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51job, Inc. (NASDAQ:JOBS)

Q1 2013 Earnings Conference Call

May 9, 2013 9:00 p.m. ET

Executives

Linda Chien – VP and Head of IR

Rick Yan – President and CEO

Kathleen Chien – COO and Acting CFO

Analysts

Philip Wan – Morgan Stanley

Tim McHugh – William Blair

Alicia Yap – Barclays

Jose Pun – Macquarie

[Safa Rashtchy] – [Piper Jaffray]

Operator

Good morning and good evening, ladies and gentlemen. Thank you for holding.

Welcome to the 51job, Incorporated First Quarter 2013 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 would now hand the conference over to Ms. Linda Chien, Vice President and Head of Investor Relations. Thank you, madam. Please go ahead.

Linda Chien

Thank you, [Charee]. And thank you all for attending this teleconference to discuss unaudited financial results for the first quarter ended March 31, 2013. 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 2013 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 2013, 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 second quarter of 2013; 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, regulatory 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 first quarter of 2013 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 may discuss non-GAAP measures. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables appended to the press release. This conference call is being broadcast on the internet and is 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 first quarter of 2013, followed by Kathleen with a detailed presentation of our financial results. Then I'll discuss current market conditions -- current market and operating conditions, as well as our guidance for the second quarter. Finally we'll open the call to your questions.

We believe that 2013 is off to a favorable but unfortunately late start as we saw increased recruitment activity, improved employer sentiment and greater customer transactions in the first quarter. However, due to the impact of the Chinese New Year holiday occurring in mid-February and the corresponding delay of the recruitment peak season in 2013, we were time-constrained with regards to revenue recognition and ended the March period with a robust amount of advance from customers on the balance sheet.

As a result, first quarter revenues came in at the lower end of our guidance range at RMB380 million or approximately USD61 million, and more recruitment related revenues from the peak season will be realized in the second quarter of this year versus 2012. Non-GAAP earnings per common share for the first quarter were in line with our forecast at RMB2.07 or USD0.67 per ADS.

In our online business, an especially encouraging indicator about our operating performance was the continued uptrend in the growth of our online customer count. We added nearly 35,000 corporates to our client base in the first quarter, an increase of 20% year over year. This was the fastest rate since mid-2011 as the measures we undertook to strengthen our sales efforts and realign resources over the past year yield solid results across all geographies. New customer acquisition remains our number one priority and we believe this accelerated pace demonstrates the successful execution of our strategic plan as well as the consolidation of our market-leading position.

Revenues from our other HR services were meaningfully affected by the late Chinese New Year. Demand and usage of our business process outsourcing, training and other services is related to the timing of recruitment activity and, with the peak season hiring being at the end of February, many employers were not onboarding staff until March in 2013. This in turn delayed the need for HR outsourcing, training and other services which negatively impacted the first quarter revenues, particularly as compared to an early Chinese New Year in 2012. We do not expect any lingering effects on customer demand from this calendar shift going forward and we are continuing to develop and expand our other HR services as planned for the remainder of 2013.

Finally, although the first quarter is traditionally a seasonally strong period for print, revenues continued to contract significantly as we continue to transition out of this business. We recently terminated the additional 51job Weekly in Shenzhen, leaving just six cities where we currently have print operations. Even in these cities where we still provide a publication, we have completed the redirection of our strategic focus across the entire sales force and organization away from print and towards our future growth areas of online and other HR services. Our local management team in each city have done an excellent job in navigating this transition process and minimizing any business disruption or customer impact over the past three years.

I will now turn the call over to Kathleen for a detailed financial discussion.

Kathleen Chien

Thank you, Rick. Our total revenues for the first quarter of 2013 was the customary RMB380 million, similar to the first quarter of the prior year. As Rick mentioned earlier, please be aware that due to the late Chinese New Year holiday, the start of the recruiting peak season was delayed by 18 days this year or about 20% of a 90-day quarter. This negatively affected the level of sales, revenue recognition and year-over-year comparison in the first quarter. Our online revenues for the first quarter grew 8% year over year to RMB248 million, driven by an increase in the volume of employees which are then partially offset by the lower ARPU.

The number of unique employers using our online services increased 20% year over year to more than 206,000 companies in the first quarter of 2013, a new record-high and the first time that we passed the 200,000 mark. However, although our rate card was relatively unchanged compared to the year-ago quarter, our online ARPU decreased 10% in the first quarter due to the significant increase in employer additions, with new users both repurchasing lower-priced introductory packages. For the second quarter we're expecting that online revenue growth to accelerate as we realize some of the recruitment peak season activity not captured in the first quarter.

