51job, Inc.
Q3 2017 Earnings Call Transcript

Published: 10 Nov 2017

[Operator:]

Good day, and welcome to the 51job, Inc. Third Quarter 2017 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Linda Chien, Vice President and Head of Investor Relations. Please go ahead.

[Linda Chien:]

Thank you, operator, and thank you all for attending this teleconference to discuss unaudited financial results for the third quarter ended September 30, 2017. With me for today's call are Rick Yan, President and Chief Executive Officer; and Kathleen Chien, Chief Operating Officer and acting Chief Financial Officer. A press release containing third quarter 2017 results was issued earlier today, and a copy may be obtained through our website at ir.51job.com. Before we begin, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities and Litigation Reform Act of 1995. All forward-looking statements are based upon management's expectations at the time of the statements and involve inherent risks and uncertainties that may cause actual results to differ materially. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the U.S. Securities and Exchange Commission, including our annual report on Form 20-F. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements, except as required under applicable law. Also, I would like to remind you that during the course of this call, we will discuss non-GAAP measures. Please refer to the press release for a description of these non-GAAP measures and their significance to management in evaluating the company's financial performance. Reconciliation to the most directly comparable GAAP financial measures are provided where available in the tables appended to the press release. This conference call is being recorded and broadcasted on the Internet, and a replay will be available through our website at ir.51job.com. Now, I'll turn the call over to Rick.

[Rick Yan:]

Thank you, Linda, and welcome to today's call. I will begin with a review of the third quarter, followed by Kathleen with a detailed discussion of our financial results and our guidance for the fourth quarter of 2017. Finally, we'll open the call to your questions. Through clear and consistent execution of our strategic plan, we deliver solid results in the third quarter. Total revenues of RMB 728 million exceeded our forecast, as we saw, better than expected performance generally across the board. This top line upside combined with the inherent scale benefits and efficiencies of our operating model led to robust profit in the quarter with non-GAAP EPS of RMB 3.32. Growth in our online business accelerated to 22% in the third quarter, while we have very pleased with this faster pace. The more noteworthy achievement in our minds is the meaningful contribution of both new customer additions and higher ARPU to this growth. We continue to expand our user base and the number of unique online employers increased by 46,000 compared to a year ago quarter, a growth of above 14%. At the same time, we more than offset any impact of new customers on ARPU in the third quarter with our successful upselling efforts. Quick dial usage and spending by sophisticated existing employers on the larger basket of online services drove overall ARPU up by over 7% compared to the year ago quarter. With the sales force demonstrating a strengthened ability to balance volume increase and ARPU improvement, we widened our geographical presences for the online business to cover nearly 200 cities in China this September. While any financial contribution from the new cities is expected to be in significant in the near term, we are laying the foundation to serve the growing needs for white collar workers everywhere. In the other HR services area, we are building growth momentum gain. Other HR revenues increased by 22% in third quarter and we are seeing several positive business developments they are both well for is continued achievement, advancement. First of all, our testing assessment and training services have received very strong interest from employers this year as they seek to host a better identify, allocate and promote the right individuals into the right jobs. Second, through enhance integration of online and offline resources, our placement services which match select prescreened job candidates with employers is showing high effectiveness and customer satisfaction. Finally, we are operating our BPO services platform and highlighting new modules to address more employee related administrative passed. We remain very excited about a potential of the other HR services area and we will further expand our capabilities to serve more needs and aspects of the HR department. Turning now to our current market assessment, we continue to observe a stable and constructive environment for white collar recruitment. Hiring activity and salary data have maintained growth patterns in line with those we have seen during healthy market period in the past. Indications from the ongoing campus recruitment season also point to solid employer demand as more and more enterprises are looking to be sustainable pipeline of educated and skill talent. We look forward to closing the year strongly and we are upbeat in carrying the progress we have make in product innovation, user engagement and sales productivity into 2018. During the recently held National Congress of the Communist Party of China, customer leaders stressed and it makes craze of the country's economic development will be focused on high quality growth. We here 51job could not agree more with this mandate, as we have been executing comprehensive roll of strategic initiatives and investments aim at raising our companies to new heights. Reorganize and reenergize sales force is hiring on all cylinders with measurable improved efficiency. We have widened the scope of our large HR ecosystem with not only new in-house developed services but also the inclusion of many partners. Namely, over the last two years, we have welcomed in [indiscernible] equipment through the new year for testing and assessment. Golden Finance for training programs in finance and accounting. Micro and F for main and contact management. Lakala for candidate credit and background checking and [indiscernible]technology Holland recruitment. We believe our product breath and coverage as on the parallel in the industry for its value creation, professionalism and surface integrity. And we will pursue more idea than partners to bring top most services to our users under the 51job umbrella. As we work to realize our vision to become the leading multifaceted into HR solutions in China, we have had and will continue to embrace a lot of change within our organization. Change is never easy and I want to recognize everyone in the 51job family for showing tremendous dedication, patients and teamwork. As we soon enter our 20th year in operations, we believe that 51job is better positioned than ever too effectively and efficiency recapture the enormous HR market opportunity before us in China. I will now pass the call over to Kathleen.

