51job, Inc.
Q4 2017 Earnings Call Transcript

Published: 3 Mar 2018

[Operator:]

Good evening and welcome to the 51job, Inc. Fourth Quarter and Fiscal Year 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, VP and Head of Investor Relations. Please go ahead.

[Linda Chien:]

Thank you, Michael, and thank you all for attending this teleconference to discuss unaudited financial results for the fourth quarter and fiscal year ended December 31, 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 fourth quarter of fiscal year 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 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 will 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 fourth quarter and 2017 followed by Kathleen with a detailed discussion of our financial results and our guidance for the first quarter of 2018. Finally, we will open the call to your questions. We are very pleased to deliver a robust fourth quarter to cap off a memorable 2017. Total revenues came in above our forecast and grew 26% to RMB872 million. The combination of this better-than-expected top line and natural operating efficiencies in our business model led to a record quarter of profitability with non-GAAP EPS of RMB5.01. The online business maintained healthy growth of 23% in the fourth quarter. This was realized again through the deployment of a high-quality growth strategy that combined both new employer additions and greater spending by existing employers. We continue to expand the customer base and the number of unique employers increased by 10% to 371,000. At the same time, we more than offset the negative drag of new users by up selling to established customers and we lifted overall ARPU by 11% in the fourth quarter. Our sales force is performing with focus and motivation to capture a greater share of our customers recommended budgets. As we widen the breadth of our online platform and products, we are well positioned to create additional revenue streams and monetization opportunities. In the other HR services area, we are glad to be firming back on a high growth path. Other HR revenues increased 30% in the fourth quarter and contributed over 40% of total revenues, its highest level ever. We saw a banner season for our campus recruitment services, significant customer uptake of our assessment services and increased usage of our BPO services. Our promotion efforts this year have elevated customer understanding and driven adoption of these value-added services among sophisticated clients. In addition, our improved integration of these services, with online recruitment, has been very well received by employers, providing a complete package of solutions and measurable results. As the HR market evolves in China, we'll continue to be proactive to develop, acquire and combine more product offerings across the entire HR value chain. Looking back on the whole year, we highlighted three key themes in our business that make 2017 very rewarding. One, in the area of product development and rollout, we saw good interest in new services as well as continuous effect in getting employers to utilize multiple services and platforms under the 51job umbrella. For example, our online background checking service which was launched about a year ago has been purchased by more than 2,000 companies for candidate investing and verification. Through the combination of our offline campus services, Yingjiesheng.com, the college graduate recruitment website that we acquired in 2015, we promoted and coordinated events for employers at more than 400 universities in China. Also joining us in 2015 was [indiscernible] whose assessment tests and tools span over 50 SKUs and have been used by thousands of companies to evaluate potential employer - employees. We will further differentiate 51job with our unique ability to effectively address the full spectrum of an HR department’s needs with in-depth industry knowledge, professionalism, and dedicated customer support. Two, we are connecting more closely with and speaking more directly to job seekers. Just as employers have become more selective and sophisticated overtime, so have job seekers, especially hiring skilled workers and professionals about what opportunities meet their career goals and where they share their personal information. We now have four distinct online platforms with their own respective mobile apps. Our flagship 51job.com, Yingjiesheng, [indiscernible] and Lagou. Each brand has rich content specifically targeting the interest of their audience, which we believe has deepened our relationship with job seekers and earned their trust. We are committed to building HR brands end-user commodities synonymous with quality and excellence. Three, on the back of many more products and channels through which we can engage with customers and job seekers, we saw significant progress in sales efficiency and productivity. On the online side, the growth rate in the number of unique employers outpaced sales account growth and ratio of 2.5 to 1 in 2017. Simply said, we did more with less and on top of this, we meaningfully increased overall online ARPU by 7% in 2017. Also, the improved revenue trajectory of the other HR services area reflects our strengthened sales network. The obvious tangible result of these overarching themes was a set of solid financials in 2017 which we accelerate better growth, generated higher profitability and realized greater shareholder value. We carry this momentum into 2018 with a clear blueprint to further cement 51job’s position as the leading HR services provider in China. Turning now to our current market assessment based on just a few days of course Chinese New Year data, our initial read of the 2018 recruitment environment is favorable with sentiment in line with last year. Our conversations with employers have been positive as they are confident and have business expansion on their minds. Despite a delayed start to the peak recruitment season due to the peak recruitment season due to the late holiday in 2018, we are upbeat about market demand and conditions and we look forward to successfully executing our action plan for the year. As 51job celebrates its 28th anniversary, we are more committed than ever to serving Chinese employers and job seekers with high quality innovative and comprehensive solutions that address all of their recruitment and target management needs. While we look back relatively and well we have come from, we feel even greater excitement about what lies ahead. 