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51job, Inc. (NASDAQ:JOBS)

Q2 2014 Earnings Conference Call

August 11, 2014 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

Alicia Yap – Barclays

Philip Wan – Morgan Stanley

Wendy Huang – Standard Chartered Bank

Evan Zhou – Credit Suisse

Operator

Good morning, ladies and gentlemen. Thank you for holding. Welcome to the 51job, Inc. second quarter 2014 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, Lillian, and thank you all for attending this teleconference to discuss unaudited financial results for the second quarter ended June 30, 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 second 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 third 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 third 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 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 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 will 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 summary of the second quarter and an assessment of the current market and operating conditions. Then Kathleen will follow with a detailed review of our financial results and provide our guidance for the third quarter. Finally we'll open the call to your questions.

We had a solid second quarter as our business operations performed very much as we expected. Total revenues came in at RMB458 million and non-GAAP EPS was RMB2.75. Our online business maintained a healthy growth trajectory in the second quarter, with 16% revenue growth which was affected by new value added tax policy that Kathleen will explain later in her comments.

Led by our over 300,000 strong sales force, we continued to focus our energies on our number one priority of driving customer acquisition and engagement. The number of unique employers increased 21% compared to the year ago period to over 280,000 corporates.

On the job seeker side, we saw steady consistent growth ending the June quarter with an accumulated 79 million registered user accounts, 70 million resumes and 16 million activations of our industry leading mobile apps. Our current activations still indicate a favourable hiring market for white collar talent, as our recent employer survey showed 4 out of 5 respondents have intentions of increasing head count. Amidst this demand environment, we are staying on course with our sales force expansion and brand marketing initiatives.

Over the past 18 months, we have bunked up our sales force by nearly 750 staff. Consequently this investment has seen us double the number of net online employer adds compared to the 2012 levels. As we train these new sales people to build up their client base and ramp up their productivity, we are confident that we will see greater returns from their efforts in the next several years. Also because we utilize an integrated sales and customer service approach across 51job, we believe this growth of head count additions strengths the cross-selling opportunities for our other HR services over the long term.

On the other HR services front, revenues increased by 16% in the second quarter which was lifted by a greater contribution from training and other services and partially offset the impact of operational adjustments we are undergoing in our BPO business. As discussed in last quarter’s conference call, in conjunction with assisting our BPO customers, comply with new regulations that went into effect in March, we have embarked on a transition period during which we will update and streamline our BPO systems, processes and procedures across the board.

Although costs have not increased significantly, we have directed greatest staff resources to those efforts, which have, as expected, slowed the customer coverage and roll out of BPO services in the interim. We believe these actions will better position us for the longer term development of our BPO services and improve operating efficiency as this business grows.

We remain confident about the large BPO market potential in China and we will emerge from this transition with an even more compelling value proposition and service delivery infrastructure for our customers.

Next month, 51job will celebrate its 10th year anniversary as a publicly listed company. Just as we have for each day of the past decade, we remain driven by our vision to become the most comprehensive end-to-end HR service provider in China. 2014 is a year of investment as we incubate ideas, upgrade our service offerings and pursue new opportunities to lay down the ground for our future success. We believe the actions we are taking today behind the scenes will be critical for our success down the road. While we reflect proudly back on what we have achieved, we believe our best is still to come.

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

Kathleen Chien

Thank you, Rick. In my following presentation, please still be aware that all financial numbers are in our reporting currency of the Chinese RMB unless otherwise stated. Also please note that all gross rates are on a year-over-year basis as compared to the second quarter of 2013 unless otherwise indicated.