[Kathleen Chien:]

Thank you. Rick. In my following presentation, please be aware that all financial numbers are in our reporting currency of the Chinese renminbi, unless otherwise stated. Also, please note that all growth rates are on a year-over-year basis as compared with the corresponding period in 2016, unless otherwise indicated. Our total revenues for the third quarter of 2017 were RMB 728 million, representing a 22% increase. Our online revenues for the third quarter grew 22% to RMB 488 million, due to both new customer acquisitions and a solid raise in the average revenue per employer. The number of unique employers increased 14% to more than 380,000 companies compared with 334,000 in the year-ago period. Successful efforts by the sales force to increase spending by existing customers and a leaser path the diluted effect of new customers and saw healthy 7% increase in overall online ARPU in the third quarter. We aim to continue a balanced approach as we push ahead on our dual sales objective of increasing customer count as well as revenue per customer. Revenues for other HR services increased 22% to RMB 240 million in the third quarter. The growth was driven by good customer uptake at several products, including our training, assessment, placement and BPO services. With the negative effect of the VAT implementation fully observed and behind us, we are regaining higher growth and stepping up resources to increase rollout these value-added services to our employers. In the fourth quarter the other HR area will also benefit from strong seasonal activity in our campus recruitment services. Gross profit grew 24% to RMB 524 million, and gross margin improved to 72.8%. Included in cost of services in the third quarter was share-based compensation expense of RMB 3.7 million. Our sales and marketing expenses increased 20% to RMB 245 million in the third quarter. The increase was primarily due to higher employee compensation expenses, headcount additions and greater advertising spend. Included in sales and marketing expenses in the third quarter was share-based compensation expense of RMB 3.2 million. We plan to stay aggressive in our goals to strengthen our sales force to support our ongoing expansion of the customer base and to promote our wide range of product offerings and platforms. At the same time, we always closely track the return on these sales related investments and our progress in driving sales productivity. Our G&A expenses increased 12% to RMB 78 million in the third quarter. The increase was mainly due to higher employee compensation expenses and some bad debt provision. Share-based compensation expense included in G&A was RMB 16 million in the third quarter. Income from operations increased 37% to RMB 201 million and operating margins improved to 27.9% compared with 24.9% in the year-ago quarter. Excluding share-based compensation expense, operating margin would have been 31.1% compared with 28.5% in the year-ago quarter. We continue to capitalize on the strong economy the scale and scope in our business model which enabled us to real life significant operation efficiency while concurrently maintaining our important investments in the key sales and product development areas. In the third quarter, under mark-to-market accounting, we recognize a large non-cash loss of RMB 351 million associated with the change in the fair value of the convertible notes. During the third quarter, the trading price over our ADSs on the NASDAQ increase significantly which resulted in the corresponding rights in that value of the convertible notes. Now as if notes are liability on the company's balance sheet, the increase and its sale value was recorded than as a loss on our P&L although it has no impact on a company's cash flow our cash position. Also in the third quarter, we recognize a non-cash foreign exchange loss of RMB 2 million due to the change in the value of the RMB against the U.S. dollar and its impact on our U.S. dollar cash deposit and U.S. dollars denomination convertible note. Other income in the third quarter included RMB 4 million in local government financial subsidies compared with RMB 23 million in the third quarter of 2016. In the first nine months of 2017, we have received a total of RMB 75 million in subsidy compared with RMB 87 million for the comparable period in 2016. Due to the significant impact of the change in the fair value of the convertible notes, we've recorded a net loss attributable to 51job of RMB 167 million in the third quarter. Basic and fully diluted loss per share was RMB 2.76 or RMB0.41 per share. Now excluding share-based compensation expense, loss from foreign currency translation and change in fair value of the convertible senior notes, as well as the related tax effect of these items are non-GAAP adjusted net income attributable to 51job increased 22% to RMB 210 million in the third quarter. Our non-GAAP adjusted net income fully diluted EPS was RMB3.32 or RMB0.50 per share which is above the guidance range of RMB 3.1 to RMB 3.3, that we have provided back in August. In September, we enter into an agreement to become the largest shareholder in Lagou Information Limited. We are in the process of completing the transaction and while we expect closing before year-end, we are not including at this time, any contribution from Lagou in our fourth quarter forecast. Turning now to our guidance based on current market conditions, our total revenue target for the fourth quarter of 2017 is in the estimated range of RMB 825 million to RMB 845 million. For the non-GAAP fully diluted EPS target, our estimated range is between RMB 3.9 and RMB 4.1 per share under the if-converted method. Please note that this non-GAAP EPS target range does not include share-based compensation expense, the impact of foreign currency translation, any change in the fair value of the convertible notes nor the related tax effect of these items. Total share-based compensation expense is expected to be between RMB 23 million and RMB 24 million for the fourth quarter of 2017. Guidance for earnings per share is provided on a non-GAAP basis due to the inherent difficulty in forecasting the future impact of certain items, such as the gains and losses foreign currency translation, and the change in the fair value of the convertible notes. We are not able to provide a reconciliation of these non-GAAP items to expected reported GAAP earnings per share without on a reasonable effort due to the unknown effect and potential significance of such future impacts and changes. This guidance reflects our current forecast which is subject to change. This concludes our presentation. We will be happy to take your questions at this time. Operator, please go ahead.

