51job, Inc. (NASDAQ:JOBS)
Q1 2014 Results Earnings Conference Call
May 7, 2014 9:00 p.m. ET
Linda Chien – VP and Head of IR
Rick Yan – President and CEO
Kathleen Chien – COO and Acting CFO
George Meng – Macquarie
Wendy Huang – Standard Chartered Bank
Alicia Yap - Barclays
Tim McHugh – William Blair
Good morning, afternoon, evening, ladies and gentlemen. Thank you for holding. Welcome to the 51job, Inc. first quarter 2014 conference call. At this time all participants are in a listen-only mode. (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.
Thank you, Sue, and thank you all for attending this teleconference to discuss unaudited financial results for the first quarter ended March 31, 2014. 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 2014 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 2014, 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 2014; 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 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 or 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 2014 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.
Thank you, Linda, and welcome to today's call. I will begin with highlights of the first quarter of 2014, followed by Kathleen with a detailed review of our financial results. Then I will discuss current market conditions, our strategic plan and our guidance for the second quarter. Finally, we'll open the call to your questions.
We started 2014 on track, continuing to make good progress on our strategic objective. With recruitment demand and hiring activity maintaining positive trends so far this year, we pushed ahead on the execution of our initiative and achieved solid first quarter results. Revenues were RMB437 million which is was within our guidance range and non-GAAP EPS was RMB2.26 which was ahead of our expectations.
Building on the momentum we have been generating for the past 18 months, the performance of our online business remains strong in the first quarter. We view customer count as the most important measure of our progress. And the number of net adds to the number of unique employers was over 53,000, a new quarterly record. We further expanded our sales force ending the first quarter with over 3,000 account management staff that directly engage and serve the need of employers. Our vast and deep customer relationships with HR departments all across China have been the cornerstone of 51job's success. And we continue to invest in and strengthen this key competitive advantage with our broad service offering and superior industry knowledge and expertise.
Complementing this customer acquisition initiative, we launched a brand advertising campaign in the first quarter starring a popular TV host in China which has been well received by the public. On the job seeker front, we attracted more individuals to our large user base with over 76 million registered accounts and 67 million resumes at the end of March quarter.
Our other HR services area saw revenues increase by 18% in the first quarter with growth primarily coming from our training and business process outsourcing services. The ongoing evolution and development of HR market in China continues to create new pockets of demand and opportunity for value-added services. Our training business has been seeing solid demand and we have planned to introduce these services to more cities later this year. In the BPO business, following the greater clarity provided by new regulations and implementation guidelines which went into effect on March 1st, we are moving forward and working closely with our customers to advise and assist them on required action plans to meet these new compliance rules.
As part of this process, we are finding that both our customers and ourselves will need to make some adjustments to the systems and procedures we utilize to deliver BPO services. While these efforts are not expected to increase costs meaningfully, we will have to redirect the time and energy of our staff during this transition period. This in turn will likely affect our ability and speed to expand our BPO service coverage in the interim. In addition, once we have instituted changes, customers will need to time get comfortable with the procedures and implement them within their organizations.
We are confident that the steps we are taking to improve and streamline our BPO operations will make us more efficient and benefit our growth in the long term. Finally, we [saw] (ph) what we believe will be the last meaningful quarter of revenue decline in our print business. With the termination of 51job Weekly in the city of Shenyang in March, we retained print operations only in the city of Xian. The completion of this transition positions us better ever to focus our efforts on the launch and rollout of new HR services we have in development in our product pipeline.
On the strength of our business fundamentals, financial resources and market leadership, we are taking decisive action to drive the company to a high level. We will stay aggressive in 2014 with investments that will enable the company to capture greater opportunities in HR services industry and realize sustainable long-term growth.
I will now turn the call over to Kathleen for a detailed financial discussion.
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 notes and all gross rates are on a year-over-year basis as compared to the first quarter of 2013 unless otherwise indicated.
