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51job, Inc. (NASDAQ:JOBS)

Q1 2012 Earnings Call

May 9, 2012 9:00 p.m. EDT

Executives

Linda Chien – Head of IR

Rick Yan – President and CEO

Kathleen Chien – COO and Acting CFO

Analysts

Philip Wan – Morgan Stanley

Tim McHugh – William Blair & Co.

Alicia Yap – Barclays Capital

Wendy Huang – Royal Bank of Scotland

Justin Diddams – Citigroup

Alex Leung – SAC Capital

Operator

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

Welcome to the 51job Inc.’s first quarter 2012 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. If any participants require assistance at any time, please press the star followed by zero on your telephone for the operator assistance.

I will now hand the conference over to Ms. Linda Chien, the Vice President of Investor Relations. Thank you, Ms. Chien. Please go ahead.

Linda Chien

Thank you, [Ming], and thank you all for attending this teleconference to discuss unaudited financial results for the ffirst quarter ended March 31, 2012. With me for today’s call are Rick Yan, President and Chief Executive Officer, and Kathleen Chien, Chief Operating Officer and Acting Chief Financial Officer. A press release containing first quarter 2012 results was issued earlier today and a copy may be obtained through our website at ir.51job.com.

Before we begin, I would like to remind you that during this call statements regarding targets for the second quarter of 2012, future business and operating results constitute forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934 as amended and as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations and actual results could differ materially.

Among the factors that could cause actual results to differ are the number of recruitment advertisements placed; sales orders received and customer contracts executed during the remaining weeks of the second quarter of 2012; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the renminbi against the US dollar and other currencies; behavioral and operational changes of customers in meeting their human resource needs as they respond to evolving social, economic and political changes in China as well as stock market volatilities; introduction by competitors of new or enhanced products or services; price competition in the market for the various human resource services that the company provides in China; acceptance of new products and services developed or introduced by the company outside of the human resources industry; and fluctuations in general economic conditions.

For additional information on these and other factors that may affect the company’s financial results, please refer to the Risk Factors section of the company’s filings with the Securities and Exchange Commission. 51job undertakes no obligation to update targets prior to announcing final results for the second quarter of 2012 or as a result of new information, future events or otherwise.

Now I’ll turn the call over to Rick.

Rick Yan

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

Our first quarter results were very much as expected. We achieved revenues of RMB381 million, near the midpoint of our guidance, and non-GAAP EPS of RMB2.23, or slightly ahead of our forecast due to improved operating efficiencies.

In line with the initial market assessment we shared on our conference call in February, we have observed healthy customer demand in 2012 but in a more modest level compared to the prior two years. Concerns about global macroeconomic conditions and growth in China are [weighing] on our customers as they navigate through another period of uncertainty. That said, on the bright side, hiring patterns so far this year have been largely within our expectations.

Our online business continued to exhibit solid growth and revenues increased 33% year over year in the first quarter. With the early Chinese New Year, we captured a greater amount of the post-holiday recruitment peak in the first quarter this year compared to 2011. We successfully increased the number of unique employers using our online services to over 170,000 in the quarter.

We have also expanded our geographical reach this year with the addition of several new cities and the sales coverage via Wuhan call center. We are now providing dedicated sales and customer support for our online recruitment services in 91 cities across China.

Reflecting our steady progress and diversifying our revenue sources, we saw a strong performance by our other HR services area in the first quarter. Revenues increased 59%, led by customer demand for our outsourcing and training services. We continue to [de-scale] in these areas and capitalize on cross-selling opportunities into our large recruitment customer base.

Consistent with our strategy to transition away from the prints business, prints revenues declined meaningfully in the first quarter. With the closure of print operations in three cities in March, we have discontinued the 51job weekly publication in half of our print market since the beginning of 2010. We will progressively reduce the number of print cities in the coming quarters. As a result, the loss of prints contribution will affect our total revenue performance in the near term, as we reallocate resources and efforts to our faster-growing business areas, this will benefit our company in the long term.

We are pleased with our start for the year, and I’ll now turn the call over to Kathleen for a detailed financial review of the first quarter.