[Operator:]

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Your first question comes from Wendy Huang from Macquarie. Please go ahead.

[Wendy Huang:]

Thank you, management and congratulations on the solid result. I have three questions and I will ask one by one. Can you remind me of the convertible notes terms from the top of my head is not really-- structure? So is there peer co-option held by the notes holders and also can you remind us the dilution impact on the EPS and also expiration date etcetera.

[Kathleen Chien:]

Yes. Hi, Wendy, thank you for the question. The convertible notes were issued in April 2014, and is the five-year term, so it comes for expiration in 2019. It is actually a total of CYN 172.5 million that was issued at the time and that would actually effectively have converted into about 4 million shares EPS. The significant impact created by this particular fair value assessment this quarter if due to the fact that because our share prices increased very significantly during the third quarter. The price of the convertible note as it is tied to the underlying shares has within concurrently and so we had to take a fair market value loss as the value of the convertible note has written in line with the shares. So that is the situation.

[Wendy Huang:]

Thank you, my second question, about your NII strategy, obviously you have a step up to your investment with the cash on hand in past two years. That, I'm actually very surprised to see that you have actually spend your largest actually since in IPO on more social networking recruitment platform like Lagou. From what I record the management comment in past several years I think you have being kind of I think that the banking type of social networking recruitment side actually can't ready to roll in China. So what actually has changed your view on this particular company's motto made a big decision to make this definition and also can you give some color on the [indiscernible] profit or loss of the Lagou and also is customer overlap with 51job and also can you clarify given the comment you made in the prepared remarks about Lagou saying that is technology and more engineering talent recruitment platform. So if this investment also more good to compliment your existing recruitment verticals. Thank you.