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 reporting currency of the Chinese RMB, 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 fourth quarter of 2017 were RMB872 million, representing a 27% increase. Online revenues for the fourth quarter grew 23% to RMB519 million, due to both new customer acquisitions and a significant raise in the average revenue per employer. The number of unique employers increased 10% to 171,000 companies compared with 337,000 in the year ago period. Up selling by the sales force saw terrific results in the fourth quarter and our overall online ARPU increased over 11% despite the dilutive effect of new customers. While we have two sales objectives of increasing customer count as well as revenue per customer, we expect that the contribution of volume versus ARPU to total revenue growth will fluctuate between quarter-to-quarter given seasonal recruitment patterns. For the first half of the year which includes the posting where recruitment peak period is likely that we will see more customer additions and for the second half of the year, better ARPU growth. Revenues for other HR services increased 30% to RMB353 million in the fourth quarter. The growth was driven by robust demand for campus recruitment services, clear uptake at the training and assessment services as well as the increased usage of BPO services. We are very pleased to resume to our faster pace of growth after a couple of years of regulatory hurdles and headwinds that impacted our ability to outreach some of these value-added services to enterprises. We continue to see tremendous potential of the other HR services area and we will look for more ways to cross promote and drive customer adoption of these services. Gross profit grew 30% to RMB633 million, and gross margin improved to 73% due to economies of scale and operating efficiency. Included in cost of services in the fourth quarter was share-based compensation expense of RMB3.6 million. Sales and marketing expenses increased 18% to RMB240 million in the fourth quarter. The increase was primarily due to higher employee compensation expenses, headcount additions as well as greater advertising spend. Included in sales and marketing expenses in the fourth quarter was share-based compensation expense of RMB3.1 million. We will continue to invest in the sales force and support their efforts with marketing and advertising particularly during the current post CNY peak season as well as many customers activities and events throughout 2018 related to our 20th Anniversary Celebration. G&A expenses increased 3% to RMB76 million in the fourth quarter. The increase was mainly due to higher employee compensation expenses. Share-based compensation expense included in G&A was RMB14.3 million in the fourth quarter. Our income from operations increased 51% to RMB317 million and operating margin was 36.8% compared with 30.5% in the year-ago quarter. Excluding share-based compensation expense, operating margin would have been 39.2% compared with 33.5% in the year-ago quarter. Due to the change in the value of the RMB against the U.S. dollar and the foreign currency impact on our U.S. dollar cash deposit and U.S. dollar denominated convertible notes, we recognized a foreign exchange gain of RMB7.7 million in the fourth quarter. Under mark-to-market accounting, we also recognized a loss of RMB4.8 million in the fourth quarter associated with the change in the fair value of the convertible notes. Other income in the fourth quarter included 11.5 million in local government and financial subsidies compared to 9.8 million in the fourth quarter of 2016. The net income attributable to private 51job for the fourth quarter was 305 million and the fully diluted EPS was 4.42. Excluding share based compensation expense, gain from foreign currency translation, the change in the fair value at the convertible notes, as well as the related effect of these items, the non-GAAP adjusted net income attributable to 51job increased 48% to 323 million in the fourth quarter. The non-GAAP adjusted fully diluted EPS was RMB5.01 or U.S. dollars $0.77 per share. Now for the full-year results. Total revenues of 2017 increased 21% to RMB2.9 billion, our online revenues grew 21% to RMB1.8 billion and comprise 65% of our total revenue. The growth was driven by a balanced approach which saw both volume and ARPU increase. The annual count of the unique online employers grew 13% to 519,000 companies and online ARPU growth more than 7% in 2017. Other HR services revenues grew 22% to RMB1 billion in 2017 and contributed 35% of total revenues. Gross profit increased 24% in 2017, to RMB2.1 billion and income from operations increased 42% to RMB871 million. Net income attributable for 51Job was RMB372 million and the fully diluted EPS was RMB6.08. Excluding the share based compensation expense, the gains from foreign currency translation, the change in the fair value of the convertible notes as well as the related tax effect of these items, non-GAAP adjusted net income attributable to 51Jobs increased 32% to RMB950 million in 2017. Non-GAAP adjusted fully diluted EPS for 2017 was 15.16 or US dollar 2.33. In December of 2017, we closed the Lagou transaction, the total purchase price was U.S. dollars $119 million and funded from our existing cash resources. Lagou has been consolidated into 51Job as of December 31, 2017, however as the transaction we just completed before our year-end Lagou’s contribution to us was immaterial in 2017. Turning now to our guidance, based on current market conditions, and factoring in the effect of the Chinese New Year holiday in 2018 and the inclusion of Lagou going forward, our total revenues target for the first quarter of 2018, is in the estimated range of RMB755, to RMB785 million. For the non-GAAP fully diluted EPS target, our estimated range is between 2.8 and 3.1 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 RMB23 million and RMB24 million for the fourth quarter of 2018. 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 unable 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 will 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, congratulations on the excellent results and hope cashing can recover soon. I have several questions. So I will start with the guidance. So what would be the revenue and EPS guidance if we exclude the impact from the Lagou? And I assume Lagou probably had positive impact on this revenue guidance, but negative on the EPS guidance here? Thank you.