Kathleen Chien

Thank you, Rick.

Revenues for the first quarter totaled approximately RMB381 million, representing a 17% increase over the same quarter in 2011.

Online revenues for the first quarter were RMB229 million, an increase of 33% compared to the same quarter in 2011 on both higher average revenue per customer as well as an increase in the number of online employers. We saw a 20% year-over increase in average revenue per customer due to greater spending an the impact of the new price list that was implemented in April of 2011. The number of unique employers using our online services increased 11% compared to the year-ago quarter to over 171,000 companies.

Print advertising revenues decreased 45% for the first quarter of 2011 to RMB48 million. The decline was primarily due to the ongoing de-emphasis of our print operations and the resulting decrease in advertising pages. Print advertising pages in the first quarter of 2012 decreased 48% to approximately 1,150 pages compared with about 2,200 pages in the year-ago quarter. The average revenue per page increased approximately 7% due to greater contribution from the higher priced cities. In March, we discontinued the 51job weekly publication in Beijing, Changsha and Wuhan, bringing the total number of current print cities down to 11.

For the second quarter, we are forecasting a year-over-year decrease of more than 50% in print revenues. We expect that the contribution of print revenues to total revenues will further decline throughout 2012 as we manage down these operations.

Other HR services revenues grew 59% to RMB104 million in the first quarter of 2012 primarily due to increased demand and customer acceptance of our outsourcing and training services. Contribution of other HR services to total revenues increased to 27% compared 20% in the year-ago quarter.

Gross profit grew 22% to RMB263 million and gross margin increased to 72.4% compared to 70.5% in the first quarter of 2011. The margin expansion was primarily due to economies of scale, operating efficiency and a reduction in printing-related expenses.

Included in cost of services in the first quarter was share-based compensation expense of RMB1.7 million. Sales and marketing expenses increased approximately 28% year over year to RMB90 million in the first quarter, mainly due to higher employee compensation expenses, headcount additions and greater advertising expenditures. Included in sales and marketing expenses was share-based compensation expense of RMB1.5 million in the first quarter.

G&A expenses for the first quarter was RMB42 million, an increase of 15% from the year-ago quarter due to higher employee compensation and office expenses. Share-based compensation expense included in G&A increased to RMB8.5 million compared to the RMB4.3 million in the same quarter of the prior year. We expect that share-based compensation expense will continue to increase in the second quarter as we plan to grant new share-based awards as part of our long-term employee retention program.

Operating income for the first quarter of 2012 increased 21% year over year to approximately RMB131 million. Our operating margin improved to 36% compared with 35.3% in the same quarter of the prior year. Excluding share-based compensation expense, our operating margin exceeded 39% in the first quarter, the highest in our history.

Net income for the first quarter increased over 31% to more than RMB120 million compared with RMB92 million in the same quarter of 2011. Our fully diluted earnings were RMB2.03 per common share, which is equivalent to USD0.46 per ADS. Excluding share-based compensation expense, loss on foreign currency translation and their related tax impact, our non-GAAP adjusted net income increased 31% year over year to RMB132 million in the first quarter. Non-GAAP adjusted fully diluted earnings per common share were RMB2.23 or USD0.71 per ADS.

Now looking on our balance sheet, we maintained our solid financial position with strong cash flow generation in the quarter. Cash and short-term investments increased to over RMB2.2 billion or approximately USD353 million. This is equivalent to over USD12 per outstanding ADS.

Now I will turn the call back over to Rick.

Rick Yan

Thank you.

Although we would assess the current sentiment of the Chinese recruitment market as still positive, economic concerns are clearly casting a shadow over enterprises in their hiring activities. We continue to observe that demand is being led by companies with larger budget, greater resources and more formalized growth plans, while smaller-sized organizations are more cautious in their headcount additions.

However, despite the moderation in recruitment activity as compared to last two years, the general consensus remains that good talent is both expensive and hard to find in China. Also, more good news is that we have not seen any sharp fluctuations in customer behavior reminiscent of conditions during the financial crisis. In other words, we feel the market is neither terribly great nor terribly bad, with growth simply expected to be more limited this year.