[Kathleen Chien:]

Okay, I would try just to try to maybe just a little bit more than Wendy I think that actually our perception maybe of Lagou's current positioning maybe slightly different just point in time it sounds like from what you just said, but Lagou to us is actually a very clear kind of vertical wise focus in terms of the strategy, if you actually go on the website or you look at its if you will. It is actually mainly focused on technology talent and its customer base is really primarily for companies that are in tech space or internet if you are. In fact they kind of really have a very large position and they so called internet industry overall in China which is, we see very important one if you are, not sure that there is that much sort of kind of a SNS component to Lagou as it currently stands except from the fact that it is very much active in the internet community but in terms of the services and how and the products work is not really quite in the same way as how LinkedIn will work if you will, so I think that the positioning is a little bit different from maybe what I thought you had described a little bit earlier. In terms of just it's how we feel that it fits in our portfolio in a way it is actually a very similar rationale could how we actually approach the in just in transaction which is that we feel like that the consumer that are users on that particular platform have very similar a characteristic whether or not there graduates looking for their first job which is what the profile of Lagou which is for the technology talent or people looking for position and work in the internet kind of that business in industry, I think that kind of the rationale that we went to market with when we actually approaches particular investment. And then finally, just in terms of these financials if you well obviously it's a little bit early we're still in the process closing the transaction but in terms of its current size versus where 51job is overall it is still actually relatively small and that it is something that will be working and collaborating with together to continue to push on more customer type penetration on going forward. 51job has a very, very large and significant sales force and it is something that we feel that we're actually be very useful as we bring Lagou into the portfolio or family of service is the pride that we have and we believe that this will be very strong synergies that would you connect you from that end.

[Wendy Huang:]

Thank you. Just to follow-up on that so in term of this 119 million configuration, you are paying for what kind of Asian net surge did you use, that is actually where that came from asking it?

[Kathleen Chien:]

You know valuation is always a part negotiated outcome part reference on previous rounds of valuation or fund raising that had done and also in consideration of the potential of that we feel that we could achieve as a company in the long term. Comp at the current stage that $119 million investment it's for our 60% stake. So the implied valuation is clear from that at this point in time. So but the key to for us is really not just a short term what it is not but really what we believe that we could achieve together as we come together as partners.

[Wendy Huang:]

My last question is on your BPO. Can you give us an update on your BPO customers ARPU and also customer comp? Thank you.

[Kathleen Chien:]

We don't actually provide sort of ARPU on HR side, it's really not how we look at the business but I think on term of the number of customers I think we are still making progress but relative to the overall number of customers reserve being on the recruitment side is still very small. Current penetration and we are talking about still probably which fall in less than 10,000 companies still in the HR customer account at this point. So it still kind of 2%, 3% penetration of our total customer base. That is where it is today.

[Wendy Huang:]

Thanks Kathleen. Thank you.

[Kathleen Chien:]

Thank you, Wendy.

[Operator:]

Thank you. Your next question comes from Hillman Chan from Citigroup. Please go ahead.

[Hillman Chan:]

Good morning management. This is Hillman calling on behalf of Alicia. So my first question is regarding your 8% year-on-year increase in the ARPU. Could you share more on your partners in particular in what type of customers and how should we think about ARPU trend going forward. And I have some more questions.

[Kathleen Chien:]

Hi, thank you for the question. Just on the ARPU side and we already see this is something that were just working on for this quarter in particular, but it's an effort that we been actually undertaking for the last two years as we have actually gone through some sale reorganization or re-alignment a few. I think our status kind of recall was that we would try to achieve growth not just from a volume perspective, which is more customer account, but I should really try to dig deeper into the customer budget for existing customers, they have worked with us over the long term and I think that we feel that this is something that we made steady progress on over the last several quarters. It's a little bit planned this perhaps, but as a fact that we actually moderate a little bit on the customer addition, so then you can actually see the ARPU list come through a little bit better. Last quarter, obviously our customer account was up even higher but that then kind of sometime disgust it the effort that our team has been making in terms of penetrating deeper into existing customer base if you will. In terms of how is that get achieved and obviously we feel that we have a lot of product and services that we can sell to customer and the ability for our sales force recommend customer take on more product within the family of service is what drives that. So a lot of the up selling is part of this equation and that is focused on the sale team in terms of working with customers that have history with us.