Our total revenues for the second quarter of 2014 were RMB458 million, above our forecast range and representing a 13% increase year over year. Beginning on June 1st of 2014, now pursuant to a new value added tax or VAT policy instituted by the ministry of finance, our PRC subsidiaries ceased paying a 3% business tax on gross revenues received from value-added telecommunication services. Instead these services became subject to a VAT rate of 6%,

This policy changes principally affects our online services business which reduces the amount of revenues we recognize and impacting the comparability of revenue figures before and after June 1. The VAT is reflected directly at the net revenues level, and as there is no longer a business tax of services, our gross revenues would be equal to net revenues. Therefore at the maximum if not VAT inputs are offset against the VAT liability, the impact on our online business would be a top line reduction of the 6% VAT rate at the gross revenues level. At the net revenues line, the impact would be up to 3% which is a difference between the VAT rate and the previously paid 3% business tax rate.

Factoring in a one month impact of the VAT policy change that was implemented, our online revenues for the second quarter grew 16% to 4312 million.

Unique employers using our online services increased by nearly 50,000 to 280,000 companies in the second quarter of 2014. While we did not materially adjust the rate card and maintain steady pricing, our ARPU trended lower in the second quarter for two main reasons. First of all, as expected, our strategic efforts to drive new customer acquisition increases the number of first time users who purchase basic lower priced packages that bring down the overall average spend. And secondly, the VAT policy change decreased revenues and therefore also ARPU and this effect will take 12 months to roll through before the year-over-year results will be directly comparable.

Revenues for other HR services increased 16% to 143 million. The growth was primarily driven by usage of our outsourcing and training services. Our training business had a record quarter and its increased contribution partially offset the slower growth of our outsourcing business. As Rick mentioned earlier, we’re instituting changes to certain internal procedures related to how we deliver our BPO services. This transition will encompass the rest of 2014 and we had factored this impact into our Q3 guidance. Our print business is truly at its end and revenues decreased 70% to RMB2 million. We currently operate just one city publication in the City of Xian. While we will maintain this publication through 2014 its contribution will be negligible to our overall results.

Gross profit grew 14% to RMB326 million and gross margin was 74%. Included in cost of services in the second quarter was higher share-based compensation expense in the amount of RMB3 million.

Sales and marketing expenses increased 28% to RMB143 million in the second quarter, primarily due to additional sales headcount, higher employee compensation expenses and greater advertising expenditures. Included in sales and marketing expenses was share-based compensation expense of RMB2.5 million in the second quarter. We saw a net add of approximately 110 sales staff in the second quarter of the year and we remain on track with our plan to hire actively through the end of 2014. When we set our budget earlier this year, we target sales and marketing expenses including share based compensation to be approximately 30% of our net revenue. However, due to the instituted VAT change, please note that the percentage would slightly exceed this level by few hundred basis points for the remainder of 2014 as a result of the reduced revenue denominator.

G&A expenses for the second quarter were RMB61 million, an increase of 23% due to higher share-based compensation expense and professional services fee, as well as greater office rental and depreciation expenses. Our share-based compensation expense included in G&A increased to RMB13 million in the second quarter of 2014 compared with RMB10 million in the same quarter of the prior year.

Operating income for the second quarter of 2014 decreased 2% to RMB122 million due primarily to the increased spending on sales and marketing activities. Our operating margin was 28% compared with 32% in the same quarter of the prior year. Excluding share-based compensation expense, operating margin would be 32% compared with 36% in the year ago quarter.

In April, we completed an offering of U.S. $172.5 million in convertible senior notes. This offering affected our second quarter results in three ways. First, we expensed RMB47 million in one off cost related to the issuance of the convertible notes in the second quarter. Second, we have applied fair value accounting to the notes, which required a mark-to-market exercise to be performed at each reporting period-end for the duration of the note. 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 the second quarter, we recognized a loss of RMB29 million associated with the change in the fair value of the note. Finally, in connection with the notes offering we used U.S. $50 million of the net proceeds to enter into zero-strike call option transaction. In the second quarter, we recognized a loss of RMB25 million associated with the change in the fair value of this zero-strike call option. These call option transactions were executed and accounted for in the second quarter and will not require a fair value assessment going forward.

Other income in the second quarter included over 32 million in local government financial subsidy. The subsidy came in earlier than expected as we have historically received similar types of subsidies in the second half of the year instead.