As we monitor the demand situation closely, we are focusing our energy investing our resources and executing our initiatives to position the company for profitable growth this year and beyond. We continue to push forward with our city expansion plans to our call center and are on track to achieve dedicated sales coverage in 100 cities by the end of this year.

On the online technology front, we recently launched upgraded version of our iOS and Android apps with new features and improved functionalities. As the number of mobile internet users increases in China, we are staying on top of customer and jobseeker needs and innovating to address this growing opportunity.

Taking into account market uncertainty and current competitive dynamics, we have decided to maintain a generally stable pricing policy for our online business in 2012. However, we are striving to achieve modest ARPU increase on a year-over-year basis due to the ongoing adoption of online services by employers and upselling efforts by our sales force.

Turning now to our guidance, based on current market conditions and factoring in a significant decrease in print advertising revenues, our total revenue target for the second quarter of 2012 is in the estimated range of RMB360 million to RMB375 million. Excluding the steep decline in print revenues, this implies we are expecting revenues for our online and other HR services business to grow in the low-20% range on a year-over-year basis in the second quarter.

For non-GAAP fully diluted EPS target, our estimated range is between RMB1.9 to RMB2.05 per common share. Please note that this non-GAAP EPS range does not include share-based compensation expense, foreign currency translation loss, nor their related tax impact. Total share-based compensation expense is expected to be between RMB14 million to RMB15 million. This guidance reflects our current forecast which is subject to change.

Economic cycles and the impact on recruitment demands are inevitable. Rather than waiting and speculating on matters outside of our control, we are taking actions to drive our business forward. Our core management team, many of whom have been with us for more than a decade, is prepared, experienced and focused on laying the groundwork that will support our sustainable long-term growth.

Leveraging our competitive advantages in brand recognition, product effectiveness, service quality and execution capability, w e believe that we can continue to consolidate our market leadership position, increase our customer base, and realize our growth potential.

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

Question-and-Answer Session

Operator

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

The first question comes from Mr. Philip Wan from the company of Morgan Stanley. Thank you. Please go ahead with your question.

Philip Wan – Morgan Stanley

Good morning, Rick, Kathleen and Linda. Thanks for taking my question.

My question is about your other HR services. Could you share with us what was the key driver for its sales acceleration in the first quarter? For example, was it mostly from a broader customer or ARPU increase for existing customers?

And also, could you comment on the competitive landscape of the business outsourcing business and 51job’s competitive advantage? Thank you.

Kathleen Chien

In the first quarter I would say that it’s really sort of the number of employers that we’re serving in that particular space and the outsourcing side continues to increase, while we also continue to sign up new customers.

In terms of the pricing levels, I would say that the outsourcing business is very much a sort of a modular pricing, depending on the type of service for each employee that is used, it’s sort of -- it really depends on that. So we have not actually changed our pricing for that. So it’s more coming from the fact that we’re serving more and more employees on the outsourcing side all the time with more customer sign-ups concurrently. So that is really what’s driving the outsourcing business forward.

In terms of the competitive picture, we still believe that the key competitor, the incumbents in the marketplace are still the quasi-government agencies, if you will, the [Tescos] and other companies of that nature in that space who have actually historically had a monopoly position in that marketplace. So, those continue to be the major competitor for us, and I don’t think that that’s changed meaningfully.

We still believe that we have a very unique model in serving our customers in the sense that we’re able to provide one platform of service that actually can cover multiple geographies for employers, which is sometimes difficult for these competitors that we’re talking about because they tend to be located in certain cities or certain regions, rather than have a sort of a national footprint, if you will. So that’s something that’s always been a very key selling point for us as we continue to push our business forward on that front.

Philip Wan – Morgan Stanley

All right. Thank you.

Operator

Thank you. And we have our next question, comes from Mr. Tim McHugh from the company of William Blair. Thank you, sir. Please go ahead with your question.

Tim McHugh – William Blair & Co.

Yes. Thank you. First, Rick, if I can just ask your commentary about the environment not being terrible, not being great, is that different than if we asked you three months ago as you kind of saw the early signs coming out of Chinese New Year, or kind of similar to what you would have said then?

