with Liepin's core platform resources. Through continuous refinement of collaborative delivery models and AI-powered tours, we strengthened partnerships with headhunting firms and boosted their operational efficiency. With macroeconomic recovery this year, we are optimistic about the growth potential of our head hunting-related collaborative business. First, technology development should be in sync with business value realization. In 2024, we struck a critical balance between product innovation, user experience and operational efficiency. Through organizational structure optimization and internal AI adoption, the efficiency of R&D and sales team was significantly enhanced, contributing to a 5 percentage point year-on-year improvement in adjusted operating profit margin in 2024. In 2025, with ongoing macro policy support and a rise in talent demand in emerging industries, there is more certainty for industry recovery. we will keep seizing market opportunities, continue cost cutting and efficiency enhancement and fourth, focus on profit and cash flow improvement. Also, on Friday, we announced our first special dividend since listing. We are also exploring diversified return plans for long-term shareholders. I believe we will be able to share more details about this plan with you all soon. Finally, on behalf of the management team, I would like to thank our employees for their efforts, our customers and partners for their trust and our shareholders and potential investors for your support. In the future, Liepin will adapt to the new era changes with agility and reward our shareholders with solid performance and a stable long-term shareholder return program. Thank you all. This concludes my prepared remarks. Next, our CFO, Tim will walk you through our key financial performance.

[Interpreted] Thank you, Rick. And once again, thank you, everyone, for joining our earnings release conference call. The mid- to high-end recruitment was still in the process of recovery in 2024. The macroeconomic incremental policies, which were introduced in the second half of the year helped to boost market confidence. However, the full impact of these policies has yet to be fully transmitted to the recruitment market. As a result, we still faced certain challenges in terms of revenue last year. During this period, we launched innovative AI products such as the intelligent interviewer Doris, intended candidate searching and AI assistant for headhunters, which enhanced the user experience. Meanwhile, by adjusting and upgrading the organizational structure of our sales, products and other things, we further improved internal operational efficiency and achieved a significant improvement in profitability. From the specific data in the fourth quarter of 2024, the company achieved a revenue of CNY 560 million, a year-on-year decrease of 10.6%. For the full year, the revenue was CNY 2.08 billion, a year-on-year decrease of 8.8% Breaking it down by structure, the full year revenue generated from talent recruitment and other human resource services to business customers was CNY 1.76 billion, a year-on-year decrease of 12.9%.This was mainly due to the fact that the recruitment demand for mid- to high-end talent in industries that employ a large number of talent and in most medium to large-sized enterprises have not yet fully recovered. On the other hand, the full year revenue generated from the talent development services to individual users in 2024 was CNY 320 million, a year-on-year increase of 23.1%. This growth was mainly attributed to our in-depth cultivation of the online professional qualification training business. By improving courses, quality and transforming the sales model the company effectively increased the customers' ARPU and sales efficiency, which significantly drove the growth of the group's overall talent development service revenue. In terms of gross profit, in the fourth quarter, the total gross profit of Liepin Group was CNY 410 million, a year-on-year decrease of 9.7% due to the impact of the delivery rhythm of some closed-loop products, the improvement in gross profit margin in the fourth quarter was relatively small. However, it still increased by 0.7 percentage points versus the same period of last year to 72%. For the full year, the total gross profit of Liepin Group was CNY 1.58 billion, a year-on-year decrease of 6.7% with a gross profit margin of 76.1%, up 1.8 percentage points versus the same period last year. The improvement in gross profit was mainly due to the increase in the efficiency of the delivery team, better control of the gross profit margin of project-based products and the cost saving on rent and other operating expenses. In 2024, the company focused on cost cutting and efficiency enhancements in its internal management. The total operating expenses for the year were around CNY 1.53 billion, a year-on-year decrease of 16.1%. Specifically, the full year sales and marketing expenses amounted to CNY 910 million with a year-on-year decrease of 16%. The sales and marketing expense ratio was 43.7%, down by 3.7 percentage points year-on-year. Given that the supply and demand for mid- to high-end recruitment has yet to reach equilibrium, we significantly reduced our brand marketing budget, particularly for offline advertising. However, benefiting from the company's decades of brand value accumulation, the platform's activity level remained high. Additionally, we further adjusted the sales team structure to unleash organizational efficiency and continuously enhance the professional service capabilities of the sales team. These 2 factors together drove a significant reduction in sales and marketing expense. In 2024, the total R&D expense was CNY 300 million, a year-on-year decrease of 15.7% with an R&D expense ratio of 14.6%. This was mainly due to the empowerment of AI, the adjustment of R&D organizational structure and the improvement of personnel efficiency. Currently, AI products have been launched at the recruitment business. AI interview business and headhunting ecosystem business. We will further explore the implementation and application of AI recruitment scenarios. Moreover, against the backdrop of improved R&D efficiency and AI empowerment, it is expected that there will not be a large-scale R&D expenditure in 2025. In 2024, our G&A expenses amounted to CNY 320 million, representing a year-on-year decrease of 17%, primarily due to the improvement in management efficiency resulting from the optimization of our organizational structure. As mentioned to everyone in the third quarter, during the process of adjusting the organizational structure of the sales and R&D team, some onetime costs were incurred. Excluding this onetime compensation, the G&A expenses will see a decrease of around 25% year-on-year for the full year. Taking into account all the factors and with the deep implementation of cost cutting and efficiency enhancing measures, the company's business performance was more stable in 2024. For the full year, the company's operating profit and net profit were CNY 192 million and CNY 175 million, representing a year-on-year increase of 469% and 955%, respectively. After adjusting for share-based compensation and amortization of intangible assets arising from acquisitions, the adjusted attributable net profit was CNY 170 million, up 61.1% year-on-year. In terms of cash flow, through active cost control and implementation of cost cutting and efficiency enhancing measures, the company's net cash flow from operating activities improved significantly in 2024. Despite the challenging market environment, we maintained stable operations with a net cash inflow from operating activities of CNY 930 million for the full year. As of December 31, 2024, the company's total cash reserves, including cash and cash equivalents were around CNY 2.8 billion, an increase from the end of the third quarter of 2024. This cash position provides a solid foundation for the company's future operations as well as for the development of new market and the creation of new products. In 2024, influenced by the overall market environment and adjustments in the shareholder structure, the company also faced certain pressures in the capital markets. However, our company actively shifted its business focus and fully committed to AI while strictly implementing cost-cutting and efficiency enhancement strategies. These efforts significantly improved the company's profit levels and cash flow conditions for the year. Here, I would like to express our sincere thanks to our customers, employees and investors who have consistently supported and believed in us. As Rick mentioned earlier, to reciprocate the support and trust from all shareholders, we have recently reviewed and approved a special dividend at the Board of Directors meeting a dividend of HKD 0.42 per share will be distributed. The dividend yield based on the current share price is around 7.9%. This fully demonstrates the confidence of the company's Board of Directors and management in the company's future development. Looking forward, we will continue to seize market opportunities to promote the healthy development of our business. We will also focus on and research the establishment of a long-term shareholder return mechanism to reward all shareholders who continue to support and trust us. That concludes my remarks. Thank you all once again. Operator, we can now open the floor for Q&A.