Primarily due to the accounting related to the convertible notes offering, our net income for the second quarter decreased to RMB52 million compared with RMB119 million in the same quarter of 2013. Excluding share-based compensation expense, foreign currency translation notes issuance cost and changes in the fair values of the notes and call options in addition to the related tax impact of these items, our non-GAAP adjusted net income [indiscernible] in the second quarter. Non-GAAP adjusted fully diluted earnings per common share were RMB2.75 which is equivalent to U.S. dollars $0.89 per ADS. Now please be aware that earnings per ADS noted here does not reflect the share ratio change, which just took place on August 8, 2014.

And turning to our balance sheet. We ended the June period with cash and short-term investments totaling RMB4.2 billion, equivalent to approximately U.S. $678 million. We remain very open-minded to utilizing our cash resources for acquisitions and we are actively seeking opportunities related to the HR space in China. We will also use some cash for share repurchases. In late June, our shareholders approved an increase to our existing share buyback program from U.S. $25 million to U.S. $75 million.

Turning now to our guidance. Based on current market conditions and factoring in a full quarter’s effect of the VAT policy change on our revenues, our total revenue target for the third quarter of 2014 is in the estimated range of RMB455 million to RMB470 million. For the non-GAAP fully diluted EPS target, our estimated range is between RMB2.25 to RMB2.45 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 nor the related tax impact of these items.

Our total share-based compensation expense is expected to be between RMB21 million and RMB22 million for the third quarter. This guidance reflects our current forecast which is subject to change.

Finally, again as a reminder, we would like to highlight to everyone that when we report third quarter results the ADS ratio change which was adjusted placed on August 8th will be reasserted and one common share will equal 1 ADS.

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

Question-and-Answer Session

Operator

Thank you. At this time, we will begin a question-and-answer session. (Operator Instructions) One moment please for the first question. The first question comes from Alicia Yap. Please state your company name followed by your question.

Alicia YapBarclays

Hi, Good morning. I’m from Barclays. Good morning, Rick, Kathleen and Linda. Thanks for taking my questions. I have questions related to your new customer at. Can you elaborate a little bit more detail on the customer profile? For example, in which cities or regions that you have seen the most growth over the past couple of quarters and in which industry verticals or the business segments that we have seen the most growth? And then any different type of the customer behavior from these newly added customer with your order or existing customer that you can share?

Kathleen Chien

Thank you, Alicia for the question. I think in terms of the customer acquisition I believe that in the first few quarters I don’t think that there’s been any significant change in terms of the profile of where we’re adding customers or the type of industry we’re adding them from. For the most part, we are now deeper in terms of penetration into looking at the SME accounts for the most part because most of the large companies are companies that we have had a working history with. I don’t think that there has been any sort of specific concentration in terms of geography or industry type per se, but in terms of the buying behavior of new customer that we do expect that typically we would expect to add this customer with a shorter term of contract and also at the more basic and lower price introductory packages. So that would the type of behavior we would expect from the new customers.

Alicia YapBarclays

I see. So can I follow up on that on income source on new customer? Have you seen any kind of like big change for after one or two quarters that they just leave the platform or you just mainly still staying after that?

Kathleen Chien

Well, there will be a mix of situations where if someone comes in, for example, just after Chinese New Year purchasing a short-term contract, let’s say one month if you will, it’s quite possible for them to not have yet returned since that first engagement if you will…

Alicia YapBarclays

So I see.

Kathleen Chien

In situations where we do have a lot of new customers, we do expect that there will be a quite a number oncoming with short-term duration contract, but we expect of having that so that the first trial with us we will be able to reengage with them as their need emerge again and then in the future engagements we are actually expecting to then upsell down to longer term contracts and more services even with the shorter duration.

Alicia YapBarclays

I see. That’s good. And the second question is can you share with us how is your sales and sales personnel divide and break down their sales effort? And For example, do any of these newly added customers need a little bit more handholding service from your sales team?