[Hillman Chan:]

And other question is about the sales productivity. Could you share more on the total headcount, also the sales account as of now and what's your hiring plan for next year in particular in business lines?

[Kathleen Chien:]

Yeah, I'm sure on the headcount part, I think that yes, we have actually continued to add to our sales force and that is actually something that we will continue to plan on going forward more specifically our salesman, account management headcount stands at about 4,150 at this point and that is actually up by about 250 versus last quarter if you in terms of number of people. And then in terms of where we are going to head out next year I think we are little bit early to be honest at this point, I think that we will have a better sense of what the market environment looks like after and then we will then calibrate our sales kind of addition plan. But it is definitely something that we will continue to add to it doesn't matter what not is going to single digit kind of percentage increase or as it hire then based on market environment.

[Hillman Chan:]

Also a follow-up on the Lagou acquisition. How should we think about the potential impact it would be - and I know there is small piece to you, I just wonder have difference of that on the top line impact is possible. And should we be expecting any integration to enhance on them in term of the operation and also the sales force traffic direction and so. Thank you.

[Kathleen Chien:]

I mean Lagou, obviously this is going to be important part something kind of comes into the portfolio next year, and its little bit early for us to actually give more details as we said earlier that we haven't close the transaction but I think that we will definitely be able to apply more color on this when we actually have the call for Q4 because I expect that will have more information and more complete information at that point in time. At this point, obviously we at current scale Lagou is still small percentage of what 51job is so but I think that's the key again is to focus on what we could be together rather than what it is today. In terms of how we will be working together, I mean we will expect that the team will maintain its independence in terms of day-to-day certain and that product development, network and maintenance in the whole team if you will, and operation will continue to remain independent. Hope we certainly expect that there will be synergies on their sale side and that is something that we will be working on to make sure that the integration and better leverage that we combine resources of the two teams. Well then benefit both Lagou and 51job in a long term and making sure that, we are serving customers overall in a more integrated manner, so that's how we are again providing the best solution in market place for recruitment of talent.

[Hillman Chan:]

Thank you very much Kathleen.

[Operator:]

Your next question comes from Thomas Chung from Credit Suisse. Please go ahead.

[Thomas Chung:]

Hi, good morning management. Thanks for taking my question. I have a quick question about the ARPU trend. I just wonder if you have sense about how of the ARPU increase is coming from sales force and how much profit actually coming our new product offering. Just want to get a sense about if there is any new product that will be launched in the third quarter that we target but activating this then how you drive the ARPU growth? Thank you.

[Kathleen Chien:]

Thanks for the question. I mean I think from our perspective is really about more uptick of the various product line rather than - to be honest every year we actually introduce new product into the portfolio but the key is really to make sure that customers are aware and actually start using this service is more fully. So I think the way we look at it that it's really about the up selling rather than that, we try to move prices - like that, so it's the ability for our sales force to guide our customers who are familiar with our baseline services of letter posting and resume download maybe into some visibility packages other things where it would help drive traffic to their openings and that's will help them achieve a better outcome from recruitment purposes. And then obviously we talked before little do about this year adding on candidate background checking, we done some internal referral product and number of things we planned to tend do at asset portfolio and that's kind of an ongoing exercise, but the key is really to make sure that we get more customers aware and uptick these newer products within the family of [indiscernible] and that's what comes to in terms of ARPU.

[Thomas Chung:]

Yes, thanks. May I ask a quick follow-up question is about our M&A strategy? This should be fair do more M&A next year, across different verticals. Thanks.