Our total revenues for the first quarter of 2014 were RMB437 million, within our forecast range and representing a 15% increase. Our online revenues for the first quarter grew 22% to RMB302 million driven primarily by an increase in the employer volume. Unique employers using our online services increased by 26% to 259,000 companies in the first quarter of 2014.
The number of employers adds have accelerated for seven consecutive quarters which is now more than double the absolute volume increase we did in mid-2012. While the large influx of new enterprises will weigh on the ARPU as first time customers generally start with basic lower price packages, we do view that volume growth is the top priority and prefer to use up-selling and cross-selling efforts to increase customer spend rather than price adjustment.
As we plan to continue a heavy emphasis on customer acquisition, our ARPU may further decrease. Revenues for other HR services increased 18% to RMB127 million. The growth was primarily driven by greater demand and usage of our outsourcing and training services. In the first quarter, other HR services accounted for 29% of total revenues versus 28% in the comparable year ago quarter. As Rick mentioned earlier, we are in the process of working with customers to institute some changes to certain internal procedures related to how we deliver our BPO services as well as upgrading our BPO technology.
We have factored in this effect of the transition period into our Q2 revenue guidance but do not expect the impact to be a prolonged one.
As the print business comes to an end, revenues decreased 66% to RMB8 million. The number of print advertising pages in the first quarter of 2014 decreased 63% to about 220 pages. While we will continue to maintain a publication in Xian throughout this year, it's contribution is expected to be negligible to our overall results. Gross profits grew 18% to RMB313 million and gross margin was 74.5%, a new record high due to sale benefits and in our operating efficiency. Included in cost of services in the first quarter was higher share-based compensation expense in the amount of RMB3.2 million.
Sales and marketing expenses increased 30% to RMB132 million in the first quarter, primarily due to additional sales headcount, higher employee compensation expenses, as well as greater advertising expenditures. Included in sales and marketing expenses were share-based compensation expense of RMB2.7 million in the first quarter. We saw a net add of approximately 150 sales staff in the first three months of the year and we do plan to higher actively throughout the remainder of 2014 supported by an increase in our marketing and brand promotion.
Our G&A expenses for the first quarter were RMB61 million, an increase of 26% due to higher share-based compensation expense and professional services fee, as well as greater office rental and depreciation expenses. Over the past 18 months we have been renovating several new premises and moving into larger office space in many cities to accommodate our growing operation. Share-based compensation expense included in G&A increased to nearly RMB14 million in the first quarter of 2014 compared with RMB9.5 million in the same quarter of the prior year.
Operating income for the first quarter of 2014 increased 4% to RMB120 million. Our operating margin was 28.5% compared with 31.7% in the same quarter of the prior year. Excluding share-based compensation expense, our operating margin would be 33.2% compared with 35.4% in the year ago quarter.
Net income for the first quarter increased 9% to RMB118 million compared with RMB109 million in the same quarter of 2013. Our fully diluted earnings were RMB1.95 per common share which is equivalent to U.S. dollars $0.63 per ADS. Excluding share-based compensation expense, loss or gain from the foreign currency translation and the related tax impact, our non-GAAP adjusted net income increased 11% to RMB138 million in the first quarter. Our non-GAAP adjusted fully diluted earnings per common share were RMB2.26 which is equivalent to U.S. dollars $0.73 per ADS.
Now turning to our balance sheet. We maintained strong cash flow generation and ended the March period with cash and short-term investments totaling nearly RMB3.3 billion, equivalent to approximately U.S. $530 million. Also in April, we completed our first capital raising event since our IPO nearly 10 years ago with an offering of U.S. $172.5 million in convertible senior notes. Of the proceeds that we received on net, U.S. $50 million was used to pay the aggregate premium of the zero-strike call option transaction that we entered into in connection with this offering. The remaining net proceeds will be used for general corporate purposes including the possibility of business investments or acquisitions that relate to the HR services vertical in China.
