Tongdao Liepin Group

HKEX:6100

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and welcome to the Tongdao Liepin Group 2022 First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Wang Xueni. Please go ahead, ma'am.

[Xueni Wang, executive]

Thank you, operator. Hi, everyone. Thank you for joining us on today's conference call to discuss our results for the 3 months ended March 31, 2022. 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. The remarks will be in Chinese, followed by English translation. After that, Mr. Tim Tian, our CFO, will continue with detailed financial review. After the prepared remarks, we will be available to answer your questions. 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 relate to events that involve known and 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 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 note that certain financial measures that we use in this call are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. I will now turn the call over to our Chairman and CEO, Rick. Please go ahead, sir.

[Kebin Dai, executive]

[Interpreted] Hi, everyone. Thank you very much for your long-term trust and support to our group. At the beginning of 2022, we maintained a good momentum as last year, actively grasping market opportunities. We reinforced the talent service market by executing the Platform + SaaS + Service strategy to achieve broader user coverage and improve user conversion. With our team's dedication, we recorded solid growth in our first quarter results, building on a high base of last year. Our revenue was around RMB 650 million, up by 24% year-on-year. Non-GAAP operating profit exceeded RMB 56 million, up by 51.6% year-on-year. Net profit grew by 344.5% year-on-year. We also observed that since March, many cities were affected by the pandemic. Together with the complex changes in the global political and economic environment, people's working and living conditions as well as national economic development are facing considerable challenges. According to our research on enterprise customers in Shanghai during the pandemic, more than 80% of them remain working online. The portion of online working enterprises among key customers exceeded 95%. We can see that since medium- and large-sized enterprises are more digitalized, they are more capable of online recruitment, online interviews and online onboarding compared to small- and medium-sized enterprises. Meantime, larger enterprises businesses are also more resilient. Hence, they demonstrated higher sustainability and stability in business development even under the pressure of the pandemic and economic downturn. In terms of hiring activities, about 40% of enterprises are kicking up with their hiring process as usual, 30% are slowing down and the remaining 30% are affected by the pandemic. The quality talent is always the cornerstone of enterprise development and short-term impact will not change the long-term value of the talent, so that long-term recruitment demand for quality talent will still be intact. Moreover, we have also observed further changes in the way enterprises are managed internally under the pandemic. With a growing trend of digital transformation and the deepening of their online recruitment habits, in the first quarter, the number of verified enterprise users on our platform reached a record high, surpassing 1.045 million, up by 28.9% year-on-year. This year, its full of challenges for many companies. But no matter how the market changes, we will continue to thoroughly learn our users' needs, optimize total experience and firmly stand with our users to overcome the difficulties together. [Technical Difficulty] From the job seeker's point of view, the current macro environment this year has mid- to high-end talent relatively cautious about changing jobs. More people have remained on the sidelines. On the other hand, many top Internet companies have partially optimized their personnel this year, releasing a number of mid- to high-end talent onto the market. These talents are actually very high quality as they become more rational about their career path and workplaces. Many talents have started to join small- and medium-sized Internet companies and some industrial enterprises undergoing digital transformation. We are also actively grasping these opportunities to attract more high-end talent to the platform. Supported by our strong user experience and brand image, we are glad to see that the number of registered individual users on our platform reached 76.9 million in the first quarter, an increase of 15.8% year-on-year. This year, under the principle of stable growth, national policy stepped up the efforts to ensure stability. Stable employment plays a pivotal role in economic development, especially this year, around 10 million college students will join the workforce, bringing more challenges to the labor market. On the other hand, with a continuous industrial upgrading, there is still massive demand for quality talent and professional talent services. According to the growth rate of the number of new job openings in the first quarter of our platform, the top-grade industries are automobile and manufacturing, energy and chemicals and telecommunication and hardware with a year-on-year growth rate of 50%, 46% and 43% represents respectively. As a professional talent service provider, we will continue to be committed to leveraging the multilateral ecosystem of our platform, efficiently connecting enterprises and job seekers through data and technological innovation, assisting key cities in resuming work and production in an orderly manner and supporting the