[Kathleen Chien:]

Hi Wendy thank you for the good wish for me to go get better. So I apologize to everybody for the very strange voice I'm using to speak on the call today. But in terms of the Lagou consolidation, we are not expecting that Lagou will become a significant part of our top-line at this point in time given its current scale. And all I can say you that today is that they will be still contributing single-digit percent of our total revenues. So that’s kind of the magnitude of where Lagou is today in Q1. You are correct in assuming that Lagou is not profit making at this point, so that’s probably [indiscernible] should have a negative impact on our margins in the short-term. So that is what is completely factored into the guidance that we gave today.

[Wendy Huang:]

Okay. And also your other HR, BPO services revenue accelerated significantly to 70% this quarter. What is the driver behind that and how should we expect the growth of this business segment in 2018 and also longer term?

[Kathleen Chien:]

A couple of things that we have been very pleased about is that obviously last couple of years we've had a few sort of regulatory kind of a headwind against us on the BPO side. So that has impacted our ability to outreach to new customers or on-board new customers or have some negative impact due to taxation policies. So that’s clearly behind us. So I think we are kind of returning to a more noble track. And then on top of that, I think that we have been able to see very well that we had very good uptick of all of the other services that we have been pushing through in the last year and half including more assessment, testing services, training services, RPO-related services. So I think that it’s really been a very positive quarter in terms of seeing the uptake of a lot of the newer services which are all bundled into the other HR segment. And finally, because it’s actually deferred quarter seasonally speaking campus is a very big contributor and we did see very, very strong demand in that particular area as well. So there is also reflected into our Q4 results, if you will. So I think our hope is that we see other HR will continue to have strong growth that will keep in line with our total expectations if you will and that hopefully it will maintain a pretty high level for 2018.

