51job, Inc.
Q4 2015 Earnings Call Transcript

Published: 3 Mar 2016

[Operator:]

Good morning ladies and gentlemen. Thank you for holding. Welcome to the 51job Incorporated fourth quarter and fiscal year 2015 conference call. At this time, all participants are in a listen-only mode. After the presentation there will be an opportunity to ask questions. Instructions will be provided at that time [Operator Instructions] I will now hand the conference over to Miss Linda Chien, Vice President and Head of Investor Relations. Thank you madam, please go ahead.

[Linda Chien:]

Thank you operator. Thank you all for attending this teleconference to discuss unaudited financial results for the fourth quarter and fiscal year ended December 31 2015. 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 and fiscal year 2015 results was issued earlier today and a copy may be obtained through our website at ir.51job.com. Before we begin, I would like to remind you that during this call statements regarding targets for the first quarter of 2016, future business and operating results constitute forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and actual results could differ materially. Among the factors that could cause actual results to differ are the number of recruitment advertisements placed; sales orders received and customer contracts executed during the remaining weeks of the first quarter of 2016;any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the Renminbi against the U.S. dollar and other currencies; behavioral and operational changes of customers in meeting their human resource needs as they respond to evolving social economic regulatory and political changes in China as well as stock market volatility; introduction by competitors of new or enhanced products or services, price competition in the market for the various human resource services that the Company provides in China; acceptance of new products and services developed or introduced by the Company outside of the human resources industry; any writ related to acquisitions or investments the Company has made or will make in the future and fluctuations in general economic conditions. For additional information on these and other factors that may affect the Company's financial results, please refer to the risk factor section of the Company's filings with the Securities and Exchange Commission. 51job undertakes no obligation to update targets prior to announcing final results for the first quarter of 2016 or as a result of new information, future events or otherwise. Also I would like to remind you that during the course of this call we will discuss non-GAAP measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables appended to the press release. The conference is being broadcast on the internet and is available through our website at ir.51job.com. I will turn the call over to Rick.

[Rick Yan:]