high-quality development of national employment. On the business side, the service capability of our forward recruitment business continues to improve. The upgraded professional recruitment SaaS product, Liepin Pro, helps enterprises to solve their management and collaboration dilemmas during the recruitment process and user experience has been significantly optimized. Especially in work with resurgence of the pandemic, more recruiters are favorable to user-friendly online recruitment products that support multi-end collaboration. We have recruiters to achieve better resource management and allocation through portals and function integration. Meanwhile, we have launched new models such as dashboard and job-sharing functions, which significantly improve recruiters visualization and control of the recruitment process while still making the demand for efficient recruitment. This year, we will launch more upgrade to modules, including the talent core management, interview management and user succession system in order to better solve user pain points in the recruitment process, help them achieve better recruitment results and improve user satisfaction. We constantly pursue and refine the capability of talent to job understanding and AI matching by focusing on experience and needs of users. As technology and data-driven talent service provider, we continue to improve our internal operations. We upgraded our IT infrastructure and strengthened the index application of AI in the recruitment industry. Building on our years of technology adjustment and industrial know-how, we sorted and unified our algorithm to introduce an algorithm toolkit. This innovation allows us to build a low-cost technical capability, which improves our user -- our business processing capabilities and the convenience of setting algorithms to various scenarios, largely empowering our group businesses. In the meantime, we continue to refine our labeling system, so as to analyze job provisions and candidates more precisely. As of now, our labeling system has already covered more than 1,000 job titles, laying a solid foundation for our matching capability enhancement. In terms of security, we always consider cybersecurity and the protection of user information as the core premise of our business development. We insist on applying the strictest industrial standard to review all aspects of product compliance and data usage and provide users with a series of personalized product protection function. We remain sharp on policy and regulation updates and continue to conduct research and analysis. We maintain regular conversations with regulators to ensure stable, healthy and compliant business development and help to create a healthy and sustainable environment for the talent service industry. We have now achieved a diversified business layout to cater to different market environment and meet the diverse needs of our customers, enhancing our risk-resisting capability. This year, facing all the challenges, our group has responded swiftly and proactively to ensure efficient business operations in a safe environment. Leveraging the long-term development of our digital organization, we lowered the negative impact of the pandemic on our daily operations to the greatest extent by benefiting from our self-developed operational system, fully digital workflow and established team structure. We have always focused on the continuous learning capability of our management team while continuing to develop the professional skills of our business teams. We keep refining our capabilities and improving operational efficiency in preparation for the recovered recruitment market when normal activities resume. The areas severely affected by the pandemic, we have put forward a number of measures to secure our employees life and work conditions. We also organized special online activities to relieve their mental pressure. In the meantime, we have provided products such as live-streaming activities and online studying platform free of charge to help users combat inconvenient conditions. In the first quarter of 2022, we achieved healthy growth and development amid challenging conditions, proving the effectiveness of our business model and long-term strategy. With the ever-changing market dynamics, we kept a sharp mind and proactively seized market opportunities through upgraded product strategies and flexible market strategy, thereby achieving sustainable business development. We will continue to explore the talent service market with our Platform + SaaS + Service strategy, so as to achieve broader user coverage and a better user experience. Moreover, with the unprecedented economic environment this year, we will focus more on improving personnel efficiency, expanding the scale effect and driving further growth in profitability based on stable business development. Along with our financial results, our group also released the 2021 ESG report. As we continue to focus on cybersecurity and personnel information protection, community investment and engagement, technology innovation, intellectual privacy protection and employee development, in 2022, we will keep integrating our ESG philosophy into our business operations, focusing on supporting talent upgrades and Chinese enterprise development. This year is the opening year of our group's second decade. Once again, we thank our users and all our investors for their trust and support, and we will continue to spare no efforts to achieve sustainable and healthy business growth and continue to improve long-term shareholder value. Now let me turn it to our CFO, Tim, to walk you through the key financials of our group. Thank you.