In line with our ongoing transition away from the print business, our print advertising revenues decreased 48% from the year-ago quarter to RMB25 million. The number of print advertising pages in the first quarter of 2013 decreased 48% to less than 600 pages compared with about 1,150 pages in the year-ago quarter. In March we eliminated the 51job weekly publication in Shenzhen, bringing the total number of print cities down to six compared to 11 cities at the end of March 31, 2012. We expect to terminate more publications this year and expect that the steep percentage decline in print revenues to continue throughout 2013.

Revenues for other HR services grew 3.5% to approximately RMB108 million in the first quarter of 2013, primarily due to the increased demand for our outsourcing services which is mostly offset by a decrease in the revenues from our training, executive search and other services affected by the Chinese New Year holiday.

Our gross profit grew 1% to RMB265 million and gross margin improved slightly to 72.8% compared to 72.4% in the first quarter of 2012. Included in cost of services in the first quarter was higher share-based compensation expense in the amount of RMB2.2 million.

Our sales and marketing expenses increased 12% year over year to approximately RMB101 million in the first quarter, primarily due to higher employee compensation expenses and headcount addition. We also incurred greater advertising and promotional expenses related mainly to customer events which were postponed from the end of last year to the beginning of 2013 due to the arrival -- late arrival of the Chinese New Year.

Included in sales and marketing expenses was a higher share-based compensation expense of RMB1.9 million in the first quarter. Our G&A expenses for the first quarter were RMB48 million, an increase of 15% from the year-ago quarter due to higher employee compensation, rental office and depreciation expenses. Our share-based compensation expense included in G&A increased to RMB9.5 million in the first quarter of 2013 compared with RMB8.5 million in the same quarter of the prior year.

Our operating income for the first quarter and 2013 decreased 12% year over year to about RMB116 million. Operating margin was 32% compared with 36% in the same quarter of the prior year. Excluding share-based compensation expense, our operating margin was 35% compared with 39% in the year-ago quarter.

Net income for the first quarter decreased 10% to RMB109 million compared with RMB120 million in the same quarter of 2012. Fully diluted earnings were RMB1.82 per common share, which is equivalent to USD0.59 per ADS. Excluding share-based compensation expense, loss from foreign currency translation and the related tax impact, non-GAAP adjusted net income decreased 7% year over year to RMB124 million in the first quarter. Non-GAAP adjusted fully diluted earnings per common share were RMB2.07 or USD0.67 per ADS.

And finally turning it over to our balance sheet, we maintained very strong cash flow generation in the first quarter and ended the March period with cash and short-term investments totaling over RMB2.8 billion. This is approximately USD452 million.

Now I'll turn the call back over to Rick.

Rick Yan

Thank you, Kathleen.

While the late Chinese New Year is always a disadvantage for our business and industry, the [full data set] from the post-holiday recruitment peak season reaffirms our usual assessment of improved conditions for the white-collar hiring market in 2013.

So far this year we have seen the employers and jobseekers alike be more active across all geographies. In the recent survey we conducted of over 17,000 corporates of different sizes, company types and industries across China, more than 70% of respondents indicated the intention to increase the number of new hires this year. At the same time, individuals are taking advantage of these greater opportunities as their willingness to job hop has also increased over the past few months. These observations and other encouraging feedback make us optimistic that 2013 will see a return to higher recruitment market demand and growth.

With a bit more wind behind our backs, we are pushing ahead on the execution of our business initiatives. Although we surpassed the 200,000 mark for unique employers in a single quarter, customer acquisition remains at the top of our strategic agenda for the online business. While the influx of new employers is expected to drag down ARPU, we continue to favor volume over pricing as we believe the expansion of the customer base strengthens our market position for the long term and increase cross-selling opportunities for our other HR services. At this point we have not made material changes to our rate card in 2013 but we may revisit this possibility later in the year depending on market conditions and industry dynamics.

On the product side, we maintained our status as the online industry innovator. In addition to ongoing enhancements of our website and frequent upgrades to our mobile apps which have now been downloaded onto more than 8 million devices, we are working on new user engagement products which we hope to roll out before the end of this year.

For other HR services area, we continue to invest and develop these services for long-term growth. In the changing business, we are working on ways to improve cross-selling and provide greater flexibility to customers on how they can participate in our training programs. In the outsourcing business, we are operating our systems and infrastructure to increase our service capacity and streamline procedures and process flow.