Kathleen Chien

I think, you know, I’ll jump in first and I'm sure Rick will add to this, but I think we feel that the market again continued to be [inaudible] and demand is not as strong as previous years, so I think that the overall sentiment that we feel in the marketplace is very similar. Obviously, Chinese New Year came earlier than last year, if you will, so we did see that activity right after Chinese New Year continued to be dynamic, if you will, and that’s something that we continue to believe is a positive sign.

But having said that, again, this year is not as good as it was last year or the previous year, so that is something that we continue to observe and that I think that, you know, there is actually still a little bit of overhang for a lot of companies, especially for the smaller and medium-size companies, so that I think they’re taking more of a wait-and-see kind of approach to their planning and their hiring for this year.

So I think that -- I don’t think that what we are observing now is significantly different than what we saw a couple of months ago when we announced the first Q earnings, but I think that we’re sort of trying and waiting and understanding a little bit more when that will change. But for now, I would say that, again, Rick has said, it’s not terribly and it’s not terribly bad, so, sort of the middle of the road there.

Tim McHugh – William Blair & Co.

Okay. And the other HR services, the nature of the business, benefits processing outsourcing, this product is more of a recurring revenue. So, were there one-time type of project fees that helped that business, or is this more of a sustained step-up in the revenue run rate of that business?

Kathleen Chien

Tim, I'm sorry, we couldn’t hear you, you were breaking up. Can you repeat that question again?

Tim McHugh – William Blair & Co.

So, the other HR services, were they project-driven, fees that helped that, or is it the more recurring type of revenue that stepped up and we can expect to continue during the next few quarters?

Rick Yan

This is more kind of a recurring revenue because we have a set of customers that they will -- also certain type of staff to let us handle their payroll and benefits payment. So, normally these will be like new contracts, but very likely they will continue to use our service if we provide the service on a multiyear basis.

And I think one more point that I would add is, you know, as you can see, we transact with 171,000 customers on the online space, but for the outsourcing part we are only transacting with low kind of few thousand customers. So the penetration, kind of customer cross-selling and penetration is still at a very low level. And they are recurring revenues.

Tim McHugh – William Blair & Co.

Okay. And one last one, the Beijing print publication that you closed, is that disproportionately large such that that’s going to drive an even larger decline in the print business during the next few quarters?

Rick Yan

I don’t think Beijing is --

Kathleen Chien

We projected actually already that, Tim, in the second quarter that our print revenues overall will decline 50% or more versus last year, and that’s also sort of 50% quarter-over-quarter sales. I don’t think it’s -- at this point, I mean, every single one we’re kind of taking away is not huge, but it all kind of adds up, if you will. So, Beijing had some contribution obviously, but again, the total is going to look like it’s 50%, so, partly seasonality and partly just closure of the cities overall. So I wouldn’t say that it’s disproportionate, large at this point, but it’s becoming something that we just have to manage our way and kind of have the near-term kind of hit to our top line.

Tim McHugh – William Blair & Co.

Okay. Thank you.

Operator

Thank you. We have our next question, comes from Ms. Alicia Yap from the company of Barclays. Thank you, madam. Please go ahead with your question.

Alicia Yap – Barclays Capital

Good morning, Rick, Kathleen and Linda. Thanks for taking my questions. Just very quickly on the overall economy, so, wanted to get your comment on the demand from specifically the verticals and industry, is there any industry or vertical that stands out more significantly of holding of the hiring trends?

Kathleen Chien

We don’t believe there is actually industry-specific phenomenon. Like I said earlier, we feel that, you know, obviously larger companies with longer planning cycles and more resources have been the people who kind of held more steady, if you will, because I think they can look out longer term. But smaller and medium-size companies were probably a little bit more cautious. So I think it really depends a little bit on the size of the company and in terms of the resources that they have on hand to demand that is probably different. But I wouldn’t point out specific verticals or other things that has been a major driver in what we think are differentials, if you will. So, no.

Alicia Yap – Barclays Capital

And in terms of geographic coverage, is it also quite nationwide like average, right, so it’s not like particularly any cities who will be hit harder or will be more cautious?