Kathleen Chien

I think in terms of the customer process that we actually go through, I don’t think there’s going to be meaningful difference on geography in terms of that. When somebody actually works with us for the first time, we do actually expect our sales people to be able to walk them through the basic module and introduce the different type of offerings. So for example, you obviously start with the posting process is the very first engagement that you would have with us. At the same time we’ll help them to in looking through whether or not looking through and searching our database would make sense for certain types of candidates. We’ll also help them to looking at whether or not engaging in, for example, priority listings or other type of visibility package that will make sense for a certain type of positions if you’re actually urgently hiring. So there will be many modules that we do expect that our sales guy will actually help them and walk them through with and to some degree sometimes we actually might even help on review their job description that gets posted make sure that the information posted is a good reflection of what’s going on in the market place.

Alicia YapBarclays

I see. And then just lastly also related to the new customer acquired. Would there are any promotional type of campaigns or rebates that the sales team has to provide or keep to incentivise the signup of the accounts? Thank you.

Kathleen Chien

From a pricing perspective already in terms of the introductory packages, we do expect them to make quite them quite affordable, if you will, but there is no initial rebates or other kind of situations that we expect to see, but again they are actually coming at the shorter durations with, let’s say, better pricing already and so that’s what we expect that. We would make the hurdle rate to kind of maybe working with us for the first time quite low.

Kathleen Chien

I see. Okay, great. Thank you.

Alicia YapBarclays

Thank you, Alicia.

Operator

The next question comes from Mr. Philip Wan. Please state your company name followed by your question.

Philip Wan – Morgan Stanley

Hi, good morning, Rick, Kathleen and Linda. This is Philip from Morgan Stanley. Thanks for taking my question. My question is about competition. Could you comment on the latest competitive advantage on the online recruiting markets in China given that one of your key competitors in the region just went public? Would you expect any pressure in pricing of promotions after making your market share? Thank you.

Kathleen Chien

Good morning, Philip. Thanks for your questions.

Philip Wan – Morgan Stanley

I don’t think that jolt in [ph] public would change the sort of the basis of competition or the competitive landscape given that they are not a new player in the market place. For a very, very long time we’ve been fighting with them and competing with them. So I think there is a long history of how competed with them and how we’ve them and that we believe that we’re actually doing quite well against our competition. So I think that the fact that they became public does not create additional, I think, pressures for us. Whether or not they create additional pressures for them, it will be something they will learn a little bit more about, but I think for us I don’t think that we are in a position to feel that there will be a major change in the competitive landscape. As far as we’ve seen so far they just went public about two months ago. Obviously, we have not seen any major changes in terms of their sales strategy or how they go to market and at this point in time we also have not seen significant changes in pricing policies from them.

Philip Wan – Morgan Stanley

Alright. Thank you. And then my second question is about your outsourcing business. You mentioned that it’s still under operational position. I wonder if you could share with us a bit more detail on how is the progress and how long would it take in your view? And then also related to that you mentioned that you may be looking for opportunities in M&A in this area, would you highlight certain criteria that you’ll consider when taking consideration on the M&A for this particular factor? Thank you.

Rick Yan

There are two things going on on the outsourcing business. One is a new regulation that was implemented and became effected in March that actually created uncertainty for some of our customers, although there is a transition period of two years, but some of our customers are starting to think about how they plan for their kind of footprint going forward. So that to some extent slow a little bit some of the new customer acquisition that we have while slow the customers’ decision process. At the same time we are also trying to improve our operating efficiency because we’re now working with a very, very large number of outsourcing staff with us. We have to operate our systems, we have to operate our processes and we have to also—let’s put this way, we packaged some of our surfaces. So that’s been ongoing. As we mentioned, that hasn’t really incurred additional cost for us, but it’s a good time that when customer decision process becomes a little bit longer, then we can actually take some of our staff resources to focus on some of these process improvements. So that’s ongoing, that’s on track as we expected. So there’s no surprises there.