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

[Foreign Language] Hi. Good evening. Thanks management for taking my question. I'm Thomas, Jefferies Internet analyst. My first question is about how should we think about the recruitment sector after the Chinese New Year as well as how we think about the 2025 outlook? And my second question is about the operating expenses, in particular, sales and marketing as well as our user acquisition costs. Thank you.

[Interpreted] Thank you for your question. I will answer the first question, and Tim will answer the second one. As a cyclical industry, the mid- to high-end recruitment largely depends on the trajectory of the macroeconomic economy. In 2024, the overall number of new job posting on Liepin's platform still showed a decline. However, with the introduction of incremental policies at the end of last year, we observed that the number of new job posting began to stabilize at the start of this year. Data shows that in the first week after the spring festival holiday, recruitment demand in the IoT and AI sectors recovered significantly, growing by 34.1% and 18.25% year-on-year, respectively. Meanwhile, traditional industries such as consumer goods have not yet shown clear signs of recovery in recruitment demand. In terms of job functions, the demand for technical roles has increased, especially for algorithm engineers and system engineers, a year-on-year increase of over 20%. Based on my observations on the ground, entrepreneurs show a more optimistic attitude towards the economy and the recruitment demand compared to before. Survey data from Liepin for the first quarter of 2025 also indicates that 70% of companies plan to expand or maintain their recruitment scale this year, showing improvement compared to the previous quarter. Among medium-sized companies, the proportion of companies which are willing to increase recruitment scale has risen to 27%. However, objectively speaking, this recovery in confidence has not yet fully translated into actual job openings and companies are still hesitant to fully act on their intentions. Overall, we remain cautiously optimistic about the recovery of the mid- to high-end recruitment market in 2025. We will continue to monitor market and platform data changes and keep everyone informed.