On the regulatory front, the PRC government adopted an amendment to the 2008 labor contract law at the end of last year. This amendment mainly address the provisions regarding labor dispatch agencies and dispatch personnel which relates to the scope of our HR outsourcing services. For example, some changes that would take effect on July 1, 2013 includes rules on the qualification and requirement of dispatch service providers and restrictions on the job position for which companies are permitted to hire dispatch personnel.

Although this amendment provides clarification on the legal use of the labor dispatch model and raises the bar on providers which we believe benefits larger industry players like 51job, there's also some uncertainty as to how employers will adopt to these regulatory changes and whether and how the usage of our services will be impacted in the long term.

Local implementation guidelines have been so far unavailable. In addition, the commitment to and level of enforcement by local authorities remains to be seen. But we are working closely with customers and relevant government bodies to ensure a smooth transition in complying with the new rules after they go into effect this summer. We remain confident in the potential of HR outsourcing market in China as we actively participate in this ongoing evolution and development.

Based on current market conditions and also factoring in a material decrease in print revenue -- print advertising revenues, our total revenue target for the second quarter of 2013 is in the estimated range of RMB395 million to RMB410 million. For the non-GAAP fully diluted EPS target, our estimated range is between RMB2.2 to RMB2.35 per common share.

Please note that this non-GAAP EPS range does not include share-based compensation expense, gain or loss from foreign currency translation, nor their related tax impact. Total share-based expense is expected to be between RMB15 million to RMB16 million for the second quarter. This guidance reflects our current forecast which is subject to change.

In summary, the tone of the recruitment market thus far in 2013 has been healthy and positive. Although seasonality from the Chinese New Year weighted on our first quarter results, our operations are performing well. Our market position is strong and we believe we are on track for another successful year.

That concludes our presentation. We'll be happy to take your questions at this time. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we will now begin the question-and-answer session. [Operator Instructions].

And we have our first questions come from Philip Wan from the company of Morgan Stanley. Please go ahead with your questions. Thank you.

Philip Wan – Morgan Stanley

Hey, good morning. Thank you for taking my question. My first question is, wonder if you could give breakdown of second quarter sales guidance in the different business lines. Then I have a follow-up.

Kathleen Chien

Philip, I'm sorry, I didn't hear your question. Can you repeat that? The connection was not very good.

Philip Wan – Morgan Stanley

Okay. My first question is, I wonder if you could help us to break down your second quarter sales guidance into different business lines, in particular just want to gauge the growth rate of online recruitment services and also the other HR services. Thank you.

Kathleen Chien

I can only say that at this point, I mean we are -- we have a better estimate of what the print decline will be because that is something that we can see with greater clarity. And so I think with the print business, we've talked about the fact that we're still budgeting about 50% decrease year over year as sort of our target or what we're looking at for this next quarter as well as throughout the year.

In terms of online and other businesses, we expect that, you know, if you look at the guidance, will be turning to a double-digit kind of growth, low to mid-teens is -- the overall picture looks like. So that is where we are at this point in time. So we do expect that, you know, we will probably see, and on a sequential basis, second quarter to first quarter this year on the online business will be stronger versus last year's first quarter to second growth change if you will.

Philip Wan – Morgan Stanley

Okay. Thank you. And then how, I wonder, how should we look at the margin trend in the coming quarters given improving recruitment outlook in China and also what the change of product mix for your company, what do you think about the long-term achievable margin for your existing business? Thank you.

Kathleen Chien

I think right now, I mean obviously the first quarter our margin profile was not as attractive as it was compared to last year, a little bit of a step-down, if you will. But I think as we talked about before, we're going through a little bit of transition in trying to phase out, you know, print entirely, if you will. But I do expect that the second quarter, and you can see from our guidance, we're expecting that to, you know, return to a higher level in the second quarter.

At this point I would say that, you know, we'll have to kind of wait and see a little bit about the rest of the year in terms of how the mix will continue to change. But I think that right now we're expecting and budgeting in the second quarter certainly in the guidance that it will be a significant margin [expansion] versus last year. I think it will be, you know, kind of a similar level at best at this point for the second quarter.

Philip Wan – Morgan Stanley

Okay, thank you. That's all. I'll get back in the queue.

Kathleen Chien

Thank you.

Operator

Thank you. The next question is coming from Tim McHugh from the company William Blair. Please go ahead with your questions. Thank you.

