51job, Inc. (JOBS) Q1 2012 Earnings Call May 9, 2012
I will now hand the conference over to Ms. Linda Chien, the Vice President of Investor Relations. Thank you, Ms. Chien. Please go ahead.
Linda Chien
Thank you, [Ming], and thank you all for attending this teleconference to discuss unaudited financial results for the ffirst quarter ended March 31, 2012. 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 first quarter 2012 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 second quarter of 2012, future business and operating results constitute forward-looking statements within the meaning of Section 21-E 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 second quarter of 2012; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the renminbi against the US dollar and other currencies; 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 volatilities; 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 second quarter of 2012 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 to today’s call. I will begin with an overview of the first quarter, followed by Kathleen with a detailed presentation of our financial results. Then I will discuss current market conditions in our guidance. Finally, we’ll open the call to your questions.
Our first quarter results were very much as expected. We achieved revenues of RMB381 million, near the midpoint of our guidance, and non-GAAP EPS of RMB2.23, or slightly ahead of our forecast due to improved operating efficiencies.
In line with the initial market assessment we shared on our conference call in February, we have observed healthy customer demand in 2012 but in a more modest level compared to the prior two years. Concerns about global macroeconomic conditions and growth in China are [weighing] on our customers as they navigate through another period of uncertainty. That said, on the bright side, hiring patterns so far this year have been largely within our expectations.
Our online business continued to exhibit solid growth and revenues increased 33% year over year in the first quarter. With the early Chinese New Year, we captured a greater amount of the post-holiday recruitment peak in the first quarter this year compared to 2011. We successfully increased the number of unique employers using our online services to over 170,000 in the quarter.
We have also expanded our geographical reach this year with the addition of several new cities and the sales coverage via Wuhan call center. We are now providing dedicated sales and customer support for our online recruitment services in 91 cities across China.
Reflecting our steady progress and diversifying our revenue sources, we saw a strong performance by our other HR services area in the first quarter. Revenues increased 59%, led by customer demand for our outsourcing and training services. We continue to [de-scale] in these areas and capitalize on cross-selling opportunities into our large recruitment customer base.
Consistent with our strategy to transition away from the prints business, prints revenues declined meaningfully in the first quarter. With the closure of print operations in three cities in March, we have discontinued the 51job weekly publication in half of our print market since the beginning of 2010. We will progressively reduce the number of print cities in the coming quarters. As a result, the loss of prints contribution will affect our total revenue performance in the near term, as we reallocate resources and efforts to our faster-growing business areas, this will benefit our company in the long term.
We are pleased with our start for the year, and I’ll now turn the call over to Kathleen for a detailed financial review of the first quarter.
Kathleen Chien
Thank you, Rick.
Revenues for the first quarter totaled approximately RMB381 million, representing a 17% increase over the same quarter in 2011.
Online revenues for the first quarter were RMB229 million, an increase of 33% compared to the same quarter in 2011 on both higher average revenue per customer as well as an increase in the number of online employers. We saw a 20% year-over increase in average revenue per customer due to greater spending an the impact of the new price list that was implemented in April of 2011. The number of unique employers using our online services increased 11% compared to the year-ago quarter to over 171,000 companies.
Print advertising revenues decreased 45% for the first quarter of 2011 to RMB48 million. The decline was primarily due to the ongoing de-emphasis of our print operations and the resulting decrease in advertising pages. Print advertising pages in the first quarter of 2012 decreased 48% to approximately 1,150 pages compared with about 2,200 pages in the year-ago quarter. The average revenue per page increased approximately 7% due to greater contribution from the higher priced cities. In March, we discontinued the 51job weekly publication in Beijing, Changsha and Wuhan, bringing the total number of current print cities down to 11.
For the second quarter, we are forecasting a year-over-year decrease of more than 50% in print revenues. We expect that the contribution of print revenues to total revenues will further decline throughout 2012 as we manage down these operations.
Other HR services revenues grew 59% to RMB104 million in the first quarter of 2012 primarily due to increased demand and customer acceptance of our outsourcing and training services. Contribution of other HR services to total revenues increased to 27% compared 20% in the year-ago quarter.
Gross profit grew 22% to RMB263 million and gross margin increased to 72.4% compared to 70.5% in the first quarter of 2011. The margin expansion was primarily due to economies of scale, operating efficiency and a reduction in printing-related expenses.
