51job's CEO Discusses Q2 2011 Results - Earnings Call Transcript - Seeking Alpha

51job, Inc. (JOBS) Q2 2011 Earnings Call August 4, 2011 9:00 PM ET


Good morning and good evening ladies and gentlemen, thank you for holding. Welcome to the 51job, Inc. Second Quarter 2011 Conference Call. At this time all participants are in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions) I will now hand the conference over to Ms. Linda Chien, Assistant Vice President of Investor Relations. Thank you, Madam. Please go ahead.

Linda Chien

Thank you, Mein, and Thank you all for attending this teleconference to discuss un-audited financial results for the second quarter ended June 30, 2011. 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 second quarter 2011 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 third quarter of 2011, 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 expectation 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 third quarter of 2011; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the Renminbi against the U.S. dollar and other currency; behavioral and operational changes of customers in meeting their human resource needs as they respond to evolving social, economic 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 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 factors 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 third quarter of 2011 or as a result of new information, future events or otherwise.

Now I’ll turn the call over to Rick.

Rick Yan

Thank you, Linda, and welcome everyone to today’s call. I will begin with an overview of the second quarter followed by Kathleen with a detailed presentation of our financial results. Then I would discuss current market conditions and our objectives moving forward. Finally, we will open the call to your questions.

We are very pleased to deliver to our shareholders another quarter of solid revenue growth and profitability total revenues for the second quarter were RMB332 million or approximately US$51.4 million, an increase of 27% over the year ago quarter. Non-GAAP EPS exceeded our expectations coming in at RMB1.87 or US$0.58 per ADS.

Looking at each business area, our online business continued to grow robustly as revenue increased 49% year-over-year. We further expanded our customer base in existing and new geographies with nearly 169,000 companies purchasing some type of online recruitment services from us in the second quarter. Average revenue per online customer also increased due to greater demand and competition among employers for talent as well as the impact of the new rate card that was implemented in April of this year.

The transition to the new rate card has been smooth and has not hindered our customer acquisition or retention efforts. In our other HR services area we saw a pickup of activity led by our outsourcing and training businesses. Revenues for the other HR services increased 43% compared to a year ago quarter on the back of growing market acceptance and customer adoption of these services.

As expected our print advertising revenue decreased in the second quarter due to the discontinuation of operations in certain cities over the past year and the resulting decline in page volumes. Going forward we believe that print revenue contribution will progressively decrease as more employers choose our online services for their recruitment advertising needs.

While favorable market conditions have played an important role in growth, our margin improvement has been driven by the significant economy of scale and operating efficiency we have built into our service model. Gross margin hit a record high of 71.8% and excluding share based compensation, which increased meaningfully in the second quarter, operating margin reached 37.6%. As we grow and more deeply penetrate the market, we believe there is further room for margin expansion to exploit synergies between our businesses and to increase our share of overall our HR budgets.

We are on pace for an exceptional year of revenue growth and profitability. With our proven track record for execution, established industry leadership position and powerful brand we possess distinct competitive advantages and move forward confidently to position 51job for sustainable, profitable growth over the long term. I will now turn the call over to Kathleen for a more detailed financial review.

Kathleen Chien

Thank you, Rick. The revenues for the second quarter totaled RMB332 million, a 27% increase compared to the same quarter in 2010. Our online revenues for second quarter were RMB200 million, an increase of 49% compared to the same quarter in 2010. The number of unique employers using our online services increased over 23% year-over-year to nearly 169000 companies in the second quarter due to strong market demand and our customer acquisition efforts

We also saw a 21% increase in the average revenue per online customer compared to a year ago quarter due to the greater spending by employers in light of the growing competition for talent and the impact of certain price increases that came into effect this past April. Versus the first quarter our average revenue per online customer increased by over 6%. We expect average revenue per employer to gradually increase through the year as contracts come up for renewal and the full impact of the higher rate card works its way through our customer base.

Print advertising revenues decreased 28% to RMB52 million compared with RMB72 million in the second quarter of 2010. The decline was primarily due to the discontinuation of print operations in certain cities over the last 12 months as well as the corresponding decline in advertising pages. Print advertising pages in the second quarter of 2011 decreased 39% to approximately 1600 pages compared with about 2600 ages in the prior year’s quarter. However, the page volume decrease was partially offset by the higher revenue per page.

Average revenue per page increased 19% due to greater contribution from the higher priced cities. For the third quarter we expect print revenues as a percentage of total revenues and in absolute dollar amounts to further decline. Our other HR services revenues grew 43% to RMB80 million in the second quarter of 2011. Our outsourcing and training businesses saw greater customer acceptance and increased demand.

Gross profit increased 34% year-over-year to RMB227 million and gross margins increased to 71.8% from 68% in the second quarter of 2010. The margin expansion was primarily due to economies of scale and operating efficiency that we achieved. Included in cost of services in the second quarter were share based compensation expense of RMB1.6 million. Sales and marketing expenses increased approximately 15% year-over-year to RMB79 million in the second quarter of 2011 mainly due to the higher salary expenses commissions and bonuses.