Tim McHugh – William Blair

Yes, thank you. First, I guess, to get a little more color on the second quarter, how much can you tell us roughly, how much revenue you think in hindsight got pushed out of Q2 and will benefit -- I'm sorry, got pushed out of Q1 and will benefit the second quarter?

Kathleen Chien

Yeah. Tim, it's a good question. It's more difficult to answer that completely to some degree. But as I've just said to Philip as well, I think, you know, when you look at the sequential kind of quarter-on-quarter kind of growth, I think this year versus last year, there would be a greater difference, if you will. And so we talked about the fact that Chinese New Year came 18 days later versus last year. And so we haven't gone through the rest of the quarter so it's hard to fully predict that number. But I would say that, you know, first quarter to second quarter on a sequential basis will see that it will be a bigger bump than what we saw last year, is what we're estimating at this point in time because of the fact of the late Chinese New Year and people being pushed out to, you know, the earliest they could really start recruiting in the first quarter was really in March, whereas last year was basically they could start a whole month earlier almost.

Tim McHugh – William Blair

Okay. And I guess just on the margin side, given that you have a stronger second quarter this year given the timing of the Chinese New Year and how some revenue got pushed out in the Q2, you're still kind of projecting to kind of flat year-over-year margins though. I thought that there was some operating leverage on that revenue getting pushed in the Q2. What's offsetting that I guess?

Kathleen Chien

I think our plan this year certainly is going to be a little bit more aggressive on, you know, adding sales and marketing headcount, because it is something that we've talked about, the fact that we feel that the market is stronger versus the second half of last year. So in terms of, you know, our approach and looking out, we still believe that the market is something that we need to focus much more on customer acquisitions than anything else. So at this point in time we're actually going to be a little bit more aggressive this year on the headcount side and that will also lead to some expenses increases in personnel, if you will.

So you'll see that the gross margin line we'll actually be making improvements on, so that's where the leverage is already coming from the scale. But at the same time, we do want to make some investments on the sales and marketing side. And that's going to actually impact, you know, the OpEx, if you will.

Tim McHugh – William Blair

Okay. And then the revenue per customer on the online, is there anything about the types of customers? Are they -- are you starting to see success with your call center operations such that they're coming from smaller cities, maybe with lower price points, or is there any sort of mix that's influencing that revenue per customer?

Kathleen Chien

It goes back to the increase in terms of total, you know, number of unique customers. In situations where we actually have a higher customer growth in general, we expect that ARPU to come down anyway. So in the first quarter we always said that it was a 20% year-over-year increase. And so that is usually a negative in terms of its impact on the ARPU because we expect and we do see all the time that newer customers are coming to the fold for the first time, if you will, by the sort of lower-priced minimum packages as they come and get their, you know, feet wet and kind of get into the market. So that is something that we do expect. And I think if we're expecting again that we want to be more focused investing growing customer count, if you will, we don't expect that that will be a plus necessarily for ARPU, although that would be reflected in customer count additions.

Tim McHugh – William Blair

Okay. Thank you.

Operator

Thank you. We have the next question from Alicia Yap from the company of Barclays. Please go ahead with your questions. Thank you.

Alicia Yap – Barclays

Hi, good morning, Rick, Kathleen and Linda. Thanks for taking my questions. A couple of questions here.

First of all is regarding the demand outlook, you talk about, you know, has been recover and generates more positive. Just curious, are there any sectors that you will normally expect the demand pick-up but has yet to see the rebound of the recruitment process?

Kathleen Chien

We probably would say that, I wouldn't point to any specific sector that has kind of made a bit of a comeback since last year second half, so I think based on the surveys we've done and we're looking at in terms of the types of companies that we're working with, I think that everyone is actually a little bit more upbeat versus where we started the second half of last year. I think people are coming back and making their investments in people.

Alicia Yap – Barclays

I see. So you haven't seen any kind of like sector that is lagging behind on their recruitment process?

Kathleen Chien

Not significantly in terms -- unless there were some specific seasonalities in the industry themselves, if you will.

Alicia Yap – Barclays

Sure, sure. And what's in general the kind of like average wage inflation for this year that you see, for example, both the hiring for the hire and then versus last year prices? In general, what's the percentage increase that you have been seeing?

Kathleen Chien

What we saw so far this year we believe is that it's still sort of a mid-single digits but it's actually lower than probably the last couple of years I would say.