Included in cost of services in the first quarter was share-based compensation expense of RMB1.7 million. Sales and marketing expenses increased approximately 28% year over year to RMB90 million in the first quarter, mainly due to higher employee compensation expenses, headcount additions and greater advertising expenditures. Included in sales and marketing expenses was share-based compensation expense of RMB1.5 million in the first quarter.
G&A expenses for the first quarter was RMB42 million, an increase of 15% from the year-ago quarter due to higher employee compensation and office expenses. Share-based compensation expense included in G&A increased to RMB8.5 million compared to the RMB4.3 million in the same quarter of the prior year. We expect that share-based compensation expense will continue to increase in the second quarter as we plan to grant new share-based awards as part of our long-term employee retention program.
Operating income for the first quarter of 2012 increased 21% year over year to approximately RMB131 million. Our operating margin improved to 36% compared with 35.3% in the same quarter of the prior year. Excluding share-based compensation expense, our operating margin exceeded 39% in the first quarter, the highest in our history.
Net income for the first quarter increased over 31% to more than RMB120 million compared with RMB92 million in the same quarter of 2011. Our fully diluted earnings were RMB2.03 per common share, which is equivalent to USD0.46 per ADS. Excluding share-based compensation expense, loss on foreign currency translation and their related tax impact, our non-GAAP adjusted net income increased 31% year over year to RMB132 million in the first quarter. Non-GAAP adjusted fully diluted earnings per common share were RMB2.23 or USD0.71 per ADS.
Now looking on our balance sheet, we maintained our solid financial position with strong cash flow generation in the quarter. Cash and short-term investments increased to over RMB2.2 billion or approximately USD353 million. This is equivalent to over USD12 per outstanding ADS.
Now I will turn the call back over to Rick.
Rick Yan
Thank you.
Although we would assess the current sentiment of the Chinese recruitment market as still positive, economic concerns are clearly casting a shadow over enterprises in their hiring activities. We continue to observe that demand is being led by companies with larger budget, greater resources and more formalized growth plans, while smaller-sized organizations are more cautious in their headcount additions.
However, despite the moderation in recruitment activity as compared to last two years, the general consensus remains that good talent is both expensive and hard to find in China. Also, more good news is that we have not seen any sharp fluctuations in customer behavior reminiscent of conditions during the financial crisis. In other words, we feel the market is neither terribly great nor terribly bad, with growth simply expected to be more limited this year.
As we monitor the demand situation closely, we are focusing our energy investing our resources and executing our initiatives to position the company for profitable growth this year and beyond. We continue to push forward with our city expansion plans to our call center and are on track to achieve dedicated sales coverage in 100 cities by the end of this year.
On the online technology front, we recently launched upgraded version of our iOS and Android apps with new features and improved functionalities. As the number of mobile internet users increases in China, we are staying on top of customer and jobseeker needs and innovating to address this growing opportunity.
Taking into account market uncertainty and current competitive dynamics, we have decided to maintain a generally stable pricing policy for our online business in 2012. However, we are striving to achieve modest ARPU increase on a year-over-year basis due to the ongoing adoption of online services by employers and upselling efforts by our sales force.
Turning now to our guidance, based on current market conditions and factoring in a significant decrease in print advertising revenues, our total revenue target for the second quarter of 2012 is in the estimated range of RMB360 million to RMB375 million. Excluding the steep decline in print revenues, this implies we are expecting revenues for our online and other HR services business to grow in the low-20% range on a year-over-year basis in the second quarter.
For non-GAAP fully diluted EPS target, our estimated range is between RMB1.9 to RMB2.05 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. Total share-based compensation expense is expected to be between RMB14 million to RMB15 million. This guidance reflects our current forecast which is subject to change.
Economic cycles and the impact on recruitment demands are inevitable. Rather than waiting and speculating on matters outside of our control, we are taking actions to drive our business forward. Our core management team, many of whom have been with us for more than a decade, is prepared, experienced and focused on laying the groundwork that will support our sustainable long-term growth.
Leveraging our competitive advantages in brand recognition, product effectiveness, service quality and execution capability, w e believe that we can continue to consolidate our market leadership position, increase our customer base, and realize our growth potential.
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