Kanzhun Ltd (BZ) 2023 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, Ma'am.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our Second Quarter 2023 Earnings Conference Call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao; and our Director and CFO, Mr. Phil Yu Zhang.

Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and do not undertake any obligation to update this forward-looking information, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today.

In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com.

With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

(foreign language)

[Interpreted] Hello, everyone. Welcome to our second quarter 2023 earnings conference call. On behalf of the company and our employees, I would like to express our sincere gratitude to our users and investors and friends of our company's whom have been standing with us during all this difficult times.

(foreign language)

[Interpreted] First, I would like to share with you our performance for the second quarter of 2023. We recorded a GAAP revenue of RMB 1.49 billion for the quarter, up 34% year-over-year. Calculated cash billings was RMB 1.62 billion, up 65% year-on-year.

(foreign language)

[Interpreted] Our net income for the quarter was approximately RMB 310 million, and our adjusted net income which excludes share-based compensation expenses increased by 135% year-on-year to around RMB 570 million. This represents highest quarterly record in the company's operational history.

(foreign language)

[Interpreted] The effectiveness of BOSS Zhipin business model and our organization, which has been developed for over 10 years has once again been tested on our strong profitability.

(foreign language)

[Interpreted] In the second quarter, our strong user growth trend continued from the first quarter. The newly verified users for the quarter reached 14 million, and average monthly active users on the BOSS Zhipin app rose to 43.6 million, up 65% year-on-year.

(foreign language)

[Interpreted] Among all the users we serve, blue-collar users and users from second- and lower-tier cities grew faster, benefiting from our continuous effort in a quite long period to expand our penetration to lower-tier cities and blue-collar populations.

(foreign language)

[Interpreted] In terms of enterprise users, our average monthly active users hit a historical high in this quarter, primarily driven by increasing demand from blue-collar industries, SMEs and the lower-tier cities.

(foreign language)

[Interpreted] Breaking down by sectors, recruitment demands in catering, hotel, tourism, beauty and personal care as well as transportation and logistics warehousing, where more urban and supply chain logistics blue-collar workers are involved, have increased significantly.

(foreign language)

[Interpreted] Our average daily active positions in the urban service industry, which is defined as a position where both the job posting and its enterprise users are active in a single day, a relatively strict standard, exceeded 1 million for the first time and has become the largest job offering on our platform.

(foreign language)

[Interpreted] The revenue contribution from blue-collar users increased to more than 32% of our total revenues for this quarter, while revenue contribution from second- and lower-tier cities exceeded 60% for the first time.

(foreign language)

[Interpreted] As we have reported to our investors in our earnings call over the past 2 years, the company has been investing in algorithms and products to improve our targeted service capabilities across various user groups and cities utilizing our enhanced understanding of their evolving demand. Over years of past efforts enabled us to achieve good progress as we capture the opportunities arising from blue-collar workers' and SMEs' growth this year. Moving forward, we will remain committed to innovation and further improve on this area.

(foreign language)

[Interpreted] We have long believed that in a mature market in enterprise service, people are willing to pay for value as long as what you are offering is truly valuable. By the end of the second quarter, our paid enterprise customers for the trailing 12 months rebounding and resumed its fast growth momentum, hitting a record high of 4.5 million, up 18% year-on-year and 13% quarter-on-quarter.

(foreign language)

[Interpreted] The second quarter this year was challenging. However, we have witnessed some positive updates recently from an operational perspective. Following the graduation season in July, we saw overall recruitment demand on our platform recover quickly and has retained a sustainable, promising upward track since the beginning of August.

(foreign language)

[Interpreted] The blue-collar urban service industry continued to outperform across all sectors. While various white-collar positions have stabilized and started to recover, especially white-collar positions across personnel/finance/administration, operations and manufacturing. As a result, the number of our active enterprise users reached a new high for this year as well as a record high in our corporate history.

(foreign language)

[Interpreted] Also, this trend led to the supply-to-demand ratio on our platform, known as the ratio of job seekers to enterprise users, is continuously improving.

(foreign language)

[Interpreted] I would like to take this as a chance to thanks again to all those investors who have understand our advantages and continue to support us. And that's all for my part of the call, and I will now turn it over to our CFO, Phil, for the review of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results of the second quarter of 2023. In the second quarter, we reached a record-breaking results across different set of operational and financial figures, including MAU, revenues, total paid enterprise customers, profitability metrics and operating cash flows. Driven by our robust user growth and healthy user engagement, our revenues maintained rapid growth momentum and hit a new high at RMB 1.49 billion, representing a solid 16% quarter-on-quarter growth and a 34% year-on-year growth.