On the M&A front, I think what we’re seeing is that in some of the more sophisticated markets in China, the largely base and more sophisticated markets, we begin to see some fragmentation meaning that certain groups of positions or certain industries might require slightly different recommend approach. 51Job has been a general job board for the past 10 years and we’re feeling that for some of the more advanced and larger and some more sophisticated markets, the customer need is changing. Also, the labor demand and supply balance is also changing. It’s getting more difficult now to hire people. So there are certain types of positions that are actually getting very difficult to recruit for our customers and there will be additional needs for additional tools and surfaces to help our customers to get those positions filled. So we are looking for-- we are in addition to looking an M&A ideas we also have a number of new ideas that we are incubating internally that we expect to roll out in the next couple of quarters. So in general what we’re seeing is that in a more sophisticated market customer needs a changing and we will be rolling out certain new products and either some of them internally developed, some of them might be going through M&A and we acquire from those sites.

Philip Wan – Morgan Stanley

Alright. Thanks. That’s very helpful, yeah.

Operator

The next question comes from Ms. Wendy Huang. Please state your company name followed by your question.

Wendy Huang – Standard Chartered Bank

Thank you. It’s Wendy Huang from Standard Chartered. My first question is how has the number of BPO customers changed due to the recent hiccup caused by the changes in the dispatch worker regulations?

Kathleen Chien

Hi, Wendy. Good morning. There has not been major changes. I think as what Rick said a little bit earlier is that I think we expect that the new customer will be something that we don’t expect too much in a short term just because I think we’re going through a little bit of a transition, but at the same time there has not been any sort of an exudates [ph] of the customers, if you will. So it’s sort of more modest kind of a growth kind of a situation and that’s kind of the environment we are in at this point in time.

Wendy Huang – Standard Chartered Bank

You mentioned the transition period for this tool to implement for the two years, so does that mean the transitional period for your business will be around two years and we will see this business kind of remain at low growth rate for this year and maybe next year as well?

Kathleen Chien

Our expectation is probably that it will not be two years because if you hit the two year deadline, no one is going to work beforehand that would be a little bit late. But I do expect that for the rest of this year that is something that we continue to work with our customers to explore their options and to configure something that makes sense for them and also that would satisfy all compliance related requirements if you will. So I think for the rest of this year is what we are looking at this point in time. We do not expect that to be as prolonged as two years just because if you don't do any planning upfront, you might be caught unprepared at the end of that cycle. So that’s kind of what we expect at this point.

Wendy Huang – Standard Chartered Bank

Also you mentioned earlier that, you’re redesigning this type of product to adapt to the new law changes. So how was those – the new design of the product that should affect the ASP or the pricing power?

Kathleen Chien

I don’t actually think that the pricing is something that any of us is focused on -- between us as the service provider and customer per se because I think the more important thing is that the regulation really has an impact on how the things are configured or structured, if you will. So I think pricing to be honest is not a point that’s been in discussion very much. So at this point in time we’re actually not expecting that there will be a significant influence on price.

Wendy Huang – Standard Chartered Bank

And just regarding your Q3 guidance, can you talk about the seasonality of the different business segments such as campus recruitment and also the online job posting?

Kathleen Chien

It doesn’t have too much seasonality actually I would say. Campus recruitment really becomes a bigger part in the fourth quarter and so it doesn’t have a major kind of angle in the third quarter, and everything else is pretty much the same. What’s going to be very different is that obviously with the VAT policy coming into place, that will then be in force for the full quarter – the full three months during the quarter, that when you look at year-over-year revenue levels, online is going to take a fairly large hit because the online revenues will actually be even at same order revenue levels if you will, will be 6% lower than the prior year, if you will. So that is something that we need to account for and that’s where the year-over-year comparability becomes more difficult.