[Kathleen Chien:]

I guess in a way, our strategy is the same in term of how we approach the market, whether now there will be more or less it's something it's hard for me to predict specifically, but I think that 51job in the last two and half year have I think demonstrated the ability to integrate partner in to our portfolio and to be able to actually push product through are sort of extensive sales network and that's where we actually seen the benefit, of course customers being happy and able to use newer services to kind of achieve their, whether to recruiting purpose or employer retention purpose, whatever that they need to make their organization better but the same time to have our customer to be more loyal to 51job platform overall as we actually bring more products and services online. I think that yeah and we will continue to be very active in the M&A space and that we certainly welcome anybody to bring new ideas and thoughts taking to us to see how we can - to work together to better help our customers overall at the end you know achieve their needs.

[Rick Yan:]

I may just add that our view in the market, our strategy is that the sophistication of the HR department in China is increasing and there will be more specialized product and services you know things like IT verticals will become important part of the - more important part of the market going forward. So our strategy is we need to continue to expand our portfolio of products and services and either to internal product development or full M&A to have a more complete portfolio. I think the second angle on that is in the past two years, you know Kath mentioned earlier, we have quite successfully integrated you know some of the investments we make not only just making investments but to have business cooperation on the products particularly selling product for our sales force. And we have demonstrated a track record there we are good at doing this. I think going forward, you know having a more complete portfolio of product and services in an increasingly sophisticated China HR market will be up to core our strategy and M&A will always be a complement to our internet product development efforts.

[Thomas Chung:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Your next question comes from Ryan Roberts from MCM Partners. Please go ahead.

[Ryan Roberts:]

Good morning, Rick, Kathy and Linda. Thank you for the opportunity to ask question. I had a couple. First is kind of on the unique employer addition trends, it looks there was kind flat this quarter and you add about 150 or so, I am just kind of curious if you can give us some color on what's happening on that front, I think you just mentioned that you managed about the sales force now, obviously stepping up in size and I would think that would translate to new customers adds. Is something seasonal there or maybe any kind of just color you can share will be helpful?

[Kathleen Chien:]

Ryan, I think we - our customer account is up about 14% year-over-year. I think is actually fairly in line with our expectation. So I am not sure if there is a - we've crossed away a little bit on this one but I think there is nothing you know particular in this quarter that was unique. So I think we feel that we are actually on track with new sales people coming to the sales force and obviously not day one that they become productive, so there is a little bit of a lag that they could be well. But I think that we feel that everything is trending is normal kind of ways.

[Ryan Roberts:]

Okay. I'll make a quick follow-up on that so then in terms of the overall I guess on a sequential basis, should we expect is going forward is kind of the adds to more seasonally heavy in the first half or maybe sequentially is not to look at that or just any color that will be helpful.

[Kathleen Chien:]

Yeah, we don't look this sequentially, obviously because I think business if you will usually for example first quarter, there is a lot actually after seeing why but you know given we're seeing why fall sometimes it's little bit more in the first quarter, sometimes it's kind of the back in the first quarter and then kind of the balance of how things work out. But I think still it's not to look at things on a year-over-year basis. So that's kind of the trends that we should be really focusing on little bit more.

[Ryan Roberts:]

Okay. So maybe just kind of switching the outlook for Q4. Just can you just give us a sense of, is that maybe I know you guys don't break it down by business line, give us a sense of, is that more possible more that's online recruitment or alternatively is that EPO, or is kind of where is most of the growth coming from, it seems like there is definitely an uptick?

[Kathleen Chien:]

You know if you look at our Q3 results, I think we feel that we've been pleased with actually all of our product line this year like everybody is really on the up to standards or above you know our expectations if you will. I mean we actually had a good beat on the third quarter, which I think actually across the board if you will. So we hope that you know as we've always want ourselves as more of inner company rather than product specific company. So I hope that in a stable recruitment environment where I think that you know there is no external factor impacting demand if you will that we hope that the positive effect can be translated and reflected in all client. And we think that actually the trends should not be that different between the two segments if you will in the fourth quarter either.