Kathleen Chien

Yes, that’s correct. It is actually broad-based and nationwide and not constrained to specific geographies.

Alicia Yap – Barclays Capital

And second question, on your margins, so, it seems like your guidance implied maybe a little bit slight decline on the margin for the second quarter. Is it mainly due to just the soft top line? And will you take opportunity in a more challenging situation to now like spending or investing a lot more on your sales and marketing initiatives to further expanding your market share?

Kathleen Chien

Yes. I mean, certainly I think the top line, the decline is just going to be impacting us because we’ve always believed that our business is very sort of a revenue [scale] driven because of a lot integrations in the staff that we use. I think that, you know, we’ve historically contained our sales and marketing spending to between 25% to 30%. We continue to believe that is the right mix to do. We might come in at the higher end if our revenue level is lower than otherwise. But again, we do not believe that we should overreact to quarterly changes because in the long term we believe that we are still very early stages in the market development and the penetration, and we believe that these are things that we need to do for the long term anyways.

And to a degree, coming out of the financial crisis last time, we also made decisions during more difficult times to make investments, and we believe that those paid off for us once the market turned back, if you will. So we believe that we are still going to do the right thing for the future, but we will still be disciplined in managing our expenses and our costs, that it is in line with those broad guidelines that we always referred to.

Rick Yan

I would also add that we’ll continue to expand our sales and marketing efforts. First of all, we’re expanding into many new cities and we expect to cover more than 100 cities by the end of the year. Secondly, if you look at the first quarter, our sales and marketing expense has already reached RMB90 million which is historic high. But on the hand, if you do that as a percent of revenue, it’s actually a little bit less than 25%. So I think our approach will continue to do the right thing to expand our sales and marketing coverage. And I think we will be disciplined to keep that between 25% to 30%, but I think even within that range, we will be expanding.

Alicia Yap – Barclays Capital

I see. Good. And then just lastly, will there be any need for consolidating the market by acquiring some players, or do you think that you still feel to grow the business organically?

Kathleen Chien

I think that’s a hard question to answer [in that term]. It’s certainly not necessarily our intent and our will, if you will. I think we’re always -- we’ve always been open-minded, but again, in our market space, there is not a lot of large players or significant players, so that growing by acquisition, if you will, there are limited opportunities. So, you know, we’re open-minded all the time, but it’s got to make financial sense and strategically as well. So we’ll be open-minded, and we’ll see.

We think that long term though, market will continue to consolidate because we believe that the number of small players are going away and the gap between the smaller and the bigger players continue to widen. But we’ll see.

Rick Yan

But I think there are very few meaningful major acquisition targets, but there could be some smaller properties that might have some interesting technologies or models that we might be looking at. And if the market does kind of, you know, getting to a slower growth phase and some of those properties might have a more reasonable price expectation, we’ll certainly be looking at them.

Alicia Yap – Barclays Capital

Okay. Great. Congratulations on a good result and execution. Thank you.

Rick Yan

Thank you, Alicia.

Operator

Thank you. (Operator Instructions).

We have our next question, comes from Ms. Wendy Huang from the company of Royal Bank of Scotland. Thank you. Please go ahead with your question.

Wendy Huang – Royal Bank of Scotland

Good morning, Rick, Kathleen and Linda. I will start my first question regarding your Q2 revenue guidance. So, put aside the legacy print business, it seems that you are suggesting the online and other HR business to grow like quite flat sequentially as well. But historically, Q2 is actually seasonally stronger for these two parts of business. So, can you help us to understand the macro impact on these two parts of business? And also, you mentioned earlier that you project these two businesses to go at low 20s percentage range in Q2. So, should we use this as the benchmark for the full-year growth?

Kathleen Chien

I think, Wendy, for us, again, we try to tell everyone and share with everybody what our outlook is quarter on quarter because, as you can imagine right now [inaudible] change and we don’t want to get of ourselves too much on that front. Our feeling is that again, if you compare this year versus last year, we had pretty strong growth in our first quarter with the early Chinese New Year. We probably captured more of the post-CNY peak in the first quarter versus last year. So there is going to be some differential because of the seasonal date [misses], if you will.