Included in sales and marketing expenses were share based compensation expense of RMB1.3 million in the second quarter. Our G&A for the second quarter was RMB 39 million, an increase of 8% from the year ago quarter, due to the higher share based compensation expense and office expenses. Share based compensation included in the G&A increased to RMB6.8 million in the second quarter compared with RMB4.6 million in the same quarter of the prior year.

Operating income for the second quarter of 2011 increased 69% year-over-year to RMB109 million. Operating margin improved to 34.5% compared with 25.9% in the same quarter of the prior year. Excluding share based compensation expense, operating margin would have reached a record high 37.6% in the second quarter of this year. Net income for the second quarter increased nearly 54% to RMB83.5 million compared with RMB54.3 million in the same quarter of 2010.

Fully diluted earnings were RMB1.41 per common share which is equivalent to US$0.44 per ADS. In the second quarter the company reassessed the carrying values of this long term investment on the balance sheet and determined that an impairment loss in the amount of RMB15.1 million should be made. These long term investments consisted of non-interest bearing loans provided in 2007 and 2008 to Area Link which is holding company of a coupon advertising services business in China. Area Link is owned and operated by Recruit, the company’s largest shareholder, owning approximately 40% of 51job.

The RMB15.1 million reflects the full amount of the carrying values of these long term investments to Area Link. We do not expect to make further investments into Area Link.

Excluding share-based compensation expense, loss from the foreign currency translation, loss from the impairment and their related tax impact, our non-GAAP adjusted net income increased 78% year-over-year to RMB110 million in the second quarter. Non-GAAP adjusted fully diluted earnings per common share were RMB1.87 or US$0.58 per ADS.

In late April we issued stock options to employees and directors at their market value which is significantly higher than the price of the previous stock option grant. As a result for the third quarter we expect that share based compensation expense will continue to increase to approximately RMB12 million in the quarter.

Looking at our balance sheet, our cash and short term investments increased to RMB1.8 billion or approximately US$282 million. Short term investments consist of certificates of deposits with original maturities from three months to one year. Now I will turn the call back over to Rick.

Rick Yan

Thank you. We continue to observe a favorable hiring environment in China for the white collar market that we focus on. While the government has taken actions to curb lending, control inflation, manage growth in certain industries this year, we have not seen these efforts to have materially affected the recruitment plans of the employers that we work with.

The total of customer feedback remains largely unchanged as companies face tougher competition for managerial talent and experienced workers in particular. We see employers are seeking more solutions and purchase more services to meet their hiring targets. Our business resurgency coming out from the financial crisis has attracted renewed interest in HR service industry in China.

Over the past 13 years we have seen innumerable competitors enter and exit our space. However through all this we have each year strengthened and consolidated our market leadership. We have also seen the industry – we have also been the industry innovator, the first to utilize a job listing search engine, mobile apps and other technologies to enhance the experience of employers and job seekers.

The deep domain knowledge, expertise and service scope we possess is unmatched. We are confident that our acknowledged position as the most comprehensive and HR solutions provider will enable us to best capture and monetize the opportunities ahead of us. We are very pleased with the broad progress we are making on our strategic initiatives.

As few weeks ago we achieved two meaningful user milestones as we cross the 50 million mark for registered job seeker accounts and the 40 million mark for resume posted at 51job.com. We believe that we maintain the largest and most updated job seeker information network in China. New customer acquisition for our online business bolstered by the efforts of the Wuhan call center is going well. We have recently expanded our geographical reach and sales coverage.

In July, we launched four new channels to our website, adding 11 new cities. Since the establishment of our Wuhan call center 18 months ago we have nearly tripled our city coverage. Currently we provide dedicated online sales and support in 67 cities across China. We will further increase our national footprint this year. At the same time that we are broadening our online customer base,, we are seeding and creating cross-selling opportunities for our other value added HR services. The development of our outsourcing and training services benefits significantly from our understanding and existing relationship with HR departments on the recruitment front.

Our ability to deliver a complete package of HR services provides us with unique synergies and advantages over any standalone or single product competitor. We continue to lay the foundation for growth in this new areas, educating the market about our value proposition and honing our service capabilities.

Turning now to our guidance, based on current market and operating conditions, our total revenue target for the third quarter of 2011 is in estimated range of RMB335 million to RMB345 million, which would be 25% year-over-year increase at the mid-point. Our estimated non-GAAP fully diluted EPS target is between RMB1.8 to RMB1.9 per common share. Please note that this non-GAAP EPS range does not include share based compensation expense, foreign currency translation loss nor their related tax impact.

This guidance reflects our current forecast which is subject to change. Every day we are learning about the potential of our company and HR services industry in China. As we continue to grow, invest, innovate and evolve, we are focused on providing the best possible experience to our customers and job seekers while delivering the greatest return to our shareholders.

That concludes our presentation, we will be happy to take your questions at this time. Operator?