[Ryan Roberts:]

Got it, okay. And just kind of one final question really just on the balance sheet. It seems like another quarter the overall cash balance continues to kind of move higher, I am just kind of curious that management has been considering many kind of cash return to shareholders the M&A that we've been getting involved hasn't been terribly large, just seems like we're in quite cash quite heavily, I am just kind of curious how with that?

[Kathleen Chien:]

Well, firstly the quarter end number doesn't reflect that the fund we need to pay for the investment, so maybe it's slightly integrated. But regardless I think obviously I did something that's more permanent as a point that the company is accepting. I think that this is something that will have a more consideration, more weight on going forward. So that is a relevant question that we're exploring.

[Ryan Roberts:]

Got it. Just real quick, so Lagou acquisition was about 150, so what was that number again?

[Kathleen Chien:]

120 about.

[Ryan Roberts:]

120, okay, so yeah, 1.12 billion on the balance sheet, so that's about a billion. Okay, thank you very much, that's all from me.

[Kathleen Chien:]

Thank you.

[Operator:]

Thank you. Your next questions comes from David Li with Lizard Investments. Please go ahead.

[David Li:]

Hey guys, thanks for taking my call. I missed the first half. Just curious what's drove ARPU outperformance and how much of it is tax, how much of it is the mix and maybe give maybe just your - by chancing your sense on the acquisitions you made how they are translated into you know sort of improving ARPU? And I have a couple of follow-ups.

[Kathleen Chien:]

Well, ARPU actually is only specific to the online product services, so that doesn't have too much impact on the current M&A situation. So the ARPU increases actually comes from the efforts of our team to actually be more successful in upselling product in the portfolio services online. So that's kind of where it is. In terms of then just maybe the M&A strategy overall, this is something that in the last two and a half years, we've been lagged in and I think the new products and services that we brought into the portfolio has been something that we are exploding kind of integrated into you know our portfolio for our sales people to push to customers and that is something that's been helpful. But that's again that's not really what we're - is really the key focus of ARPU per se because some of these services we are talking about may not necessarily be in the online recruitment space.

[David Li:]

Okay. And also on the unique employers, can you just give us little perspective I think in the teams in volumes, how should we just - I mean if couple of years from now how should we think about overtime, is just something that could potentially accelerate too much higher rate or is it something where fairly normally in the current environment, can you just give us sense like about that?

[Kathleen Chien:]

As of end of the last year in terms of the full year, customer account were about 460,000 customers I think are stated and purpose is really to get to 1 million down the line. So we're kind of making steady kind of marches ahead towards that goal. Still I think that as the number continues to get bigger in terms of the base, I don't expect that you know we should be accelerating the growth rate per se to the customer account because that's actually just a lot of customers we are dealing with and that is not necessary about the best way for us to achieve growth in the last few years and this is why I think maybe the question you had early about ARPU is also important that we feel that the way to go forward and that's a sustainable and healthy growth issue we just focus on part customer account growth which is volume and then part ARPU growth which is the ability for sales people to have our customers is actually spend more with us overtime. So I think that's going to be focus and it will be kind of hopefully a balanced approach. So I do not expect that the customer account per se in terms of growth rate to accelerate because I don't think that's really our focus and it's not really necessary healthy or profitable to do.

[David Li:]

Okay. And also, just on margin leverage because obviously you guys have tax flows there right so I think kind of looking at a margins on a percentage gross profit and while is little bit more significant. Can you just talk about I mean obviously you guys are not managing on that basis but, can you just talk about what's been driving I mean obviously as you grow your scale pretty nicely, the margin leverage is coming back, how should we think about this kind of going forward, I understand that your goal is not to you know you don't care about obstacle operating leverage. How should we think about just the incremental profitability from you know incremental gross profit dollars overtime and how is that vis-à-vis versus you know scale drawbacks?