This transaction provides us with financial flexibility with an increase in our cash holdings maintained outside of China. In addition, the potential issuance of ADSs in the future will actually increase the public vote of our shares and improve our trading liquidity. We expect to apply fair value accounting for the notes, which means the mark-to-market exercise will be performed at future reporting period-end during the existence of these notes. Accordingly, any changes in the fair value of the notes from one period-end to another will result in gains or losses which will be reflected in our P&L. In addition, cost incurred in relation with the notes offering will be expensed in our P&L in the second quarter.
Please be aware that our non-GAAP EPS guidance for the second quarter does not include the impact of the mark-to-market exercise nor these one-off costs related to the notes offering. Lastly, beginning on June 1, 2014, pursuant to a recent regulation announced by the Ministry of Finance, we will cease paying a 3% business tax on gross revenues received from recruitment services that we offer. Instead, these services will become subject to a value-added tax or VAT of 6%. Due to this tax policy change, please note that our total revenues will be reduced as the VAT impact will be reflected at the net revenue level.
As a result, we do expect that direct comparisons of future revenues over prior periods will be affected by this tax rate differential. Please note that we have factored this impact into our Q2 guidance. Now I will turn the call back over to Rick.
Thank you. Although broader macroeconomic indicators have fluctuated in recent months which have created again some general China growth concerns. Demand for our recruitment services has maintained a stable and upward trajectory. So far this year we have observed a continuation of robust activity levels from employers that began in early 2013. A common theme we have gathered from customer feedback is the commitment to investing for the future and also the belief that human capital will play any increasingly important role in an organization's ultimate success.
Riding this wave of positive demand sentiment, we have been stepping up our customer acquisition efforts. With the value and corresponding cost for good talent rising, we are reaching out and bringing in more companies than ever to use our highly efficient and effective HR solutions. The proliferation of new enterprises and the vibrancy of the China market has created an enormous addressable market for us to tap into. We continue to strive towards the one million customer mark for our online recruitment services. A goal which reflects our confidence in the market potential as well as our own execution capabilities. Our decision to aggressively expand our sales force and increase spending on brand advertising and promotion was a proactive one.
The clear purpose and rationale is to position and cement the company's path for the future. We strongly believe this heavy emphasis on customer and end-user engagement would deepen our economic mould and further distance 51job from the competition. As the market leader, we wholly recognize that the challenge to drive innovation and growth must continue to come from within ourselves. 51job was built on many HR industry firsts. Such as the first company to integrate offline and online platforms. The first to achieve profitability. The first to be publicly listed. The first to develop our own recruitment search engine and the first to launch mobile apps in our space.
Not only are we moving quickly to innovate and capture new opportunities, we continue to uphold high quality standards to ensure the best results and experience for our customer and users. Our product and technology teams have never been busier with many ideas and projects that will be the backbone for 51job's future.
Turning now to our guidance. Based on market conditions and factoring in the effect of the VAT policy change Kathleen discussed earlier, our total revenue target for the second quarter of 2014 is in the estimated range of RMB440 million to RMB455 million. For the non-GAAP fully diluted EPS target, our estimated range is between RMB2.15 to RMB2.35 per common share. Please note that this non-GAAP EPS range does not include share-based compensation expense, the impact of foreign currency translation, any mark-to-market adjustment for the convertible notes, the expense incurred for the issuance of the notes nor the related tax impact of these items.
Total share-based compensation expense is expected to be between RMB20 million and RMB21 million for the second quarter. This guidance reflects our current forecast which is subject to change.
That concludes our presentation. We will be happy to take your questions at this time. Operator?
(Operator Instructions) And the first question comes from George Meng. Please state your company name followed by your question. Please go ahead.
George Meng – Macquarie
My first question is regarding your investment plan this year. Is that you want to make -- I just wonder besides the sale and marketing, especially the TV advertising and also the expansion of your sales force. Do you have other strategic areas that you main to invest into? And also in terms of the overall landscape of the competition, I think you recently you not only have LinkedIn coming into China but you also have some of these vertical players that focus on, say IT industry. And so do you have any plan to invest into those areas? That’s my first question. Thanks.