[Interpreted] Okay. Rick, I will take the second question. This question is about the expenses. As mentioned earlier, due to the implementation of cost reduction and efficiency improvement strategies, organizational optimization and AI empowerment, the company's total operating expenses in 2024 decreased by 16.1% year-on-year. In particular, the decline in market expenses was more significant. Thanks to the strong brand recognition established through past branding activities, Liepin continues to maintain a strong brand presence among the mid- to high-end talent. So we do not plan to increase marketing expenses for the moment this year. Regarding the R&D expense, supported by AI technology empowerment and organizational upgrades, productivity in the R&D team has significantly improved, although innovation and the development of AI-related products still require some investment under the context of improved efficiency, R&D expenses are expected to have certain optimization potential in 2025. Regarding the G&A expense, the company will continue to implement cost reduction and efficiency improvement measures. Combined with AI-driven improvement in management efficiency, we anticipate a slight reduction on an absolute basis in 2025. Overall, we expect the absolute amount of these 3 major expenses in 2025 to decrease slightly compared to 2024. However, changes in the expense ratio will depend on revenue performance, which we will continue to monitor and share updates in the future. Additionally, we will closely follow macroeconomic trends and the recovery pace of the mid- to high-end recruitment market and flexibly adjust our organizational strategies to maintain a balance between revenue generation and cost control. Thank you.

[Interpreted] I'm Jiang from CICC. I have 2 questions. Could you provide details on how the upcoming AI version app will empower existing business models? And how does management anticipate its impact on future revenue growth and cost structures? And the second is about Doris. What is the current business model for Doris and what progress has been made in optimizing its AI models? And what levels of revenue contribution is projected for Doris by 2025?

[Interpreted] This is a good question about the revenue and cost of AI products that we have been continuously thinking about. As mentioned earlier, AI has not only restructured and the tailor competitiveness model for enterprises, but also driven a structural transformation in AI plus recruitment. Our AI-powered recruitment product is a comprehensive solution designed to address the long-standing pain point in corporate recruitment, leveraging Liepin's contextual advantages and intelligent algorithm, it enhanced recruitment efficiency. We have already shared the specific product features with everyone, and this represents a brand-new product upgrade. Based on market feedback, customers have shown high acceptance of our AI products indicating that our products effectively address their pain points and meet their demand for efficient and cost-effective recruitment tools. In terms of revenue, the development of large language models like DSI has fueled customers' aspiration and anticipation for AI-powered recruitment projects. We believe that the efficiency accuracy and experience optimization of AI recruitment products will help Liepin attract more new customers, expand market coverage and enhance the retention and satisfaction of existing customers, driving new renewal and upselling. We are confident in this area. On the cost side, AI recruitment is a technology-driven product as usage scale up and matching efficiency improves, the marginal cost of AI recruitment products will gradually decrease, while marginal benefits will increase. In the long term, we believe this will help stabilize and gradually increase the group's gross margin.

[Interpreted] Okay. The first question, first, I will take the second question. And your first question is about AI recruitment. And the second question touched on our AI interview, which are the 2 main areas of AI application that Liepin is currently exploring. Doris, Our innovative talent assessment system launched in the first quarter of last year has been upgraded to version 5.0 and now features the ability to observe, remember, think and provide feedback, enabling follow-up questions smarter and interviews more engaging. Regarding the business model, AI interviews can meet the talent selection needs of enterprises, governments and universities for various groups, including white collar, blue collar and white collar workers. We offer services such as AI interviews, AI talent assessment and AI exams, primarily on the first use pricing model. In the second half of last year, we focused on the blue-collar customer base expansion. And this year, we are expanding into providing integrated hardware and software services for government and universities. This includes using AI-powered interview room and all-in-one devices to offer job seekers AI employment guidance, interviews and policy cancellations. Since its launch a year ago, Doris, has served over 1,500 clients. With increased corporate acceptance of AI interview products and expanded client coverage, we expect revenue to reach tens of millions in 2025. You just mentioned the cases. We currently have many client success cases. For example, a leading global luxury group use our product for pre- and post-training capability assessments of store managers. Another example is a well-known automaker autonomous driving subsidiary, which used our product for campus recruitment technical positions. conducting interviews and programming tests. Over 3 weeks, they interviewed over 2,000 candidates, increasing attendance rate from 50% to 80%. In the blue-collar segment, a leading photo manufacturing company with a need to interview 10,000 blue-collar workers partnered with us to leverage AI tools for cost reduction and efficiency improvement to meet their large-scale annual interview demand. These cases highlight Doris' adaptability across diverse scenarios. Looking ahead to 2025, we expect Doris to deliver even stronger performance and provide higher quality services to our clients. That's my answer. And 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 time. Thank you all.

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.]