[Ge Tian, executive]

Thank you, Rick, and thanks again, everyone, for joining our 2022 first quarter results release conference call. With the challenging macro environment, we continue to see healthy growth during this quarter. And the total revenue in the first quarter was RMB 649 million, a 24% increase from RMB 523 million in the same period last year, revealing strong risk-resilience of our business with a unique market position in the mid- to high-end segment. Our upgraded products and high-quality services also contributed to our sustainable growth, more specifically the revenues from 2B and 2C remained relatively stable this quarter. The revenue generated from talent acquisition services and other HR services was RMB 551 million in the first quarter of 2022, up by 23.9% versus last year. Service was mainly contributed by the increase in the number of customers. Our revenues generated from talent development services was RMB 97 million in the first quarter, up by 24.6% over last year. Individuals increasing awareness of sales improvement under employment pressure continue to drive our 2C business. Our gross profit was RMB 540 million in the first quarter of 2022, up by 24.6% versus last year, and our gross margin increased to 80% this quarter, resulting from higher consumption of our online products, fortified by our online SaaS product upgrades and the continuous digitalization trend. Turning to operating expenses. Our sales and marketing expenses were RMB 349 million in the first quarter of 2022, up by 22.6% last year. The sales and marketing expenses margin was 23.9%, down by 0.6 percentage points versus last year. The reasons can be summarized as below. First, the one-off brand upgrade expenses occurred at the beginning of last year didn't recur this year. Second, we kept refining our advertising channels and only cooperated with those ones that were best, making our marketing ROI and efficiency improved. The third one, we continue to push forward sales in structure upgrade and empower our sales teams through data analysis in an effort to drive up our sales efficiencies. Those tactics enable us to gradually improve the sales and marketing margin. Our G&A expenses were RMB 76 million in the first quarter of 2022, up by 5.3% versus last year. And our G&A expenses as a percentage of revenue in the first quarter of 2022 and 2021 were 11.7% and 13.8% respectively. The improved G&A expense margin was mainly driven by the scale effect of our growing compliance and the decrease in the loss allowance for expected credit losses as a result of better internal control and trade receivables. We continue to invest in R&D to improve our IT infrastructure, optimizing our matching algorithms and strengthen the data security capability in the first quarter of this year. Our R&D expenses were RMB 90 million in the first quarter of 2022, up by 29.2% last year, and our R&D expenses margin was 13.9%, up by 0.6 percentage points. Just like Rick mentioned, our dedication to R&D expense have interest our business with more innovative functions, more precise matching results and better user experience. As a result, our profit from operations in the 3 months ended March 2022 was RMB 27 million, up by 187% versus last year, and our net profit for the period was RMB 13 million, up by 345% last year. Meanwhile, in the first quarter of 2022, our non-GAAP operating profit, excluding share-based compensation expenses and amortization of intangible assets resulting from acquisitions was RMB 56 million, up by 51.6% over last year. Although we recorded a healthy growth of our top line and robust improvement of our bottom line in the first quarter of this year, we remain conscious of the challenging conditions brought by the resurgence of the pandemic and the global situation. We will always keep a sharp mind on and react swiftly to the changing market dynamics. Meanwhile, we will focus on more establishing our interest value by strengthening our operational capabilities, upgrading team structure, consolidating our advantages in technology and others. As before, we will remain committed to delivering sustainable growth and creating long-term value for our customers and shareholders. With that, operator, please open the line for Q&A.

[Operator]

[Operator Instructions] We will now take the first question from Steven Tsai from Morgan Stanley.

[Steven Tsai, analyst]

I have 2 questions. My first question is related to the -- your talent development segment. Wondering what were the drivers for that segments strong sequential growth. Was that because of the rising employment, where people more willing to sign up our paid services and so it upped the paying ratio or anything else that make the ARPU expanded? And what's the margin for the business versus your core kind of acquisition business in Q1? And how should we think about the growth trend into second quarter? And my second question is about recruitment demand. As you mentioned, job posting growth for 3 growing sectors in Q1. Could you also share the overall job posting growth on the platform in Q1? And how is the number of job listings trending in April and May versus a year ago perhaps from a year-on-year percentage growth perspective as well? Any color would be great.

[Ge Tian, executive]