Moreover, our calculated cash billings reached RMB 1.62 billion, up 65% year-on-year. Total paid enterprise customers in the 12 months ended June 30, 2023, reached 4.5 million, up 13% quarter-on-quarter, a record high and back to fast-growing trend.

ARPPU for paid enterprise customers decreased slightly, both sequential and year-on-year, mainly due to faster revenue growth for small-sized accounts as recruitment demand from SMEs recovered better compared to larger companies.

Moving to the cost side. Total operating cost and expenses for this quarter were RMB 1.31 billion, up 26% year-on-year. Excluding share-based compensation, our adjusted operating costs and expenses increased by 18% year-on-year to RMB 1.05 billion in this quarter. Adjusted operating margin is 29.2% for the quarter, up by 8.8 percentage points year-on-year.

Cost of revenues was RMB 270 million, up 55% year-on-year, representing a gross margin of 81.8%, up by 1.1 percentage points compared to the last quarter. The gross margin started to bottom out from first quarter, and this trend is mainly due to sequential revenue growth in the second quarter.

Our sales and marketing expenses were RMB 472 million, up 18% year-on-year. Adjusted sales and marketing expenses was RMB 408 million, up 12% year-on-year. This increase was primarily due to increase of headcount in sales department. Notably, brand advertising and customer acquisition cost remained relatively stable with the same period last year, while our trailing 12 months paid enterprise customers and MAU increased by 18% and 65% year-on-year, respectively, which strongly demonstrated our continuously improved marketing efficiency.

Our R&D expenses increased by 19% year-on-year to RMB 366 million and our adjusted R&D expenses kept stable with the same period last year. Adjusted R&D expenses as a percentage of revenue reduced in the quarter showing continuous improving trend sequentially.

Our G&A expenses increased by 27% year-on-year to RMB 203 million and adjusted G&A expenses increased by 14% to RMB 126 million, representing 8% of total revenues. Excluding certain one-off expenses, the percentage of adjusted G&A expenses to total revenue showed a downward trend since 2022, benefiting from our improving operating efficiency.

Net income was RMB 310 million, and adjusted net income reached RMB 568 million, more than doubled compared with the same period last year and hitting a record high. And our adjusted net margin reached 38%, up 16 percentage points year-on-year and 19 percentage points quarter-on-quarter. Net cash provided by operating activities was RMB 764 million, up more than 3 times year-on-year and hitting a record high. The significant increase primarily due to the 65% year-on-year growth of calculated cash billings.

As of June 30, 2023, our cash, cash equivalents, time deposit and short-term investments were RMB 12.8 billion, and the long-term fixed income investments were RMB 2.0 billion, which totaled RMB 14.7 billion. We are confident that our outstanding cash generation capabilities and ample cash reserve will support our commitment to further business expansion.

And now for our business outlook. For the third quarter of 2023, we expect our total revenues to be between RMB 1.53 billion and RMB 1.56 billion with a year-on-year increase of 30% to 32%. Given that there is still a whole month of September before the quarter ends, some level of uncertainties is still ahead. However, we are glad to witness an encouraging growth trend, leading by the improved recruitment demand since the beginning of August, especially in online standalone purchase from SMEs.

As the autumn recruitment season approaches, which is our high season, we are also expecting better recruitment demand from larger companies in the coming months. That concludes our prepared remarks. And now we would like to answer questions.

Operator, please go ahead.

(Operator Instructions)

Our first question comes from the line of Eddy Wang with Morgan Stanley.

(foreign language) I have 2 questions. The first is about the blue-collar recruitment. As Mr. Zhao mentioned that they're seeing improving demand for the white collar in terms of job posting but what do you think as the macro improvement or the other factor will impact the demand of the white-collar recruitment?

And we all know that the blue-collar demand actually is stronger than the white collar. So do you think this kind of dynamic in the recruitment in China will have a long-term impact on the competitive landscape of the online recruitment platforms?

My second question is in terms of the new addition of the annual subscription enterprise users, are they from the enterprise that has been already used the online platform and be attracted by us or they never use any of the online platform, it's actually just got fresh new enterprise that go to our platform.

(foreign language)

[Interpreted] Thank you for your question. I would like to answer the second part first. So in the past 5 to 6 years, among all those online recruitment players, for a new customer who began to sign new contracts with any platform, there is always someone helping them to start with. There is a process from 0 to 1.

(foreign language)

[Interpreted] Our role is to help, to let a lot of new users who have never used paid online recruitment services into this new area.

(foreign language)

[Interpreted] The majority of our annual contract customers, I believe, are converted from our own unique customers.