Hi, George. Thank you for the question. I think, yes, obviously I think sales and marketing is something that we continue to want to invest in terms of trying to fully capture and explore the market potential for us to acquire more customers. But at the same time I think we have also said that we are looking into the possibility of looking at acquisitions or investments as well which will be not organic growth opportunities. So I think, yes, we do think that the market is a very dynamic one and I think that this is a situation and the right time for us to be actively looking in that. So within the scope of continuing to serve HR customers if you will, I think we are very open minded and are actually actively looking at opportunities outside of just organic growth.
George Meng - Macquarie
Okay. Got it. And second question is regarding your -- increase in your number of employers. Can you give us some color in terms of the industry breakdown? Like what kind of industry is these new or net adds of employers coming from? Do you have a rough breakdown or the top industries? Thanks.
I don’t think there is any specific concentration of industries that we will note in terms of the new customers we are bringing into the fold. I think that we continue to be very broad-based because as you know, our site does actually just focus on the white collar segment overall and there is no industry concentration or vertical concentration otherwise. So I wouldn’t say that there is anything to know specifically in terms of just being in particular industry segments at this time for the new adds or the previous base that we serve.
George Meng - Macquarie
Okay. Got it. And final question is regarding the macro because you said that despite the macro uncertainty you see actually increased activities or intention of the employers to step up in their hiring process. But I just wonder, is that just online recruitment or basically you see the increase in penetration of online but the overall, say recruitment plan is kind of getting more uncertainties or you are seeing that the overall job market is still quite resilient?
We feel that the overall market sentiment is still solid in terms of just people being very active in the market place. I think obviously there is reports that come on, that kind of try to assess the overall state of the China economy which actually might give mixed signals in certain industries or certain types of companies seems to be going through more of a transition. Whether that be manufacturing or those certain types of, maybe it's export industry who were not. So I think it’s sort of that kind of a situation at the backdrop we are looking at. But I think in terms of the companies that we continue to work with, in terms of their willingness and intention to recruit, we feel that the sentiment has been on the same trajectory and I wouldn’t say that there has been a market change since a few months ago when we actually opened up after Chinese New Year.
Thank you. And our next question comes from Wendy Huang. Please state your company name followed by your question. Please go ahead.
Wendy Huang – Standard Chartered Bank
This is Wendy Huang from Standard Chartered. My first question is about your BPO, since you mentioned in the prepared remarks that you are going to streamline this process. Can you elaborate on that? And also how are you going to differentiate from foreign players such as [ADT] (ph) and also the (indiscernible) in the BPO area in China. And secondly, I just want to clarify on the VAT tax policy change impact. So if we exclude that impact on the total revenue, what kind of the year-over-year growth shall we see for the net revenue implied in your guidance? Thank you.
Okay. Let me try to answer the last question first on the VAT and I will come back to the BPO questions you raised Wendy. Again, just to take an example. In terms of just the VAT structure and how the impacts total and net revenues if you will. If we were to say, we used to book $100 in total revenues and then we would assess a business tax rate on that, we might actually report 100 at top and let's say we will report 397 at the net revenue level. But the new transition is asking that we go to essentially, even though we continue to actually make $100 in sales to customers, what we will end up realizing is that we will report only a new revenue of let's say 94 because we are deducting that 6%. So that is kind of the situation. So if you look at then the total revenues and it's not really quite comparable because then we are off by 6%. But then if you look at that net revenue then its differential will be about 2% to 3%. So that is kind of roughly the magnitude we are talking about.