But having said that, I think we’ve already said in the first quarter and as well now that we believe that this year the environment is more challenging than it was compared to last year and the year before. The last couple of years, people coming out of the financial crisis were very, very aggressive in their hiring plans and, you know, I think kind of play a little bit of a catch-up to what the -- the ground they might have lost by holding out the year before, if you will. So I think that’s kind of the situation we’re in.

And secondly, I guess we do have to address also the pricing issue which is in the last year we also got a bump-up on the pricing in the second quarter because we actually put in broad-based price increases in the online segment as well at that time. So that is something that we are not putting in this year, and so there’s going to be a little bit of a differential there as well.

And finally, first quarter, I mean, other HR service [grew phenomenally]. And so, again, this is a business that doesn’t have a good linear pattern as well sometimes. So, having high growth in the first quarter, [tapping] us out a little bit, but I think we’ll not see the same kind of growth rate. So, on a sequential basis, it might not look as good. But we still feel that overall, if you look at the year-over-year comps, as we continue to look at, we try to eliminate seasonality impact, that obviously print is something we need to manage down and that’s something that will have near-term hit that we’ll need to absorb, while the other business we still believe are actually growing healthily, it’s just not going to be as phenomenal as it was in the prior couple of years. So that’s kind of our sense of the market.

And again, I hesitate to get too much ahead and say that’s what we’re looking at for the full year because again we’re going to have to wait and see because I think this year is a little bit of wait-and-see because a lot of things might change as well, and people are making different claims on what the outlook for China’s economy is in the second half. So we’ll have to wait and see and kind of keep everyone updated next quarter as we continue to understand what our customer behaviors will tell us ultimately.

Wendy Huang – Royal Bank of Scotland

Okay. Just to follow-up your comments regarding the price increase, so I understood that last year the price increase was more broad-based. And I recall that you mentioned previously that you did price increase in selective products in April this year as well. So, how has been the acceptance of this round of selective price increase among the customers, and how will that affect the ARPU?

Kathleen Chien

No, actually, Wendy, we didn’t put in specific price increases for specific products actually in April. We actually looked at trying to actually create bundles and other things to try to up-sell customers instead. So, I would -- actually we did not put in sort of specific price increases for specific products. So, maybe we might have miscommunicated that point to you earlier, but I think that was not the case.

Wendy Huang – Royal Bank of Scotland

Okay. And also I want to get more color on the two items on the balance sheet. Prepayments in other current assets increased from RMB200 million one quarter ago to RMB263 million. So, what’s the reason behind that? And also the other payables increased -- actually more than doubled from one quarter ago. So what’s the reason behind that? Thank you.

Kathleen Chien

For some of our businesses, including outsourcing, we do actually have contractors who are also working with suppliers where we might actually make payment to them or they might take -- and customer might make an early payment to us. So it’s really offsetting [inaudible] so you see the prepayments have gone up and other payables have also gone up. So they’re kind of moving in tandem.

Wendy Huang – Royal Bank of Scotland

Okay. And also, can you provide the operating cash flow and the free cash flow for the quarter?

Kathleen Chien

We don’t typically do cash flow for the quarter, but as you can see in the first quarter, I mean our cash balance increase was actually greater than our net income.

Wendy Huang – Royal Bank of Scotland

Okay, great. Thanks.

Operator

Thank you. And we have our next question, comes from Mr. Justin Diddams from the company of Citigroup. Thank you. Please go ahead with your question.

Justin Diddams – Citigroup

Hi guys. Just wanted to get a sense of how much of the growth that you guys, you felt was coming from new markets and entering into new cities versus, say, some of the growth rates in the more established cities. It is it quite -- is the growth rate quite similar across the board?

Kathleen Chien

Well, I mean, newer cities will have higher growth rates just because the base is just so small to begin with, if we’re looking at that. But I think overall, in terms of the revenues that’s being served out of our call centers, at this point in time it’s still single-digit percent of revenue. So it’s actually very small still. So a lot of the growth is still coming from the other established cities that we’ve been in. So that’s kind of the situation.