(foreign language)

[Interpreted] A small portion of that, we are sharing with our competitors.

(foreign language)

[Interpreted] I thought this year for the second quarter, our offline annual contract customers, majority are from the conversion of our online paid customers.

(foreign language)

[Interpreted] However, according to our observation, there is evidence that the trend that customers from other online recruitment platforms converting to our customers is increasing.

(foreign language)

[Interpreted] From an operational perspective, it's not simply switching from A to B, but dividing their budget into more cooperative partners.

(foreign language)

[Interpreted] And back to your first question, the biggest external condition that required for the white-collar recruitment demand recover, I believe is time.

(foreign language)

[Interpreted] This time which will have effect on the recovery of white-collar recruitment under 2 mechanisms. The first mechanism is that the industries that recover first will expand to other industries to help those industries to recover.

(foreign language)

[Interpreted] For example, culture, sport, entertainment, media, new energy, automobile aftermarket, all these industries, which are showing encouraging recruitment trends, will impact other industries which can be affected by these industries correspondingly.

(foreign language)

[Interpreted] And the second mechanism is that, as the time goes by, there were more concrete evidence, which prove that the market is recovering in order to enhance people's confidence to increase their recruitment activity.

(foreign language)

[Interpreted] For example, in the first quarter of this year, large companies recovered respectively worse compared to SMEs, which I assume that large companies might be affected by confidence and our forecast.

(foreign language)

[Interpreted] However, since the second quarter, we have witnessed that the enterprises with more than 10,000 employees and the medium-sized enterprises with between 500 to 1,000 employees, their recovery are much faster.

(foreign language)

[Interpreted] And for your question about the supply and demand, whether there is a structural imbalance, we have seen that for industries like real estates and the Internet, we do saw the decline in improvement demand, but I don't think it has been strong enough to concrete the structural imbalance.

(foreign language)

[Interpreted] That's my answer for your question.

Our next question comes from the line of Timothy Zhao with Goldman Sachs.

(foreign language) I have 2 questions. I think, first, in the current market environment, where we see a bigger number of the jobseekers than the recruitment demand, what is our strategies in improving the ARPPU as well as the paying ratio of the enterprise users? And do we have other monetization consideration on our massive user base? And what is our guidance or outlook on the paying number of customers as well as ARPPU trend into the second half of this year?

And if we break it down into SMEs, off-line billings and white collar versus blue collar, what will be the breakdown change over time in the second half? And secondly, is on the OP margin in the second half, just wondering if management have any guidance, that would be very helpful.

(foreign language)

[Interpreted] Thank you for your question. So in the first and second quarter of this year, we do have witnessed that a lot of job seekers will find it more difficult to find a job and much easier for the enterprise to do the recruitment. But we have been very, very cautious on whether we should initiate some kind of monetization for the job seekers who are much more difficult under this circumstances and we took no action. And for the enterprise users, I just talked about number, which is our last 12-month paid enterprise customers' number is 4.5 million and which is approximately over 2 million paid enterprises. That is a very small portion compared to more than 50 million enterprises in China.

So we have learned that from our successful practice in blue collars and lower-tier cities this year, we saw that our business model is very adaptive so we will continue to bring more customers from platform and converting them into paid customers.

(foreign language)

[Interpreted] And for your question on whether there are new initiatives for monetization products. In terms of our monetization strategy, we believe that if you can provide higher value, if you can provide obvious value on a massive scale, you should definitely can do something, do more things in the new monetization products, in the commercial products. That is actually part of the things what we are seeing. And hopefully, you can be patient enough to see that.

(foreign language)

[Interpreted] Regarding your question about the trend in ARPPU, our CFO, Phil, will answer that question.

Thanks Timothy's questions. So regarding the paid enterprise customers number, in the quarter, we did record a very healthy rebound for the paid enterprise customers' number. So that metric was back to 4.5 million for the trailing 12 months paid enterprise customers. And in recent months, we witnessed a very quick increase for the small, medium-sized enterprise users who pay to use our service. So this is the main driver behind that increased number. So their purchase of our service is more through online self-served purchases. So basically, because of their contribution to our total revenue increasing, so that drags a little bit of the overall ARPPU.

In terms of the large enterprises, their ARPPU this year compared with prior years is a little bit lower. But sequentially, we are witnessing that their ARPPU is recovering. So from the beginning of this year, we're continuously seeing that their ARPPU are increasing.

So in terms of the sector, blue collar, particularly urban services from lower-tier cities contribute higher for the paid customers. And the quick rebound of paid enterprise customers, this fact also reflects, I think, firstly, this is a sign of a recovery of many aspects of the economy. Secondly, our recruiting services can bring good value propositions to those businesses. So that's the reasons behind.