Wendy Huang - Standard Chartered Bank
So that’s the first question. And then the two other questions that relate to the BPO business. Yeah, I think as we discussed a little bit on last quarter's call, I think that now the guideline has been issued I think you know we need to work with our customers to find out and figure out what is the best way to continue to serve them efficiently. There may be more different processes that we need to institute. For example, checking if somebody has actually previously had worked for certain employers so that they would not be allowed to actually resign a contract with a probation period, for example. So that we would actually need to implement additional processes when we VAT for employees that would actually be working with us. And it could be a situation that they need to rethink how they actually sign the contract with the employees that they want to hire.
So there is just, because of the institution of the new policies that there would be certain steps that we need to perform that may be slightly different from how it was done previously. But at the same time given that we now have understanding of how that would impact the hiring process for these individuals, on the backend on the service side for us, we are actually now looking into how we can actually better integrate these processes to mirror the new way of performing these services and therefore trying to again readjust the process and streamline it. So that it can be as efficient as possible. So it's a little bit of an example of what we are talking about.
In terms of differentiation of services, I think that the ultimate service that we are providing to our customers may not be different in nature versus (indiscernible) or other companies, or other service providers in this space. But how efficiently we do it and whether or not we can actually do it on an integrated basis across a national landscape is something that we do very differently from (indiscernible) company. Because typically a (indiscernible) company is actually only active in a certain city or maybe a certain province if you will and they do not actually expand their business scope beyond that. And so that’s actually quite different from how we actually would serve our large customers that actually have presence in multiple geographies and cities if you will.
Wendy Huang - Standard Chartered Bank
Just to follow up on that. What kind of price difference you are seeing between your BPO service package versus the (indiscernible)?
It really depends on geography. So there is no like one answer I can give you because it's actually very specific to cities but typically we will price at a small discount, usually upfront. Because, again, they are the incumbents and they typically have set prices in the past but we will come in at a small discount. But that is -- and then it would be depending on the city and the sophistication levels. But we will come in at a small discount at what we would normally start with.
Wendy Huang - Standard Chartered Bank
You mentioned that there is not too much difference in terms of service that you too are offering. Is there any regulations that prevent you from offering the full scope services that (indiscernible) is doing? Thank you.
Yes. No, we have always said because, again they are incumbent in the market place so historically there has always been certain types of things they would be actually allowed to do and we would be prohibited from doing. So an example in the past is that we would not be able to serve the representative offices of companies that are set up in China. We would only be able to serve corporations that are incorporated in China. So there would be a certain business segment if you will, that we would not be able to serve just by nature of the definition of the business scope that we can cover.
Thank you. And our next question comes from Alicia Yap. Please state your company name followed by your question. Please go ahead.
Alicia Yap - Barclays
Barclays. So good morning, Rick, Kathleen and Linda. Thanks for taking my questions. So my first question is related to the expenses and margins. So I did understand that this year you guys wanted to be more as an investment year and have been stepping up on some of the sales and marketing effort. So I wanted to see just like how much of that is really more for brand buildings and for tapping into the new area and then when should be start to see some of that to ease off and maybe translate to a better margins improvement. And then if you have any target margins range for this year?
Thank you for the question Alicia. I think we have committed ourselves to spend on the higher end of our range level in terms of our sales and marketing spending. That’s reflected in the fact that we have been more aggressive in hiring sales headcount and adding sales headcount. And then at the same time actually being more aggressive in terms of having more visibility on sort of marketing and advertising expenditures. So that is what we have committed ourselves to this year, to be at the higher end. So what we believe is that any leverage we take will actually come more at the other cost of services line rather than the operating expenses. Because I think that, we feel that overall the tone on the market is still fairly solid and positive in terms of recruitment activity. And we believe that this is the right time for us to continue to try to be aggressive in customer acquisitions and so the number one priority for the company will continue to be focused on the customer growth.
So I think what we are pleased to see is that our customer acquisition continues to be at a very solid clip. Continues to be in sort of the 25% range for the first quarter as well. So those are the things that we are very pleased about and we are committing ourselves to that level of higher spending for the rest of the year we believe at this point in time.