[Kathleen Chien:]

You know our business is really more of a service business and that's pretty scalable in the sense that for us I mean a lot of our cost is actually in people. And so every year when we look at our budgeting process, I mean a lot of it is really kind of setting a tone for how many people are happy and will prove related cost to that. We kind of study baseline if you will in terms of our cost structure. And then you know in relation to and then we also have a sale budget a top line. Now if we are able to growth our top line higher than what we expect, usually that flows very nicely to the bottom line because you know the cost structure is relatively fixed if you would think of it that way. So that's kind of that situation. From our perspective, you look back historically a little bit more, we expect that given that ways inflation is always been very healthy in China, we expect that we would have to do double digit in terms of growth every year totally to have any chance of having leverage if you will. So I think that's really about how we manage our teams in terms of the cost side and then we have to make sure that we are getting the uptick in the revenue. So it's kind of what we kind of get the balance between the two numbers to discreet our margins if you will. And if you look at again what we've done in the half, I mean more the savings comes from the gross margin lines and also some of the takes from G&A and we're not really taking leverage on the sales and marketing side, because that's something that we feel like it's very important to push for the top line growth. And we are still in investment mode on that front, so that's how the picture will look.

[David Li:]

Now that's terrific. Now really excited to see that. And so I mean the closer line is little bit closer to the end and I just on it - because I will go back to the online product side ARPU because I remember like I was looking at presentation ARPU is like the first time in a while where ARPU is actually taking up, can you just specifically talk about what's the upselling like where are these new products, is it testament or is it recruiting, I mean I don't know exactly, is there any particular parts that jumps out that there is some issues that is finally playing out that is present in the past, can you talk more detail on that front?

[Kathleen Chien:]

I don't think that is any single product that we've introduced has been driving this, it's really the combined efforts of some of the work that we've done in terms of a realigning our sales team and making sure that people are really focused on this particular point in that sales process. I think for a long, long time in the 51job's history, we were very much kind of beating down this for everyone focused on getting new customers as the number one metric, number of customers really the number of one metric that we kind of always merged our team on but that's that changed in the last two years if you will. And that's been a transition if you will. So I think we are finally starting to see the fruit of that change of view and that's kind of coming too slowly. And then you know last quarter, I think again the focus has been the same but last quarter our customer count was actually even higher than what we had planned for in a way and still that has a dilutive effect on ARPU and it kind of that the effort has been put in. So this quarter is a little bit more balanced if you will but it is something that's been ongoing and it's not for single product per se and it's something that will continue to push forward on it for sure.

[David Li:]

Okay. And maybe on competitive environment, is there any I mean obviously your other competitors I don't know still going or whatever they are doing, are you guys seeing anything on adjacency just you know potentially longer term where are in terms of rational or how just - cause the competitors setting working right now in terms of you know it seems like there is only still couple of horses in it not anyone you know but maybe you can help us understand how much of the volume growth or even the ARPU some of it may be driven by fact of the supply from you and the other guys are probably getting little bit less overtime, so it's better environment for everybody?

[Kathleen Chien:]

To be honest I mean I don't think anything we've done is related to our competitors done. And in particular one you mentioned, they have gone private technically at the end of September. So there will be a little bit less digitally in the short term about their information if you will. But I think that you know we feel that our strategy and our focus, our execution is something that we've been - it's been a consistent kind of plan that we've been on and we've taken that path for the last few years and it's not really relevant to what so called competitors doing. So that's not really what's driving us if you will. So - but I think that we continue to feel that there is a lot of run way for us overall in China we feel like in the HR industry it's a growing industry, customers are being more sophisticated overtime and then broader set of needs overall that needs to be served. And I think that this is a great opportunity for us and we feel that we are very well positioned for this growth given the fact that we've been able to successfully welcome and integrate a number of new products and services whether or not those are kind of in-house you know grown or after investments and acquisition. So I think that we feel that we are in a pretty good place. We have a lot of room to growth and we hope that will continue have good results to report.

[Operator:]

Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over for any closing remarks.

[Rick Yan:]

Thank you for joining us today. We look forward to speaking with you next quarter and we value your continued support of 51job. Have a good day. Bye-bye.