Thank you Linda. Welcome to today's call. I will begin with an overview of the fourth quarter, followed by an assessment of current conditions. Then Kathleen will provide a detailed discussion of our financial results and provide our guidance for the first quarter of 2016. Finally, we will open the call to your questions. We closed the year 2015 strongly with results exceeding our expectations due to solid execution of our strategic initiatives. Total revenues for the fourth quarter were RMB611 million as we saw better growth in our online business and continued solid performance by other HR services. Non-GAAP EPS for the fourth quarter came in ahead of forecast at RMB3.4 million on the back of maintained discipline in balancing spending and investments against operational productivity and efficiency. Since the beginning of 2015, we have been strategically directing resources towards building a high quality revenue pipeline. The mandates to the sales force has been to focus on up-selling more sophisticated online offerings to our core customer base and to capture opportunities to cross-sell other value added HR services to generate greater, deeper customer engagements. While these are long-term goals our achievements over the past year have been very encouraging. In our online business, the progress we have made can primarily be seen in the realization of higher ARPU throughout each quarter of 2015, which has in turn improved our online growth rate. Specifically in the fourth quarter online ARPU increased 12% compared to the year ago period, our best results in four years, and was the main contributor to the 16% overall online revenue growth. With the integration of the Yingjiesheng.com acquisition to this recent campus recruitment season, our sales force was also better equipped with a wide range of services to deepen the level of online customer engagement. Employers are recognizing the superior value of our products and this endorsement of greater average spend during challenging conditions in China motivates us to continue to emphasize value creation. As we work on further driving revenue per customer and introducing more services to the market these initial fruits of labor give us confidence for the road ahead. In other HR services, we maintained consistent growth that has continued to withstand economic and recruitment demand volatility. Revenues increased 16% in the fourth quarter driven by ongoing customer adoption of our BPO services as well as market leadership in campus recruitment services with the strength and combination of our online and offline capabilities. For the full-year 2015 other HR services contributed more than 35% of total revenues, the highest level in our history. Our large portfolio of integrated solutions uniquely positions us to serve employers at any point in the HR value chain from basic hiring through to employee retention and regulatory compliance. We will continue to expand our competencies across all aspects of HR related services through both in-house development and M&A opportunities. While we navigate through uncertain market conditions and take steps to improve revenue growth we remain highly cognizant of financial discipline and efficiencies. Our profitability and cash flow generation stayed strong and industry leading. We sustained a healthy margin level with non-GAAP operating margin of 32% for 2015, ranking us among the top of the internet universe in China. We are also proud to have delivered 14 straight years of profitable results to our shareholders with a long track record of managing necessary investments against expected returns. We are confident in our ability to continue to do so. Turning now to our current market assessment our first read of the 2016 recruitment environment indicates conditions that are similar to 2015. Based on data from the initial two weeks of post Chinese New Year peak period, hiring activity shows positive but moderate year over year growth. Which levels of white-collar workers continue to see increases, a slower pace of around 5% to 7% on average versus around 8% in 2015. Larger more established companies remain more aggressive, employers taking advantage of their strong brands and greater financial resources to attract better candidates and build a talent pipeline. Among the SME customer base, we are still seeing relatively more caution and wider demand fluctuations in light of the current economic backdrop. Despite this period of transition in China, we are taking firm action to lay the ground work for 51job's future. Over the past year, we have successfully expanded to operate three distinct recruitment platforms. Our flagship 51job.com site, Yingjiesheng.com for students and graduates, and 51jingying.com for high-end professionals. We have also expanded our suite of training and assessment services to more than 100 SKUs. We expect to share more progress with you in 2016 as we stay focused on executing our multi product strategic plan. We are transforming to become a further diversified and complete full service provider to enterprises in China. I will now turn the call over to Kathleen for a detailed financial discussion of the quarter.