Wendy Huang – Standard Chartered Bank

And finally, when I am looking at your GAAP EPS figure, obviously this quarter it was actually hit by the CV related costs as well. So I am actually trying to figure out what are the ongoing expenses related to the CV and what is the one-off – so if I'm trying to actually decompose that 100 million CV costs, it looks like to me only 47 million is one-offs and the rest like 52, 53 million are related to fair value changes and those actually could be ongoing costs for the coming quarters [indiscernible] better off by doing a straight debt instead of this kind of complicated CV and zero strike call options?

Kathleen Chien

First, Wendy, just to clarify, actually the ongoing costs, the only one that will be ongoing would be the change in fair value of the convertible notes. There will be no additional costs or gains that we will recognize in relation to the call option. That is a one-off expense as well. So just to clarify the only item that’s ongoing is going to be the one related to the change in fair value of convertible notes. Secondly, I guess in terms of just looking at whether or not other type of financing options would have been better or not, I think that's difficult to second guess in a way for us but I do think that the structure we chose is appropriate for us in terms of just thinking about how we try to balance dilution and how we want to look at the structure for us specifically. Obviously it did have a major impact on the second quarter, we will not try to avoid that point but it is I think the structure -- I still think that longer-term is appropriate for us and that is something that we just have to take the hit in the second quarter. So the only one that is actually going to be an ongoing change which could be a loss or gain, if you will, in the third quarter and going forward is the change in the fair value of the convertible notes.

Operator

(Operator Instructions) The next question comes from John Chow [ph]. Please state your company name and followed by your question.

Unidentified Analyst

Hello, this is Alicia calling on behalf of John Chow. I have two questions. You guided that the margin is around 30% in the whole year period [indiscernible] ’15 and going forward. As you said this year is the year of investment. So is there any expectation at all 2015 when you cease to invest, will you see any OPM rebound? And the second question is very easy, and that’s the product breakdown of your other HR services segment.

Kathleen Chien

Hi, thank you for your questions. Firstly I don’t think we’ve actually guided specifically to OP margins for the rest of the year per se. We spoke to the fact that I think in terms of the sales and marketing expenses we do expect them to be at 30% -- historically at the high-end of our range and that we expect that given the VAT policy change has just come into play, that we actually might be a couple hundred basis points above that given the reduced revenue denominator. So I think we have not actually gone ahead to try to guide 2015 or beyond at this point in time, just because for us looking at total revenues is something that’s very important. So we will not get ahead of ourselves and try to guide ahead. But obviously we do agree and we have actually clearly stated that we believe that this is a year of investments and therefore you do see that we have actually been aggressive in sales and marketing expenses throughout the year and for the last five, six quarters, we’ve also been very aggressive in terms of hiring and adding to our staff count. We hope down the line that will actually continue to spur revenue growth and that will then put us in a better position.

Now obviously we believe that if we actually can induct and train our sales support appropriately we do expect that the new people that we’ve hired over the course of the last few quarters will continue to increase in productivity and therefore increase revenues for us and then obviously then that would actually then hopefully bring up our margins. So that is what our expectations are, although we have not specifically provided any guidance for 2015 and beyond at this point in time.

Second point relates to I think the question about other HR revenues. We have never broken out other HR revenues in terms of the specific product line. There is about six products within that bucket and so that has been the practice and at this point in time we do not expect to deviate from that practice at this point. But yes – so the two biggest components typically are our BPO and our training businesses in the other HR services and that continues to be the case.

Unidentified Analyst

Okay, can I ask – how much percentage of revenue contribution from BPO and training services?

Kathleen Chien

It’s the majority of the total but depending on the quarter it will have some swings given that earlier we talked about with some seasonality products with the campus and other things, the percentage will fluctuate but BPO and training will be the majority of our revenues when we look at the whole year.

Unidentified Analyst

Cool, can I have a following up question, it’s about revenue per unique advertiser. We see this number is a little bit decreased on a year-on-year basis across several quarters. So how do you see its future growth profile?