Okay. Thanks, Steven for your questions. I will take these 2 questions. I think for the first question regarding the talent development revenue and the drivers behind it. So I think our 2C business, as you could read from the report, grew by group opportunities year-over-year in the first quarter and slightly better than the group's overall growth rate, I think mainly due to the healthy growth momentum of the newly launched online professional certification training business. And the job market, as you know, was very under pressure this year with the survey. National urban unemployment rate rising to more than 6% in April and unemployment rate hitting historical high. So in such businesses, more job seekers try to enhance their competitiveness in the workplace by improving their professional skills. So high-quality online professional education products could actually allow job seekers to be more flexible and convenient in terms of when and where they wish to learn and also to enjoy the cost savings at the same time, so the job seekers were motivated to invest themselves and further enhance their interest value in the workplace. Moreover, the product spectrum of our online professional education business has been constantly enriched this year, and they actually provided more choices for individual users. And in addition to our existing courses like counseling and economies certification training, we have also expanded on other courses like MBA courses with larger margins. So by targeting at talents and analyzing their actual needs, we can process the users demand and greatly improve their repurchasing rates, prolonging the lifetime value of the users on our platform. But for sure, the business is still very new to our group and still at the development stage. Last year, the business basically achieved breakeven. And this year, with the improving operational efficiency, I think the profit margins expected to be lifted, I think probably going to be positive by the end of the year. And another part of the 2C revenue comes from our career services, which has been last for quite a long time. And we provide a series of value-added services based on the actual needs of the job seekers to help them improve their professional skills and achieve greater success in their career path and benefiting from the continuous growth of the number and activity level of our users on the Liepin platform, the overall revenue from the career services remains relatively stable and the profit margin at a relatively high level, while this business only accounts for comparatively smaller portion of our group total revenue. I think if I look at your second question on the trend of the job posting in April and May, right, as we can see the growth of the new job postings in the first quarter continued the trend of last year, although some cities have been affected by the pandemic since March and -- the overall market was still growing, I believe. Looking from the industrial point of view, right, 50% to 70% of the industries posted more new jobs in the first quarter than last year. And notably, in industries we mentioned in the remarks, like automobile and manufacturing, new energy and telecommunications, grew by more than 20% year-over-year. But if we look at April and May, when the pandemic got more severe and hit major cities like Beijing and Shanghai hard enough to put physical restrictions and a little bit macroeconomic pressure, we observed some quite noticeable impact on enterprise recruitment activities due to the lockdown. Particularly, the recruitment process has been slowed down and companies are more pressured about opening the new job. So the growth rate of the new job postings in the last 2 months was actually lower than that of the first quarter. But from the industry point of view, the top-3 industries of the first quarter remained the top 3 in the second quarter for the moment. But the growth rate of the new job postings showed an obvious decrease. New job postings in industries like real estate, advertising, agriculture were kind of decline. But in such special circumstances, our team also made adjustments in a timely manner, paying attention to our customers and following the market situation closely. We actually conducted in-depth research and analyzed our customers' current talent service needs and continue to ensure the response to efficiencies and the service quality to customers through the workspace and other means. So by doing so, we could provide better product and service experience for our customers during the process of work and the production assumption. In addition to solve the problems related to the team structure management, employee care and others, driven by the pandemic, we're actually providing support, such as online training courses, online interview platforms and free live streaming recruitment activity. So this year, our upgraded product, Liepin Pro, actually has helped more recruiters achieve efficient online collaboration and process management, which was mentioned in Rick's remark. And the market is full of uncertainties, I believe, this year and the recovery of the enterprises confidence may take a little bit more time, and we may require some policy support. So going forward, we will continue to pay close attention to the market trends in the coming months in June and basically the second half of the year. So yes, that wraps my answer to your question.

[Operator]

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

[Unknown Analyst]

This is [ Brent with Heifi Securities ] Two questions here. The first one is regarding your new business. Can management share with us the revenue contribution from Wenjuanxing and Xunhou in the first quarter of 2022. And my second question is on your sales and marketing strategy. Sales and marketing expense ratio was 54% in the third quarter, down nearly 0.6% year-over-year compared to the same period last year when we launched a large-scale branding campaign. What is the reason behind for the seemingly high expense ratio? And can management share with us your strategy on sales and marketing in 2022?

[Ge Tian, executive]

Thanks for your question. I think I'll take these 2 questions because it's more financially related. So your first question regarding Wenjuanxing and Xunhou, right? I think basically these 2 business, online survey and the flexible staffing, maintained actually a relatively stable growth and revenue contribution ratio in the first quarter of this year. And specifically, online survey business grew steadily, and we are actively developing our online service SaaS business to provide customers with a full range of survey solutions. By upgrading our products and expanding the margin we expect to see a further increase in the revenue contribution from our cloud products going forward. And as of March 2022, Wenjuanxing actually has spent out more than 116 million questionnaires and collected nearly, I would say, 12 million research samples already. We can see that with the support of the brand and the product, we think our users habits for online survey products continue to deepen, and our users have still maintained a fast growth momentum for this business. Talking about the flexible staffing, right, this business actually maintained its fast growth momentum in the first quarter as well. Since we recognized the revenue of the flexible staffing on a net service fee business, which is quite different from other flexible staffing business, it only accounts for a very small portion of our total revenue. So the flexible staffing market could be a huge market as everyone knows, but the penetration rate currently is still very low, I assume mainly consists of transition in the urban, service industry or relatively junior blue color or grey color job for the moment. And the lockdown of certain cities due to the pandemic this year has also got some impact in some industries and positions of the flexible staffing. However, the demand of the flexible staffing could be very elastic. Once the resumption works and production in the business and market -- as you know, Beijing and Shanghai this weekend also published some new updates regarding the COV1D-19 actions, right? So the need for this kind of labor is expected to achieve rapid recovery in some time. And our flexible staffing business is characterized by its online nature. So the customers basically can manage and track their workers and details through our staff system. Meanwhile, leveraging our group understanding of the market dynamics, in-depth research, the flexible staffing business can also adjust the direction in time to respond to rapid market changes. For your second question on the sales and marketing expenses, right, I think the main change in the sales and marketing margin in the first quarter of 2022 came from the decrease in our marketing expenses, besides the one-off product upgrade in 2021 which also adjusted the portion between online and off-line marketing, especially considering the impact of the pandemic. We actually cut out our budget for offline advertising and increased the portion for online investment. And this year, we see that some industries have optimized their staffing, releasing some high-end talent supply to market. And this group of job seekers, which are high-quality seekers, are exactly our target group. Therefore, we put more efforts into online marketing to proactively acquire with high-quality individual users and further expand our talent resources on the 2C side, given we had some sort of headwind during the pandemic. And the number of single quarter, especially the first quarter has not really reflect the trend of the whole year. Because this year, we will adopt a more focused and efficient marketing strategy, and we will also explore some new and efficient marketing channels to continuously improve the ROI while guaranteeing the effect. In terms of sales personnel expenses as part of the total sales and marketing, we will continue to firmly execute leading the new customer acquisition from the existing customer renewal team to promote upgrade of the sales structure and ultimately improve the efficiency and scale effect of the sales personnel. I would say, therefore, we expect that there will be more room for optimizing in terms of the whole year sales and margin, expense margin compared with first quarter this year. Thank you.