[Wendy Huang:]

And can you clarify, is Lagou’s revenues included in the online recruitment or the other HR segments?

[Kathleen Chien:]

Lagou’s revenues will likely be mostly consolidated to the online.

[Wendy Huang:]

I see. And also you mentioned lots of synergies you have achieved in the past two years after you have made several M&As. So can you give us some color regarding the potential area you will be looking at to strengthen your business to make more investments?

[Kathleen Chien:]

Yes. I think when we, again, in the years that we have been working in this HR services area in general. I think what we have always said recruiting is the first starting point that we engage with customers. From that point on, I think there is many, many issues that an HR department has to deal with when they bring people on board. And they also need to deal with the routine administrative side, which is manifested in the BPO business we have. There is also people development, retraining or reassessment, which is again the training and assessment products we provided. There are business intelligence information of how the market is forming, where talent is honed, compensation and benefits studies. So there are so many things that are, I guess, in a way, niches or verticals within HR that is not fully explored and not fully formed if you will in China and then the company set we worked within the past. So I think what we have been able to do is that, again she try to bring product and services that we feel really has a position in the marketplace that should be able to grow and then we can seed it. And then with our sales distribution network, we have very, very good coverage with customers that we are able to kind of put together solutions to help customers better serve their companies, if you will. So I think the HR department and us are partners with each other in many ways and I think we will continue to look on figuring out ways to help them address some of the issues and challenges that they have got in their day-to-day work.

[Wendy Huang:]

I see. And also based on [indiscernible] we actually noticed that you guys have sent notice to some of your customers to increase the price effective February 1st. Can you give some color on this price increase? Is it a nationwide cost increase coming to all the customers and how big in general magnitude would be and how would this actually impact your 2018 revenue?

[Kathleen Chien:]

Yes, so there are some recent changes to some products within our portfolio so there were some price changes that we have done and which just went into effect in February as you say [indiscernible] notice. We don’t necessarily send out notices to our customers for these things because our customers come into our portfolio and renew their contract at different points in time. So it’s kind of an ongoing process always if you will. But yes there are some product that we actually made some adjustments and some of them were a double-digit in nature, but again this will be something like it’s rolled out and it takes time to [indiscernible] if you will. So if you purchase something in January, it will be at a previous price and we won’t see any of these sort of the effects of any sort of price changes until next year when they will potentially. So we work though that and we will be updating you our guidance every quarter based on how that’s moving and that should be able to give people a better picture at the proper time.

[Wendy Huang:]

Okay. It seems that competitor, Zhaopin, is going towards the opposite direction. They started adopting this freemium model since last year. I just wonder whether this actually have increased the competition pressure on you guys. If not, how will you kind of react to their new model change.

[Kathleen Chien:]

I think simply put for us we don’t think that - but let’s say think that there is no pressure I don’t think to be in position to raise our prices if you rise. So I think the customers pay for value I don’t think prices with only consideration in the decision that they made to the partner that they work with. And I think that we have demonstrated value in the marketplace and I feel that we are in a position to also receive appropriate compensation from our customers. So that’s how we view down the relationship between us and our special customers. In terms of Zhaopin decision to go to a freemium model, really I think that’s actually the Lagou model as I understand how they charge. So I guess maybe they are trying to think of their business in a very different way and maybe trying to find a different path for themselves. And so that’s as far as I guess I can comment, we will not expect [indiscernible] ask them directly, if you will on our strategy, but we don’t feel that these changes in any of the landscape of the competition to us and how we serve by customers and I don’t think price as the other thing, the only factor we look at and it shouldn’t be the only factor that customers use or a criteria to make a decision.

