Kanzhun Ltd (BZ) 2023 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Third Quarter 2023 Financial Results Conference Call (Operator Instructions) 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 Third 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 operations that involve known and unknown risks, uncertainties and other factors not under company's control, which may cause actual results, performance or achievements of the company to be materially different. The company's 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 Third Quarter 2023 Earnings Conference Call. On behalf of the company and our employees, management team and Board of Directors, I would like to express our sincere gratitude to our users and investors who trust and support us.

(foreign language)

[Interpreted] First, I would like to share with you our performance for the third quarter of 2023. We recorded a GAAP revenue of RMB 1.61 billion for this quarter, up 36.3% year-on-year. We booked RMB 1.64 billion in calculated cash billings, up 32.1% year-on-year. Our adjusted net income, which excluded share-based compensation expenses, increased by 89.6% year-on-year to RMB 710 million.

(foreign language)

[Interpreted] Our adjusted operating income, which excludes other income such as financing returns, was RMB 550 million, hitting a quarterly record high in terms of both absolute amount and margin.

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[Interpreted] Our total paid enterprise customers in the 12 months ended this quarter reached 4.9 million, up 32.4% year-on-year and 8.4% quarter-on-quarter, both the total paid enterprise customer number and active user paying ratio continue to improve.

(foreign language)

[Interpreted] In the past quarter, the average number of monthly verified active users on the BOSS Zhipin app reached 44.6 million, up by 37.7% year-on-year with approximately 12 million newly added verified users. Our total accumulated newly verified users for the past 3 quarters of this year exceeded 40 million.

(foreign language)

[Interpreted] During our third quarter 2022 earnings call in late November last year, we forecasted that the company will add 100 million newly verified users in the next 3 years, which seems to be expected at the moment. At the same time, our user activeness, which is average DAU as a percentage of average MAU remained stable at a relatively high level. In the third quarter, there are more than 135 million monthly average number of mutual achievements on the platform.

(foreign language)

[Interpreted] Third quarter is a traditional peak season for job seeking and recruitment. We witnessed a continuous increase in recruitment demand. While the number of average monthly active job seekers remained stable, the average number of monthly active enterprise users and monthly active enterprise increased significantly by more than 5% sequentially, both reaching record highs.

(foreign language)

[Interpreted] In terms of industry breakdown, the blue-collar industry delivered the most outstanding performance, especially the blue collar urban-service sector, which was the largest segment contributor in the increments of both number of job postings and revenue for the quarter. Average daily active job posting for urban-service sector exceeded 1 million.

(foreign language)

[Interpreted] Let's take look at other blue-collar sectors, which involves more young job seekers. The supply chain logistics and manufacturing industries especially sub job categories such as transportation, warehousing and workers also boosted the overall increase.

(foreign language)

[Interpreted] These drivers raised the blue-collar industry revenue contribution to nearly 35%.

(foreign language)

[Interpreted] Other industries such as consumer goods, automobile, aftermarket, new energy, internet lifestyle service and raw materials related to machinery manufacturing fields also grew significantly on a quarter-on-quarter basis, while the overall internet industry maintained growth momentum on a quarterly basis.

(foreign language)

[Interpreted] In contrast to the first half of the year, the recovery of demand from larger enterprises increased relatively more quickly in this quarter in terms of the number of newly added and active job positions.

(foreign language)

[Interpreted] Enterprises with more than 10,000 employees grew the fastest.

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[Interpreted] From the city-level perspective, second tier and lower-tier cities continued to outperform, with increases in both the number of job positions and income ratio.

(foreign language)

[Interpreted] In terms of corporate social responsibility, this quarter, we focused on and dedicated in helping the employment of difficult group of people, which is disabled workers.

(foreign language)

[Interpreted] BOSS Zhipin provided live broadcasting for 33 public recruitment activities. Nearly 5,000 enterprises provided more than 11,000 positions for the group of job seekers and covered more than 422,000 participants.

(foreign language)

[Interpreted] One more thing to add, with the Company's Board approval, we declared a special cash dividend for the first time. This is a return to our shareholders and friends for their firm support as our profitability continues to be stable and improve.

(foreign language)

[Interpreted] The dividend amount is USD 0.09 per ordinary share which is USD 0.18 per ADS for an aggregated dividend amount of approximately USD 80 million. This is expected to be distributed in the mid to late December this year.

(foreign language)

[Interpreted] That's all for my part of the call, I will now turn it over to our CFO, for the review of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Now let me walk you through the details of our financial results of the third quarter 2023. We achieved solid financial performance in the past quarter with all key figures beating our expectations. Our revenues exceeded the high end of our guidance to RMB 1.61 billion in this quarter, representing a 36% year-on-year growth and 8% quarter-on-quarter. Our calculated cash billings reached RMB 1.64 billion, up 32% year-on-year and 1% quarter-on-quarter. The good results were mainly due to strong user growth plus healthy user engagement, as well as recover on recruitment demand in the quarter. The number of paid enterprise customers for the 12 months ended September 30 reached another new high to 4.9 million, indicating an improved paying ratio level among active enterprise users.

Despite the slight decline of overall ARPPU (A-R-P-P-U stands for average revenue per paying user), which was mainly dragged down by the increased revenue contribution from small-sized accounts. We are happy to see that the ARPPU of key accounts showed sequential growth trend, a sign that recruitment demand is improving among large enterprises.