And in terms of the company's margin in this quarter, so basically in first quarter and second quarter, we continuously saw a faster revenue growth. So given the future revenue streams will continue to rise while major cost and expenses items are capped at mild growth pace. We think that our operating margin will maintain at a healthy level and with upside potentials. This comment is more like a mid- to long-term comment, where we expect the operating margin to steadily improve along with good topline growth. But in short term, it will be subjected to seasonality and other one-off events.

Our next question is from the line of Yu Bai with Haitong International.

(foreign language) I actually have two questions for today. The first one is regarding our recent recovery trend. Like Mr.Zhao has just mentioned, we've witnessed some encouraging trends from enterprise users in August. So I would like to further understand does that comply to our normal seasonality? Or is this something that's quite unusual for this year? And then within that, what is the recovery momentum out there for our KA accounts? If management could share any operating metrics like engagement ratio, paying ratio and ARPPU and, et cetera, that we much appreciate, so that was my first question.

And then my second question is a little bit broader. We all acknowledge that this year, it seems that macro environment has been a little bit weaker than we thought it would be. So I'm just wondering under such a condition, what is our top strategic priority for now or maybe for the remaining couple of months this year and for next year as well? So at the same time, what are the things that we might just want to lay back a little bit to wait for better opportunities in the future? So that was the second question.

(foreign language)

[Interpreted] Thank you for your question. For your first question, whether the August is the trend of seasonality. For the online recruitment market, there are 2 keywords. First one is the Golden March and Silver April. Second one is Golden September and Silver October, which both means the better market condition. And the second one, Golden September and Silver October, is definitely starting from August.

(foreign language)

[Interpreted] And this has more relations to the larger companies. For all those graduates from top universities who will graduate in July 2024. Many larger companies will start to do the recruiting for those top talents during September to November this year.

(foreign language)

[Interpreted] On top of the seasonality, another factor is that I believe the recruitment demand is gradually recovering alongside with economy and which is shown in the data as follows.

(foreign language)

[Interpreted] In August, the daily active enterprise users number have reached the historical high.

(foreign language)

[Interpreted] Enterprises in all kinds of sizes, large companies, mid-sized and small-sized, all sizes of companies have shown a very fast recovering trend on recruitment.

(foreign language)

[Interpreted] To be honest, I cannot clearly distinguish which part is from seasonality, which part is from recovery of current economy, we still need to take some time to observe. But at least the current trend is quite encouraging.

(foreign language)

[Interpreted] For the recovery of key customers, the answer is quite simple. We have saw that enterprises with more than 500 employees, their number of newly posted jobs, the sequential growth rate is faster compared to enterprises with less than 500 employees.

(foreign language)

[Interpreted] In terms of the company strategy, I would like to share with you several things we have been holding to all this year. The first one is based on the NPS, we are continuing to increase our market share.

(foreign language)

[Interpreted] As we said, we have trailing 12-month paid enterprises of nearly over 2 million, which is a small portion compared to 50 million enterprises in China. We still have a very long way to go.

(foreign language)

[Interpreted] And our second strategy, which is also something we have been doing for quite a long time, which is to continue to input invest in technology. Not only for application technology, but also career science fundamental studies.

(foreign language)

[Interpreted] Actually, for the second quarter, which is a relatively tough time, we can capture the growth in the blue collar and lower-tier cities. I believe it is result of all this year of continuous investment on technology, which help us to capture the opportunity when the environmental allows.

(foreign language)

[Interpreted] In my understanding for our continues to increase investment in technology and fundamental science, which is also what we saw for all those larger companies -- advanced companies that we respect is that their outstanding alpha coming from their own capabilities allow them to adapt to new opportunities once they come.

(foreign language)

[Interpreted] That's my answer for your question.

Our next question comes from the line of Wei Xiong with UBS.

(foreign language) First, I just want to follow up on the recovery pace of the enterprise hiring demand, given that we're experiencing a long period of uncertainties in the macro, and the enterprise seems to lean forward or focus more on cost controls. And will that last a little bit longer, which means that after the macro environment stabilizes and started to warm up, enterprises might still need a little bit while to restart headcount expansion?

And second, just given our very resilient cash position and profitability, just want to get an update on the progress of our share buyback program as well as management's other thoughts regarding shareholder returns.

(foreign language)

[Interpreted] Thank you for your questions. And I will start with small and medium, even micro enterprises. For example, for small enterprise, they have 10 employees, when 2 of them leave the job, they simply need to recruit 2 more in order to keep on with their business. I think those activities are the same for SMEs. They need to do recruitment whenever they have the demand .