[Operator]

Next up, we will open up Melody Chan from Jefferies.

[Melody Chan, analyst]

I have 2 questions. Do you see any change in sentiment or the project of the business user under the current volatile economic condition? And second, can management share some color on the 2020 outlook and the challenges given the macro headwinds? And how are we going to capture the opportunity.

[Ge Tian, executive]

Yes, I can also take this question right -- regarding the change in the sentiment and the budget of the business users on the current situation, right, as you can see, right, definitely, this year's job market is definitely kind of harder than last year, right? And according to the multi-survey urban unemployment rate data of this margin book, it's pretty clear that the difficulties of the production and operation for the enterprises were listed and so was the pressure on the labor market. So from the structure of the recruitment demand, the contraction of elementary recruitment market demand, I think definitely impacts more significant. In contract, although the recruitment demand for mid- to high-end talent was also affected somehow, it is relatively more resilient in comparison. From the enterprise perspective, as Rick mentioned in his earlier remarks, right, medium and large enterprises benefit from higher level of digitization and a stronger business resilience. And as a result, definitely, they are more sustainable and stable in terms of their business development even under the physical restrictions. They are also able to manage recruitment process like recruitment, interview and onboarding through online methods. However, SMEs, the smaller enterprise, right, especially the small and micro enterprises, showed a sharp decline in their recruitment demand under the current economic and given the pandemic conditions. In general, the impact of the pandemic enterprises behavior is far reaching and facing the uncertain challenges, companies are more cautious in choosing business direction and staffing. We definitely observed that companies adjusted their budgets in some details and a review of their business and staffing conditions, achieved more quickly, like every quarter, every month or during an even shorter period of time. So including operational efficiency and saving costs became a major concern for many companies. From our business point of view, take Shanghai where the pandemic was more severe, as an example, the lockdown had some impact on our business. But since our enterprise customers are generally of high quality, their demands for quality talents are still ongoing, providing relatively stable needs to most of our services. For now, the impacts were more of a matter of product complexion like experience more difficulty in collecting payment, especially in April and May. So with the continuous release of related policies by the government and the contracts in work and production resumption, probably the rest of May or June, we will continue to [indiscernible] the market in the second half of the year. Rick, do you want to take the second question?

[Kebin Dai, executive]

[Interpreted] So like what we've just discussed, there will still be significant challenges and pressure to the job market this whole year. The uncertainty from the second quarter are still very strong, and the annual performance still depends on matters like control and the prevention of the pandemic, progress of work and production resumption related policy support and so on and so forth. So as of now, our priority is still promoting the renewal and upsell of existing customers by continuous product and service optimization. We will actively attract new customers and improve conversion rates in industries that show relatively higher prosperity. So this special circumstance was also another test of our organization, operational efficiency and risk tolerance. We are glad to see that with the support of a highly digitalized system, our team remain active, as well prepared for the recovery. And at the same time, this year, we continuously upgraded our recruitment SaaS product, Liepin Pro with constant interaction of new modules and help solving pain points of the recruiters in the recruitment process. We deepened our users' usage and improved their satisfaction constantly through our algorithm empowerment, product iteration and professional services. And at the same time, we continue to refine operation internally [Audio Gap] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]