[Wendy Huang:]

I see. I have one last question, sorry for the long list of question. The Q4 earnings date I think are partly due to the cost control we saw in the Q4 but if I recall correctly, Q4 used to be the high season for both your G&A cost and also sales and marketing, but it doesn’t seem to do the [indiscernible] for this quarter. Is it due to the late Chinese New Year and should we expect some other cost savings in Q4 to the lesser extent or how should we look at seasonality on the value and cost side?

[Kathleen Chien:]

To be honest, there has not been any change in terms of this seasonality in spending, I think we actually saw better profitability in general, because we do not our budget if you will, we guided to a certain revenue levels and we ended up coming in a bit above that if you will. So for us we have always emphasized, how total revenues is really the driver for our overall profitability and for us to deliver above expectation revenues that usually translate to a bottom line. So I don’t think that I would characterize the margin improvement in Q4 as a cost saving that we had done, its more that, I think that we were able to actually get better revenues based on our existing resources and cost structure and that’s what came out.

[Wendy Huang:]

Thank you, thanks a lot.

[Kathleen Chien:]

Thank you.

[Operator:]

Thank you. Your next question Alicia Yap from Citi Group. Please go ahead.

[Alicia Yap:]

Hi, good morning, Rick, Kathleen and Linda. Also congratulation on a very solid quarter and also the good guidance. Thanks for taking my questions and also Kathleen wish you get well soon. So regarding the operating leverage and also margins that you mentioned. Wanted to get some follow-up on this is that, you actually achieved a very strong operating leverage in the fourth quarter, and you also mentioned there is some potential negative impact from the Lagou contribution, but than just think about incomes of you four business, do you have any plans to step up on spending, any of these operating leverage that you achieve, how should we think about some negative impact versus the Lagou contribution versus your continue operating leverage you can actually deliver. So just overriding, just any color you could share in terms of the margins trend for full-year fiscal 2018?

[Kathleen Chien:]

Alicia thank you for the good wish and you sounded like you are a little bit [indiscernible] but anyways just thinking about the cost structure and margin in general, I think that in the last couple of years we are actually supporting more storefront and more products and services than ever. So we have been very clear in stating that goal. Our purpose today is not about trying to save on sales and marketing spend just to get better leverage, our goal is to push 100% forward to make sure that the newer products and services in our portfolio are able to get the support that they need to get greater customer adoption and get traction as quickly as possible. So I think in this quarter as I just said earlier that I think we went ahead with whatever spending that we had in place and we are happy to note that, we were ahead of our budget in terms of the revenue returns and so that’s kind of led to better margins as a result of that. I think in our planning, if you will, though, I think we continuously be aggressive in planning for our spending in the sales and marketing areas, so we are not taking our foot of the pedal there. But again, if our sales force is able to again step up and bring more revenues in, even earlier than ever if you will than that will be a positive effect. But for now I think we are not actually in terms of budgeting for better margins and trying to say in terms of our spending for 2018. And that’s just the core business for 51job not including the impact or - from Lagou. And so our base plan, if you will.

[Alicia Yap:]

So in that sense, given we will continue reinvest in all that and then with potentially a little bit negative impact from Lagou. So may be in the short-term we might actually see the margins coming down a little bit, right, before it’s gradually improving back?

[Kathleen Chien:]

Correct. I think so.

[Alicia Yap:]

Okay, alright. And then second question just regarding the services that you have been adding and the up sell to the different employers which I think has actually been quite successful and helped to drive your ARPU increase. So any other kind of new value-added service that you are currently working on that potentially could rollout in this year that could further drive upside opportunity?