But again, because the base is so small, percentage-wise, might look high versus the established cities, but in terms of overall revenue contribution, the new cities are a very small part of the total at this point in time.

Justin Diddams – Citigroup

Okay. So it’s fair to say that the growth is broad-based across all cities, and like you said earlier, you're not seeing any sort of specific clients or groupings that are spending less or more, it’s fairly consistent growth rate across the group?

Kathleen Chien

Yes, I would say that it’s not really geographic driven. I think we’ve said that earlier. Maybe, I think some of the smaller medium-sized companies are a little bit more hesitant, a little bit more cautious, but other than that, I would say that the trends are actually pretty similar across different sort of demographic segments.

Justin Diddams – Citigroup

And just wanted a quick follow-up on the cost growth, I don’t know if you mentioned before, but can you just explain why there’s so much cost in this quarter? Was it reinvesting in these new cities or was it gearing up for expansion or is there some timing issue in the cost space in the fourth quarter -- sorry, in the first quarter?

Kathleen Chien

I'm sorry, can you repeat the question? I didn’t quite hear your question.

Justin Diddams – Citigroup

Sorry. I just had a question about the operating expenses. So in the first quarter your costs were growing at 23% and revenues only grew at 17%. I just wanted to get an understanding whether there was some cyclicality in that cost number in the first quarter or whether we should be expecting a similar level of cost growth for the rest of the year?

Kathleen Chien

Well, every year in the first quarter, our costs will grow because actually we do weight adjustments in the first quarter, so you do see kind of a step-up. So that is typical in terms of our model and the timing.

Secondly, if you look at total costs also, I mean there is actually also share-based compensation and other expenses in there where there is some differential between this year’s first quarter versus last year as well. So that will account for part of that as well.

Justin Diddams – Citigroup

And some of that reinvestment or, sorry, bringing in new staff and expansion as well?

Kathleen Chien

Yes. I mean, we will continue to look at opportunities to invest in sales and marketing because we believe that in the long term that the market is still at the early stage of development, and that sales and marketing investments is something that we need to continue to focus on. But if we look at as a percentage of our revenues again, I think our sales and marketing and other expenses are fairly in line with previously communicated kind of ranges. So we do not feel that our cost base had any sort of significant variation from traditional patterns, if you will.

Justin Diddams – Citigroup

Okay. Thanks for your time.

Kathleen Chien

Thank you.

Operator

Thank you. We have our next question, comes from Mr. Alex Leung from the company of SAC. Thank you. Please go ahead with your question.

Alex Leung – SAC Capital

Hi. Thanks. Sorry, you might have addressed this earlier, Kathleen, but I was wondering if Rick’s comment on no price increases for the year, is that kind of hard and fast or are we just kind of watching things and if hypothetically things pick up a little bit better, say, in July and August, could you potentially do some price increases then?

Kathleen Chien

Yeah. I think it’s a wait-and-see, Alex. I think that we do not feel like at this point in time, with more uncertainty, that it’s the right timing. But it’s certainly something that we’ll continue to look at, and as there is opportunity to do so, if we feel that the market does not change in terms of [turn for] the worse or something. So it’s a wait-and-see, I think, because our customers are a little bit in the wait-and-see as well.

Alex Leung – SAC Capital

Okay. Thanks.

Operator

Thank you. We have our next question, comes from Wendy Huang again from the company of Royal Bank of Scotland. Thank you. Please go ahead with your question.

Wendy Huang – Royal Bank of Scotland

Hi. Just one housekeeping question. Can you provide the sales and also total headcount as of March 2012? Thank you.

Kathleen Chien

We have about 4,800 people total, of which about 2,350 is in the sales and marketing -- sales and account management.

Wendy Huang – Royal Bank of Scotland

Okay, fantastic. Thank you.

Operator

Thank you. Sir, 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 again next quarter, and we value your continued support of 51job. Thank you. Bye-bye.

Operator

Thank you. And ladies and gentlemen, this concludes the 51job, Inc.’s first quarter 2012 conference call. Thank you for your participation. You may now disconnect.

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