Alicia Yap – Barclays

I see. I see. And then lastly, on the other HR revenues line, because I would have thought this is actually a more consistent and more stable line, so can you kind of give us a breakdown, a rough breakdown of how much of it is actually a recurring portion sort of revenue versus those that is kind of like depending on the hiring seasons and the training, et cetera?

Kathleen Chien

I think the thing we want to highlight is obviously in the other HR services, probably in terms of the recurring that everyone is thinking about, that really relates only to the outsourcing part, if you will. Most of the other items in there will still have some seasonality and changes and they're not necessarily on long-term contracts, if you will. So the only one within that bucket would be actually the outsourcing service.

I think again we talked about the fact that the Chinese New Year being very late this year actually had a fair amount of impact across the board, and that is going back to the fact that, you know, instead of people kind of making changes or adding new headcount, they wait until after Chinese New Year. And if this happens in March, I mean that's the earliest that they can do. So even for the outsourcing business, the recurring base may be fine, but it's difficult for us to kind of add new headcount to that.

And then for the other businesses, and I'll be honest, you know, it's been offset, and this year it wasn't as strong as it was last year overall. So that was a bit of a drag.

Alicia Yap – Barclays

I see. I see. And then last question if I may, I think I missed a little bit on what Rick was commenting about the regulatory changes. So do you mind clarify, repeat it again in terms of what will be impacting for the business?

Rick Yan

Yeah. The government issue an amendment to the labor contract law issued in 2008. And the amendment will come into effect this coming July.

It deals with the -- it deals with the -- mostly the dispatch employees, dispatch agencies, which is basically, you know, our business in the HR outsourcing services. There are a couple of things, but mostly they're putting higher hurdle in terms of the qualification and requirements of the dispatch service providers, which from our assessment is positive for us, because the larger players like 51job will benefit from these changes because some of the smaller guys will be kind of wiped out.

On the other than, the government also puts some restrictions on the job positions for which companies can do dispatch -- can use dispatch personnel. Although some of the details in terms of like, you know, percentage of dispatch employees and some of the implementations are still not available, and I think that's why we have a little bit of uncertainty on how this might change the way we provide our services, and I think as a result some customers might be, you know, kind of a little bit wait-and-see and see what the final implementation come out and look like before they make additional kind of dispatch decisions.

Kathleen Chien

Just let me add to that. When Rick said about qualification, I mean for example they've asked to -- they've asked all the service providers to have a larger registry capital. So a lot of the really little guys, they would probably not want to invest or would be able to invest in increasing the registry capital of the company. So that might actually help to some degree some consolidation at the top.

Alicia Yap – Barclays

Sure, sure. So I think in relation to that, would we kind of see some temporary impact maybe in, you know, the 3Q or 4Q level, but that -- profit is longer term, but could we see some temporary impact later half this year?

Kathleen Chien

I think the uncertainty has, you know, create that possibility, and so we're monitoring the situation pretty closely and working with both customers and the government side to try to get more clarification. Because I think with a lot of laws that are promulgated in China, the difficulty is what the local interpretation will be. So the second point that Rick talked about, about the type of position that can be, you know, applying the dispatch model, I mean sometimes, you know, you're calling someone a sales person versus an account executive, is that a different position or not, if you will?

So the local implementation is really what we'll focus much on because that actually is the specific that will drive the difference in terms of how the service model may evolve for us and others in this business. But I think the demand is there, so I think at this point in time, we believe that the long-term growth is, you know, obviously there because the demand is there. But in terms of the short term making some changes or adapting to maybe some of the new rules and regulations, may be something that might concern our customers and actually be something that will just, you know, create more work for us as we continue to think about ways to adapt to customer and regulatory compliance.

Alicia Yap – Barclays

I see. Okay, great, great. Thank you. This is very helpful. Congratulations on the good execution.

Kathleen Chien

Thank you.

Operator

Thank you. [Operator Instructions].

And we have our next question come from Jiong Shao from the company of Macquarie. Please go ahead with your questions.

Jose Pun – Macquarie

Hi. Hi, this is Jose Pun calling on behalf of Jiong Shao. So, hi, Linda, Rick and Kathleen. Good morning. Thank you for taking my question.

So I just wonder like -- I just wonder if I could get more sense on the customer acquisition in Q1. You guys have a pretty good year-over-year growth, but since like the late CNY, like should I expect the quarter after the customer acquisition will be stronger and like the growth will accelerate from that?