[Kathleen Chien:]

So let me clarify a little bit. Some of the newer product services that I have mentioned earlier were in the other HR services which does not relate to the ARPU that we talked about earlier, because the ARPU only refers to the spending for the online services. So those are kind of two separate areas that we are talking about. So the ARPU is really just focused on the spending our customers have for the online services and that is manifested in terms of type of packages that they purchase and whether or not they would have additional viewer also on the online services, whether that would be some sort of a priority listing or some sort of extra visibility, advertising or whatnot. So those are two just separate things. I just want to clarify upfront. In terms of newer services that we are always bringing on board that’s more in the other HR services area. So earlier I've talked a little bit about how we have had a lot of SKUs, for example in the assessment area, and that came from the investment that we have made with [indiscernible] in 2015 and we continue to procure on that. And we expect that to bring in new products into the pipeline as well this year. So within each of the areas there is always kind of the new product and services being introduced if you will. So that’s the plan that we have in place.

[Alicia Yap:]

Thank you Kathleen for clarifying that. Last question is, have you had any chance to think about the Tencent mini programs in terms of considering to leverage some of these social traffic ecosystems to bring more viewership?

[Kathleen Chien:]

Alicia, I didn't catch your question. Can you repeat that, please?

[Alicia Yap:]

Sure. So just regarding the Tencent mini program, do you guys have any considerations of maybe leveraging like others applications that can put more connections into that to have to try some of the social traffic into your viewership for the postings and stuff? Any - and then unrelated to that is that, any update and progress on any personalization of asset that you are planning to do on your own app?

[Kathleen Chien:]

Okay. I think on the Tencent mini program I think we'll be testing out many things. We are not sure what that potentially could bring back, if you will. But I think we're always very quick to adopt and embrace new things to try out if you will. So will be experimenting with many things, and that will not be the only, we are experimenting it with, but other things we don’t assessing that we will continue to talk about to figure out how to continue to increase traffic flow, if you will. So that will be just one of many possibilities out there. So that definitely you just mentioned that is personalization wide. I think, I mean today, what we are do is that if you actually use our apps or our services at least for 51job, we do actually do personalized recommendation and that really is using your personal search history and interest patterns and other things, so there are always personalization price going on. And at the same time to be honest, we also are piloting things on the HR customer side as well because just as individuals look for jobs that they need to find from a sort of a let’s say big pool out there that we are trying to help you better identify what makes more sense to you. The reverse is true for HR, if you will, and when they try to look out at the pool of candidates that they need to outreach and find who are the better matching candidates. So I think in terms of personalization, we think of it more as just generally matching, if you will. So there is, we actually have teams dedicated to work on these projects all the time. And it is something that is never ending kind of work almost within our organization and that we will continue to have to work on that.

[Alicia Yap:]

Okay. Great. Thank you, this is very helpful, look forward for other success. Thank you.

[Kathleen Chien:]

Thank you.

[Operator:]

Your next question comes from Ryan Roberts from MCM Partners. Please go ahead.

[Ryan Roberts:]

Good morning Rick, Kathleen and Linda, thank you for taking my question, congratulations on a nice Q4. My question actually is focusing on the other HR segment. I know you guys did some things in there, Kathleen just mentioned a few minutes ago about some of these services. I’m just wondering can you give us some more, maybe some color, some more depth on kind of what drove the growth specifically in Q4 and kind of maybe give us some sense of in kind of seasonality or different trends in those services kind of under, the other HR umbrella for the rest of the year? Thanks.

[Rick Yan:]

Yes. I think as we mentioned earlier, there is certain regulatory hurdles and tax changes that affected our ability to acquire new customers in the past two years and those regularity changes kind of settled down and the tax effect has been fully absorbed. So I think this past fourth quarter is probably the first time, we don’t have any hindrance in selling our other HR services and also the fact that Q4 is a big season for campus recruitment and we perform very well in the area last year. So I think that’s why our Q4 actually grew much faster than in the past couple of quarters. So it wasn’t, it wasn’t, probably it wasn’t, we have been doing, what we have been doing. We will keep doing and we are doing and I think just some of the regulatory and tax effect has been kind of going away.