[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 to the corresponding period in 2014 unless otherwise indicated. Total revenues for the fourth quarter of 2015 were RMB611 million representing a 16% increase. Our online revenues for the fourth quarter grew more than 15% to RMB369 million. The increase was driven primarily by selective growth in new customers and more importantly by higher average revenue per unique employer. As expected and related to our decision to moderate sales force additions throughout 2015, the growth in the number of employers was a modest 3% in the quarter. However, in line with our strategic focus to better capture revenue opportunities within our established installed customer base we realized improved sales productivity and drove a 12% increase in ARPU. In this New Year, we will continue to emphasize a high quality revenue pipeline as we aim to elevate customer service and engagement, extend the roll-out of new and sophisticated services offerings to more employers and increase our share of customer budgets. Revenues for other HR services increased 16% to RMB242 million in the fourth quarter, maintaining a similar and relatively stable growth trajectory throughout 2015. The growth was primarily due to greater customer usage of our outsourcing services as well as a solid campus recruitment season. Other HR's contribution to total revenues continued to increase in the fourth quarter to nearly 40%, a new high for us. Gross profit grew 18% to RMB428 million and gross margin was 71.6%. Included in cost of services in the fourth quarter was share based compensation expense of RMB3.3 million. Our sales and market expenses increased 18% to RMB172 million in the fourth quarter. The increase was primarily due to higher employee compensation expenses, modest staff additions and greater advertising spend. Included in sales and marketing expenses was share based compensation expense of RMB2.9 million. For the first quarter of 2016 and in line with our usual practice we do expect an increase in marketing activities and brand promotion expenses to support the post Chinese New Year hiring peak season. G&A expenses increased 7% to RMB69 million in the fourth quarter. The increase was mainly due to higher employee compensation expenses and office expenses. Share based compensation expenses included in G&A was RMB14.6 million. Our operating income increased 22% to RMB187 million. Our operating margin was 31.3% compared with 29.9% in the fourth quarter of 2014. Excluding share based compensation expense our operating margin would be 34.7% compared with 34.2% in the year ago quarter. Due to the recent depreciation of the RMB against the US dollar and its impact on the convertible senior notes we issued in 2014 we recognized a foreign exchange loss of RMB21 million in the fourth quarter. Under mark to market accounting we also recognized a loss of RMB18 million in the fourth quarter associated with the change in the value of these notes. Other income in the fourth quarter included RMB9 million in local government financial subsidies versus RMB20 million in the year ago quarter. Net income attributable to 51job for the fourth quarter was RMB142 million. Our fully diluted EPS was RMB2.45 or USD0.38. Excluding share based compensation expense, losses from foreign currency translation, a change in the value of the notes as well as the related tax impact of these items our non-GAAP adjusted net income attributable to 51job was RMB202 million in the fourth quarter. Under the if-converted method, non-GAAP adjusted fully diluted EPS was RMB3.40 or USD.52 per share. Now for the full-year results -- total revenues for 2015 increased 11% to RMB2.1 billion. Our online revenues grew 9% to RMB1.36 billion and comprised approximately 65% of our total revenue. The growth was driven by both volume and ARPU increase as the annual count of unique online employers grew by 5% to 407,000 companies and online ARPU rose 4% in 2015. Our other HR services grew 17% to RMB740 million and increased its contribution to over 35% of total revenues in 2015. Lastly, our print revenues decreased to only RMB5 million. With the termination of our remaining publication in Xian at the end of the year, please note that we have ceased all print advertising operations as of year-end 2015. Our gross profit increased 11% in 2015 to RMB1.49 billion and income from operations increased 8% to RMB568 million. Net income attributable to 51job increased to RMB618 million 2015 and fully diluted each year was 10.41. Excluding share based compensation expense, the loss from foreign currency translation and the change in the fair value of the note as well as the related types effect of these items are non-GAAP adjusted net income attributable to 51job was RMB693 million 2015. Under the if-converted method, non-GAAP adjusted fully diluted EPS for 2015 was RMB11.64 or US1.80. Regarding our balance sheet, we ended that year with a strong cash position of RMB4.95 billion of cash and short-term certificate of deposits equivalent to approximately $764 million US dollars. The use of cash resources remained direct at exploring investments and M&A opportunities as well as the execution of our stock buy-back program. Turning to our guidance. Based on the current market conditions and factoring in seasonality due to the Chinese New Year Holiday, our total revenue target for the first quarter of 2016 is in the estimated range of RMB505 million to RMB525 million. For the non-GAAP fully diluted EPS target, our estimated range is between 2.30 to 2.50 per share under the if-converted method. Please note that this non-GAAP EPS range does not include share based compensation expense, the impact of foreign currency translation, any market to market adjustment for the convertible notes, nor the related type impact of these items. Total share based compensation expense is expected to be between RMB21 million and RMB22 million for the first quarter of 2016. This guidance reflects our current forecast which subject to change. This concludes our presentation. We will be happy to take your questions at this time. Operator.

[Operator:]

Thank you. Ladies and Gentlemen at this time we will now begin the question and answer session [Operator Instructions] One moment please for your first question. The first question comes from the line of Wendy Huang. please state your company name followed by your question. Please go ahead with your question.

[Unidentified Analyst.:]

Hello management. Thank you for taking my question. This is [Sheila] (Ph) on behalf of Wendy. I have two questions. The first one is on your 1Q Guidance, your revenue guidance seems quite strong but the earnings quite low consensus. I want to know the reason behind this, is this because the particular marketing campaign on the first quarter during the Chinese New Year? Or something else and does this give us some color on the margin, a look over the FY16. My second question is on the high end recruitment. Could you please share some color on your thinking and the competition with [indiscernible] and what's the marketing competition and landscape right now? Right thank you.