Kathleen Chien

I think when we look at year over year, I mean we still believe that we're on a pretty good trajectory. Second quarter in terms of the number of days that we have to work on will be the same last year versus this year. So I really hope that we could do better and continue to maintain that same trajectory, if you will. So we hope that that momentum will continue to be carried through. And at this point in time at least, we believe that market sentiment continues to be what we had seen post Chinese New Year, and that has not changed. So, similar trajectory is what kind of we're looking at this point.

Jose Pun – Macquarie

Okay, okay. So also on the BPO side, I want to ask, like for the next few quarters down the road, like should I expect like similar kind of year-over-year growth rate similar to Q1. As you see a slowdown in Q1, I wonder would that be similar in the sense that -- with the growth?

Kathleen Chien

We’ve given guidance for the first -- second quarter already and in terms of the overall growth rate versus the situation for quarter one. Obviously quarter two overall is at accelerated growth rate because we're looking at sort of the low to mid-teens as the target. First quarter year over year we actually didn't have growth at all. So we do expect that second quarter will be better than it was in the first quarter. So that's where we are for the second quarter.

I think it's too early for us to, you know, obviously give guidance for the rest of the year, and which is why at this point we really can't say that much. We'll have to see. And we'll continue to update people on that situation as we learn more.

Jose Pun – Macquarie

Sure. Thank you very much.

Kathleen Chien

Thank you.

Operator

Thank you. The next question is come from [Safa Rashtchy] the company of [Piper Jaffray]. Please go ahead with your question. Thank you.

[Safa Rashtchy] – [Piper Jaffray]

Hello. Thanks for taking my call. Two questions. One is, you just keep on building up the cash. And I'd just love to hear a little bit about how you think about using that cash both short term and long term.

And then second question, I guess your main competitor, lately they've been -- I guess the controlling shareholder has been expressing a lot of optimism and also I guess they've talked about developing more website traffic than you have at this point. And I also believe that they've been managing to have a higher operating margin than you guys. So I was wondering just how you view that.

Kathleen Chien

I think -- let me take the second question first on the competitor side. I do not believe that we've seen information that suggested that there's been, you know, a significant change in sort of market position on market share at this point in time. And so again, you know, I'm not sure what source that they're referencing. And bottom line is that we really look at revenues and financials rather than traffic per se because that -- it's not something that is easy for us to kind of compare and we really don’t know what the source they're referencing, so.

And then in terms of operating margin, my sense is that, you know, they just started breaking even last year and maybe made some money at the end of last year. I have not heard that they have claimed or supposed that they're actually at the same operating margin level as where we are today. But I haven't actually seen the numbers for them as well, so that's something that's difficult for us to comment on. But based on information that we have seen and heard, that is not the case.

Rick Yan

Yeah, in terms of cash, yes, we have a lot of cash on our balance sheet, and I think we are in a high-growth industry, in a high-growth market, and we have a lot of new products started in just online recruitment that we are expanding, for example, the HR outsourcing and other HR services are areas that we're looking for additional growth. Although I would say that the M&A possibility in the online recruitment business might not be very high, but we do look for acquisition opportunities, particularly in the outsourcing and other HR services area. And we do want to keep a pile of cash so that we have the flexibility to jumpstart our growth and potentially do M&A deals if the right opportunity arises.

So at this stage I think the board continues to look at opportunities that we have and we want to keep, you know, we're in a high-growth market and in a high-growth industry, and we'll want to keep our options open.

[Safa Rashtchy] – [Piper Jaffray]

Okay. Thank you. And then on the outsourcing business, I guess the biggest company, CCG, they have 190 service offices around the country. And I guess you're doing it all remotely without the local offices?

Kathleen Chien

Firstly, I think CCG is not the largest service provider in China. I think the largest service providers are local government-related entities, so that's something that I think -- the way they categorize size. But anyways, we actually have 26 offices across China that actually houses all of our different services, and not just for HRO. There are other services -- cities that can serve through a satellite or remote basis as we've done both for online and many of our other business. And we believe that in terms of the efficiency and the service level is something that we could actually do just as well if not better than even having local offices. So that is our approach to how we cover customers, and we have not felt that that's a limiting factor in our growth.

Operator

Thank you.

Mr. Yan, there are no further questions at this time. Please continue with any final comments. Thank you.

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. Thank you. Bye-bye.

Operator

Thank you. Ladies and gentlemen, this concludes the 51job, Incorporated first quarter 2013 conference call. Thank you for your participation. You may now disconnect.

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