[Ryan Roberts:]

And Rick, can you make give us maybe, looking out towards 2018, give us a sense of in terms of what drivers are for the other HR segment, we have BPO, campus recruiting, assessment. We have a lot of things in there. Can you give us a sense of how management use that collection of different services that we are offering under that umbrella and kind of what are the many areas of emphasis [indiscernible] answer for us financial wise?

[Rick Yan:]

I think it is continue to be acquisition of new customers and we transact with a lot of customers on the online space and the percentage of customers who are used our other HR services early is due to our very low percentage. So, I think to continue move customer acquisition. I probably saying new customers because they are very likely to be existing or new customers at all the up selling and cross-selling. So driver has always been doing in the past couple of years as up selling and cross-selling.

[Ryan Roberts:]

Got you. okay. Thank you very much. Congratulations on a nice quarter.

[Rick Yan:]

Thank you.

[Operator:]

[Operator Instructions] Your next question comes from Thomas Chung from Credit Suisse. Please go ahead.

[Thomas Chung:]

Hi, good morning. Thanks for taking my questions. I have a couple of questions. My first question is about the investment in technology given that you are seeing recruitment companies are also a top 10 DR and let me take the response first on the progress on AI of this year and the next couple of years. And my second question is about the passenger mix over the long term between online recruitment and other HR revenue. And my third question is about the operating margin target of this year so we do expect margin to expand at that level. And my final question is about given the other recruitment sentiment overall is relatively similar to last year, can you comment on any industry category which is particularly better than last year? Thanks.

[Rick Yan:]

In terms of technology, AI I think I would say that it is something that we have been doing all those that different times we should use different terms. I would say like the question early about personalization this is one of areas that we actually invest largely in technology and a lot of our technology team is working on how to present most appropriate most interesting and relevant information in front of a job seeker when they go to outside. I would say that our technology team has doubled in the past two years and a lot of the work is focusing on personalization which the call that is to better understand each job seeker go to our site and using the behavior pattern using a lot of information to really understand how we present the most relevant and interesting information to them. I would say the other area in terms of AI will be in the area of assessment in the sense that how can we help empire to better feel that candidate that will likely perform better in the organization. Again, that will involve certain tests, certain big data analysis I mean that the two areas that we invest quite a lot and as I mentioned earlier, our technology team has doubled in the past two years. So, we are certainly investing in technology and also in the area of AI as you mentioned. The second question you asked about moment, this is fourth quarter because of the seasonal campus recruitment product. It is the first time that our bench revenues which is 40% of our total revenue. I will say in the longer term the other HR services area will continue to be a bigger part of our thought portfolio. We grew from 20% I think five, six, seven years ago to now 40%, it won’t change overnight, but I think the potential in some of these other HR services areas is quite large, especially like HR outsourcing and assessment and training and I think those are big areas. So we have been expanding the longer term that other HR revenues were likely gradually increase as a percentage of our total revenue mix. Would it change meaningfully, significantly in 2018 I don’t think so, it’s going to be a more longer term trend. So I think 2018 we will probably look at 2017 with a slight increase that was probably the most likely case. Operating margin, I think Kathleen has already mentioned that earlier on, she answered to an earlier question that our plan and our the kind of color in terms of the operating margin might look like in 2018, I’m not going to repeat it here. You asked about, recruitment, were there any specific industry sector. Yes, our business is a kind of funny, I mean when times are good it seems like all industries are good, no matter what you hear on news or when you read the news it seems like certain sector that doing better, but from our portfolio, because we transact with a lot of customers. I mean last year we transacted with over a half million customers and that’s a very wide range and as what happen in the past 10 years I mean when things are good it seems like every sectors are doing well and again now I think we don’t see any particular or specific variants, I think it seems like the whole China the economy is holding and recruitment we managed as solid as what we saw last year.

[Thomas Chung:]

Thanks.

[Operator:]

Thank you. This concludes our question-and-answer session. I would like to turn the call back to Mr. Yen 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 in 51job. Have a good day. Bye-bye.