Alicia Yap - Barclays
I see. And Kathleen can I follow up on the new sales people that you are hiring. So are these that we are still more focusing on the cities that we are in and more kind of spending through the new kind of like tier in customer that we have? Or have we actually started to move down the trend to a little bit lower tier customer that probably maybe on the ASP level, maybe a little bit lower and then the packet markets in terms of what they are looking for on their recruitment side also a little bit different. Can you quantify it for us a little bit?
I don’t have the exact numbers but I would say that we are actually still adding people in the biggest cities that we serve, for example Beijing and Shanghai. So it is not a situation where we are confining the sales and expansion to just, let's say, to a third -- sort of a third tier city or just in the call centers if you will. So it is actually a overall kind of a situation. We continue to expand even in the cities that we have had the longest operating history.
Alicia Yap - Barclays
I see. I see. And then for your call centers in terms of the online sales team. And how effective are they getting more new customer so would that be this, kind of like adding new personal is actually on top of that and on this call center one we would still be focusing those for the smaller clients, right.
I think the call center is to focus on newer geographies. And obviously I would agree that for the smaller cities that there are number of large customers would be more limited if you will. But I think the new customers that we pick up in the call center versus maybe a new customer we might pickup in, for example, let' say in Nanjing, which is not the biggest city and not the strongest if you will. In terms of the initial engagement that might be actually quite similar in terms of the dollar contribution. So I don’t think there is that big of a differential between what call center sales could bring in versus a sales that was based in Nanjing interacting with a customer for the first time. So I don’t think that’s that big of a differential. But I do agree that in terms of the smaller cities that maybe the cost and the recovery, that the number of our very very significant customers that are very large in scale would be limited versus the bigger cities if you will.
Alicia Yap - Barclays
I see. And then my last question is on the pricing. So I think do we have any plans already, I know that from time to time we adjust some of the packages. So now can you give us some of the colors on what be the pricing trend for the year.
We are not expecting any significant changes to the pricing this year. I think, again, we are focusing very much, exclusively, on just volumes. So the number that we are looking at much more closely is really customer count, which is the number one thing that we believe is important in terms of making sure that the new sales guys that we are bringing in are making contribution and integrating well into the team and starting to make some headways. I think the upselling and the cross-selling comes from the next opportunity that they engage with customer not the first time.
Alicia Yap - Barclays
I see. And, sorry, can you remind us what was the number of your total sales at the end of this 1Q versus maybe December? Thank you.
Yes. We actually added about 150 sales and account management staff in the first quarter. So we are now actually at about, I don’t have that number ahead of me, it's actually about -- we are just over 3000 now.
(Operator Instructions) And our next question comes from (indiscernible). Please state your company name followed by your question. Please go ahead.
(Indiscernible) Credit Suisse. Question is mainly about mobile. Just wondering, I guess in the quarter for you guys, how do you think strategically about the user experience and behavior on mobile in terms of the recruitment services in China down probably next two or three years. How important do you think that mobile is in now our overall strategic picture and also any specific numbers of, for example the mobile traffic and also the mobile activity that you can share with us would be very helpful.
In terms of the people that have actively downloaded our mobile apps to date, I believe the number is over 14 million at this point. So put that in perspective, we have about 76 million registered users as of the end of March quarter. That’s a cumulative number but in the last couple of years which is where the mobile has started to take off, we are at about 14 million plus I believe at this point in time. So I think that’s a fairly fast pickup in terms of the growth on that. But what we do see is that people are still continuing to engage with us both through the PC and as well as the mobile and using that slightly differently.
I think at the PC end what people are doing is actually spending the time because of the ease of, let's say data entry more on the PC end. That people are using that to upload and fill out and complete more of their personal information and the resume via that particular channel. And then based on that they would actually be filling up and setting up alerts and notifications and setting themselves up for a lot of the one-click kind of functions that’s available through the mobile. So we have seen that people are actually doing that in that way. So they are complementary in terms of how people are using it. And then people are accessing sort of the real time information and updates and upload through the one-click functions that are available on the mobile. So that’s kind of what we are seeing.