Kathleen Chien

In situations where we actually have faster, new customer growth or total sort of net adds being higher, we do expect that typically ARPU will trend down anyway just because the first time customers typically will buy into shorter-term basic and lower-priced services. So that is the impact that we expect to see reflected in ARPU level. Secondly, in the third quarter we also expect that given the recently implemented VAT policy change on for us, in terms of how it impacts our online revenues, that actually effectively reduces our total and net revenues and therefore will also have an impact on ARPU which is also moving negatively. So in the next couple of quarters we do already see that, that is something that will come into play and that for the rest of the quarter it will have an impact on our ARPU.

Operator

The next question comes from Evan Zhou from Credit Suisse.

Evan Zhou – Credit Suisse

I’ve got a relative long term question, so I wanted to bring on the quarter – how do you see probably like two years out, what’s the opportunity for us to enter into a new – probably new segment beyond probably the only space white collar recruiting segment that we have right now, do you see the chances that we may enter into probably the high-end recruiting or maybe like lower end like blue collar, where you kind of have limited exposure in that, how is the opportunity going forward?

Kathleen Chien

Hi Evan, thank you for the question. I think I will start and then Rick will probably jump in to add more. To be honest, I think we believe that the opportunity comes in many ways for us, because I think there is always the sort of the discussions to go upmarket if you will, like going into the more experienced base. There is the down market, going more blue collar, there is also certain niche place or vertical place if you will. So I think if you slice it and dice it there is many ways we can try to expand where our core competencies are. I believe that we will always have a core market in terms of the white collar space, the 20 to 30-year-old that we continue to serve, through 51job but I think that there is a lot of other ways for us to look at the different niches and I think that – that is something that we – as Rick alluded to earlier in the call, that these are opportunities that we’re looking at much more aggressively now than ever before. So I do think that those are the areas you identified are ones that we are looking at pretty seriously and we expect to actually have a way to think about to serve our customers.

The good thing about everything is that obviously we already have customer relationships, it’s just finding out a way to continue to expand the kind of the delivery pipeline we have, so that we can actually server a different area within the customer need.

Operator

The next question comes from Xuan Lin. Please state your company name followed by your question.

Unidentified Analyst

Fitch Research [ph]. Thank you very much for taking my question. I have one question regarding your convertible note. I am wondering whether you can share some color on the usage of the proceed of that convertible note, particularly in which aspect are you trying to spend the money on?

Kathleen Chien

Thank you for the question. I think when we actually talked about the issuance of the notes earlier, I think obviously we were trying to balance the onshore and offshore cash situation so that we would actually have money offshore to be able to facilitate transactions. I think in terms of what we are focusing on, the M&A opportunity is something that we continue to look at in terms of just looking at the different ways to serve our customers more effectively. In some of the early responses to the questions that were raised, we talked about the fact that there is different parts in the market we can go after, we can go up market, we can go down market, we could actually add to the service pipeline we have in terms of the different products that we also serve recruiters and also just not just recruiting per se but other parts of the HR value chain that we want to target. So that continues to be something we are focused at. We continue to focus on just the China market, though, however so that’s really the extent of our focus.

In addition to that, obviously the shareholders have recently approved and increased to our share buyback program. So I think part of the proceeds from the offering will then actually go to that as well. So that is where we see the two ways where that funds that were raised through that transaction will be geared toward at this point in time.

Unidentified Analyst

May I have a follow up question on the share buyback trend, could you please remind us if you have disclosed the total amount of the share buyback plan?

Kathleen Chien

What was approved is actually up to $75 million share buyback plan.

Operator

The next question comes from Mike Chan. Please state your company name followed by your question. Mr. Rick Yan, there are no further questions at this time. Please continue with any final comments.

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

Ladies and gentlemen, this concludes the 51job Inc. second quarter 2014 conference call. Thank you for participating. You may now disconnect.

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Source: 51job's (JOBS) CEO Rick Yan on Q2 2014 Results - Earnings Call Transcript
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