(foreign language)

[Interpreted] And for large companies, as we have all known that larger companies are more cautious and slow in terms of deciding whether to increase their headcount budget and I can give you 2 examples -- first one is that large companies have been less active in laying off people, so that situation is becoming less and less.

(foreign language)

[Interpreted] And another thing is that we have witnessed a lot of large companies. They do the layoff on one hand and do the recruitment on the other hand, simultaneously, actually, this is a very good opportunity for them to fire those people who are expensive and low-quality and hire some people with high quality, but much more cheaper. Those business opportunities, which all of those well-trend administrators will take.

(foreign language)

[Interpreted] And in terms of when we can expect enterprises across all industries and those different sizes starting to do a very aggressive recruiting. I don't have a clear view at this moment.

(foreign language)

[Interpreted] For share repurchase and capital allocation, Phil will take your question.

So last year, we had our first tranche of share buyback program. The size was 150 million, and we used up the money at the end. This year, we have announced a new round of share repurchase program in Q1. The total size is also 150 million, we just executed a little bit, and we will continue to execute it going forward.

Regarding our situation, we have high cash positions and good profitability plus a positive free cash flow. We do appreciate shareholders' continuous support, and we definitely will think about how to improve shareholders' return. Company is doing some research and try to find appropriate ways to increase shareholders' value. So please give us some time.

Our next question comes from the line of Yang Bai with CICC.

(foreign language) I will translate by myself. First one is the service industry and warehousing logistics blue-collar workers have been a stable growth point for us this year. We want to know if our performance stands out compared to other competitors in the same field and what our main competitive advantages are? How do we currently view the sustainability of this business?

Second one is for the platform C2B ratio. What has the recent trend since the beginning of the year? How has the renewal rate of long-term customers and the speed of income recognition changed compared to that before?

(foreign language)

[Interpreted] Thank you for your question. Our blue-collar users accounted for more than 40% of our total users and daily average active job posting for the urban services industry has exceeded more than 1 million every day. These 2 numbers combined together showcased a very strong advantage with double-sided network effect, and that also demonstrated by our very smooth growth in further expanding into the lower-tier cities.

(foreign language)

[Interpreted] A very strong double-sided network effect have helped us to gain our strong advantages in the white collar and the first-tier city area, and this will also help us to further expand into lower-tier cities and blue-collar users.

(foreign language)

[Interpreted] And those achievements we have for blue-collar users has a very high relationship with the project we reported before, that is Hailuo Jihua, Conch Project.

(foreign language)

[Interpreted] And there was a situation in the online recruitment for blue-collar users. For a job which the actual salary is RMB 5,000 per month, those people who post a job with more than RMB 8,000 per month are much easier to receive resume.

(foreign language)

[Interpreted] And from a platform perspective, alongside with our continuous investment in technology, we do stick to our policy of protecting the job seeker and help those users who can tell the truth, who are more authenticated, to have more exposure and those who are not be punished. Then we can attract more and more blue-collar users coming to our platform.

(foreign language)

[Interpreted] And based on that policy and the power of technology, the Conch Project we have been doing for quite a while, have shown very strong capability for the blue-collar ecosystem.

Okay. So for the remaining couple of questions, I will answer one by one. So first of all, your question is the C2B ratio for the platform. So we witnessed the platform C2B ratio as a key indicator of platform demand and supply. So basically, this demand-and-supply ratio continued to improve starting from year began. We think this is a very clear evidence that shows overall economy is through a real recovery.

What I just mentioned is the platform active user demand and supply ratio, and in terms of the daily newly acquired users, so this C2B ratio in short term, partially due to seasonality and partially due to macro recovery, we believe, in August, we are seeing much improved C2B ratio, and that ratio is the best year-to-date. We consider this is a very encouraging sign. And in terms of second question, annual contract retention and in terms of their NDRR, net dollar retention rate, we are seeing both metrics are sequentially bottomed out from the beginning of the year. The trend will likely to go on in the following quarters.

And last question regarding the revenue recognition thing. In short term, because of a higher percentage of contribution from SME clients and a little bit less annual contracts, our online purchase normally will be consumed by those customers in short period of time. So revenue recognition, in short term, will be slightly faster than before. However, this is just a temporary situation and mainly related to faster SME growth in the near term. That's my answer to your question.

Thank you. Due to time constraints, that concludes today's question-and-answer session. At this time, I will turn the conference back to Wenbei for any additional or closing remarks.

Thank you, once again for joining us today. If you have any further questions, please contact our team directly. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.