We don’t -- we are not in a situation where we feel like mobile is becoming the primary channel of user recruitment or even just usage in general. And so that’s not where our vertical has evolved to but I think the fact that many people are using that concurrently is something that’s very encouraging in terms of them making sure that we are actually increasing the user engagement with us all the time.
Got it. Second question is mainly, could you maybe remind us about the breakdown by tier of cities about our unique employer, customer counts. How does that trend, kind of been trending in recent quarters and how do you see that trending down the road in the next couple of quarters.
We never provided any sort of customer information by geography because I think it's just a reflection of where people buy rather than hundred percent where they are situated. So I think we have always provided the number in totality, so I think that’s the practice and I wouldn’t be able to provide that breakdown for you at this time.
Thank you. And our next question comes from Tim McHugh. Please state your company name followed by your question. Please go ahead.
Tim McHugh - William Blair
Tim McHugh with William Blair. I guess just to your comment earlier in terms of the capital raise and I guess the acquisition strategy, you mentioned it just feels like it's the right time to get more aggressive. I guess can you talk why that is, I guess. And is it more to do with where you are at internally as an organization or something that you see about what the competition is doing or how the market is developing.
Hi Tim. I think we pretty much completed the print to online transition. We are now left with just one city on the print side. So I think the kind of print transition is being wrapped up. So I think this is also the fact that the competition has, the competitive landscape has also changed a little bit. It used to be a three horse race with us, with Zhaopin and with [China Chow] (ph). And now [China Chow] (ph) is really off the map. So I think the competitive environment changed a little bit. Our own internal product transition is also being completed. So I think we now have more resources and we now have more energy to knock at new opportunities that can complement what we have. So we also felt that in the past, if you look at the competitive landscape in the past, a lot of the players in the industry tend to do what we do. If you look at the [China Chow] (ph) and look at the Zhaopin, they are basically imitation of 51job. Any potential M&A activities would not really help us to expand our product scope or expand our market reach to different segments.
But I think in the past, probably in the past two years, some more interesting models showing up that can be more complementary to what we are doing. So I think that’s why we are looking at new opportunities. And by the way we have been looking at ideas and opportunities all the time but we just haven't found something that’s really strategic or that’s really attractive. But we keep knocking but we are knocking at different things now.
Tim McHugh - William Blair
Okay. That’s helpful. And the new tax impact on revenue, Kathleen, just the revenue, the total revenue guidance you give us. I guess, do we still, do we not have to take out the 3% for the business tax that we used to take out below that? In other words is the whole 6% reflected (indiscernible)?
Yes. For the 3% that we would not take out for the revenues that we actually getting at the net level, so.
Tim McHugh - William Blair
Okay. So that’s...
It's one or the other.
Tim McHugh - William Blair
So it's somewhat of an offset.
Tim McHugh - William Blair
And is it right, are we only seeing a partial quarter of the tax effect in June?
Yes, that’s correct. It will be a one month of the three and that for that third month basically the differential at the net level would be sort of the 2% to 3% because we are going from a 3% to 6% in that perspective.
Tim McHugh - William Blair
And what is the impact in terms of the profitability it does? You mentioned there are some offsets, that you can offset it with some other items?
Yes. I think that at sort of the net revenue level we are actually just spending taxes extra 2% to 3% anyway. That is actually sort of the next increase in cost net-net even though there are some offsets. But I do not expect that we will be able to offset the whole amount. It would be a, let's say a couple of percent. It's what we are expecting at this point in time. So we need to fully go through that exercise to quantify and make sure that all the valid inputs that we could actually claim can be [claimed] (ph).
Mr. Yan, there are no further questions at this time, please continue with any final comments. Thank you.
Thank you for joining us today. We look forward to speaking with you next quarter and we value your continued support of 51job. Bye, bye.
Ladies and gentlemen, this concludes the 51job, Inc. first quarter 2014 conference call. Thank you for participating.
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