[Kathleen Chien:]

Thank you for your questions. Let me go to the first question first relates to the margin and the guidance. I think our first quarter given that Chinese New Year falls earlier versus last year, we are expecting that there will be a bigger portion of the higher marketing spend dollars that will go into Q1 versus Q2. So it's a little bit of a seasonality impact related to that. So that is something that will actually - has affected in terms of what we have given in Guidance in terms of the margins for the first quarter. Second question on the high-end recruitment. I think that this JingYing is something that we actually just launched last year. We continue to work on enhancing our user engagement and introducing functionalities and features that will actually enhance the communication between jobseekers and headhunters, the recruiters and trying to make that link work better and more smoothly if you will. I think that this is obviously a market that there has been a lot of interest from many players in the market place and typically has been served well by traditional offline headhunters, so that is something that we're working on. We feel that this is something that we will be focusing quite a lot on and we will be further enhancing some of our marketing campaigns to focus on selective jobseeker demographics in this area. So that is what we're focusing on at this point in time.

[Unidentified Analyst:]

Okay thank you. That's very helpful.

[Operator:]

Ladies and Gentlemen [Operator Instructions] The next question comes from [indiscernible] please state your company name followed by your question. Please go ahead with the question.

[Thomas Chong:]

Hi management thank you for taking my question. This is Chong from Citi. I have a couple of questions. The first one is a follow-up on the Q1 Revenue Guidance. So if excluding the late Chinese New Year impact last year, so how shall we look at your top line growth in first quarter 2016 and for full-year of 2016, how should we expect the top line growth? So is it slightly lower than Q1 Revenue Growth Guidance? My second question is I know your customer base breakdown by [indiscernible] account and SME account in terms of number and a revenue contribution, and how was it compared to Q3? My third question is regarding ARPU, so ARPU rebounded significantly in fourth quarter, can we expect that ARPU will maintain a similar growth rate in 2016? Thank you.

[Kathleen Chien:]

Hi let me try to address each of the questions I guess. First actually going to just Guidance in general. I think we've just given guidance for the first quarter and this just reflects our understanding of the market place at this time. We're not ready to give full-year guidance and typically we have not done so in the past, but again we have limited data for this year but usually at the end of the first Q when we actually have call for Q1 in May, that will be a better time for us to give people a sense of what the trajectory looks like for the year. Given that, we will have more data after Chinese New Year to give a sense of what the overall market sentiment is. At this point in time, we cannot read into the future what that means at this point so I would not take Q1 Guidance necessarily as a proxy for the year at this time. In terms of then if I can jump to the third question a little bit, when you asked about the ARPU growth. We are expecting that the growth that we have for the online business will be contributed in part by both ARPU and by customer account which is actually a deviation from our practice I would say prior to 2015. Prior to 2015 I think our focus has much more been on volume growth which is sort of employing cap growth and that's been the driver. So I would imagine that in 2016 in terms of how we are looking at our growth, we would expect that the growth would be contributed both from the growth in customer, as well as from ARPU. So I would say that we were targeting probably a 50/50 split at this time, but we'll see how the year progresses and how that will change over time as we continue to refine our strategy to really trying to up sell and cross-sell, more services into the larger accounts if you will and that's our focus. In terms of then going to the second question, in terms of the revenue contribution by customer. I think it's very difficult to answer that question because it's hard to draw a line specifically on which customer that we count as a big customer versus an SME because their spending level changes over time and they grow over time. So it's very difficult to kind of think of it that way. But I will say that we are not expecting that that our growth again will be coming primarily from customer account growth. It will be actually contributed more so by ARPU increases.

[Unidentified Analyst:]

Thank you very much.

[Operator:]

Mr. Yan there is no further questions at this time. Please continue with any final comment.

[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.

[Operator:]

Ladies and Gentlemen, this concludes 51job Incorporated fourth quarter and fiscal year 2015 conference call. Thank you for participating you may now disconnect.