Moving to the cost side. Total operating costs and expenses for this quarter were RMB 1.36 billion, up 30% year-on-year. Excluding share-based compensation, our adjusted operating costs and expenses were RMB 1.07 billion, relatively stable with the last quarter and up 22% year-on-year. The quarterly adjusted operating margin hits a record high, improved from 25.7% in the same period last year to 34.2% this quarter, up by 8.5 percentage points year-on-year. This strong profitability once again proved our effective monetization model and powerful operating leverage.

Our cost of revenues increased by 33% year-on-year to RMB 268 million this quarter, representing a gross margin of 83.3%, up by 1.5 percentage points quarter-on-quarter. Our gross margin bottomed out from the first quarter this year and achieved a sequential improvement in the past 2 quarters mainly due to the recovery of the revenue growth momentum on top of an effective cost control.

Our sales and marketing expenses were RMB 457 million, up 15% year-on-year. Adjusted sales and marketing expenses was RMB 389 million, up 10% year-on-year, and this increase was primarily due to increased sales employee-related expenses and enhanced advertising activities.

Notably, ratio of selling and marketing expenses continue to decline while our trailing 12 months paid enterprise customers and MAU continue to grow, once again showcased our enhanced marketing efficiency and our superior economy of scale.

Our R&D expenses in this quarter increased by 43% year-on-year to RMB 414 million, and our adjusted R&D expenses was RMB 306 million, up 39% year-on-year, primarily due to our further investments in talent and technology developments, especially in areas related to AI technology.

Our G&A expenses increased by 41% year-on-year to RMB 219 million in this quarter and adjusted G&A expenses remained relatively stable with the same period last year.

Our net income was RMB 426 million this quarter, more than doubled that in the same quarter last year. And our adjusted net income set a new record that reached RMB 714 million, translating to an adjusted net margin of 44%, up 12 percentage points year-on-year.

Net cash provided by operating activities grew by 122% year-on-year to RMB 813 million for this quarter, mainly contributed by increased cash collection from operations. As of September 30, 2023, our cash, cash equivalents, time deposit and short-term investments were RMB 12.8 billion and the long-term investments in wealth management products were RMB 2.3 billion, which totaled as RMB 15.1 billion. Supported by our ample cash reserve and outstanding cash generation capabilities, we will try our best to deliver sustainable returns to our shareholders.

And now for our business outlook. For the fourth quarter of 2023, we expect our total revenues to be between RMB 1.51 billion and RMB 1.55 billion, a year-on-year increase of 40% to 43%. Based on our current progress, we expect the cash billings in Q4 to continue to grow sequentially, mainly due to key accounts contributions.

With that, that concludes our prepared remarks. Now we would like to answer questions. Operator, please go ahead.

(Operator Instructions) Your first question will come from Eddy Wang of Morgan Stanley.

My first question is regarding the job market trend in the third quarter and in the fourth quarter so far. Have you see any continue improving in terms of the supply demand dynamic between the job seeker and the employers. And what have you seen of the recovery of the KA employers in the third quarter and so far and the second question is the special dividend we have just announced. What have you been considered to announce this special dividend plan at this time? And is there any further plan to increase the shareholder return in the future.

[Interpreted] Thank you for your question. Regarding your first question, the recruitment market trend in October and November, we observed that the recruitment demand will still continue to recover and that's a very good observation. A little bit different is that for the third quarter, it traditionally the high season for recruitment, that's what we call golden September and the silver October. This year, the third quarter is specially good. So for the fourth quarter, traditionally, seasonality wise, there will be some pullback for recruitment demand. But the overall trend, if we take into the consideration of seasonality, it's still quite good.

Regarding the recovery of larger companies, we observed that their job postings, their motivation to post more job has been increasing, but this is a progress, they need to take some time to fully recover. As we introduced before, smaller companies, especially very tiny companies, they recovered much earlier, faster and still maintain very good trend even at this stage. For the larger companies, they are under recovering trend, recovery path, but we need to do give them some time.

And one more point to add with recent recover of the number of recruiters and job postings from the larger companies, their support to the job market will be even bigger because for one single recruiters in larger companies, they can bring more numbers of job postings and more categories of jobs, which also means they can recruit more headcounts for one single job posting and that's something we are expecting.

We also want to emphasize that for the third quarter, number of average monthly active recruiters reached a historical high, which is a very clear sign that the overall demand is recovering.

Yes. And for your second question regarding our contributions of this dividend payment, we alongside with our development history, we always received very strong support from our shareholders, and we would like to share our results with our shareholders and one of that is dividend payment. We have saw that from many other companies, and we decided to take the opportunity and to share our results with our long-term shareholders, and we are very happy to do that.

And also, this is under the premises that the company had very good and strong operating cash flows, and the company now holds over more than RMB 15 billion of cash and related cash management products. And that's why we are very confident to do the dividend payment.

And also, I want to add that we have already announced the 2 terms of share repurchase programs, and we purchased some amount of shares under certain conditions. And this is a very good method to continue to share our results and return to our shareholders on a broader view, and we will continue to do that.

The next question comes from Timothy Zhao of Goldman Sachs.

Congrats on the very strong results as well as the strong outlook. I have 2 questions. First, could management share more detailed color regarding the recruitment demand for different type of individual users, including blue collar, white collar, college students in the third quarter and fourth quarter so far. Besides, on the enterprise side, how did the job posting and paying behavior performed in the quarter? And what is our outlook for fourth quarter?

And my second question is regarding blue collar, because I note that the company has made multiple progress in the blue collar job posting revenue year-to-date, including, as you mentioned, third quarter blue collar contributed close to 35% of revenue. Could management share or elaborate your strategy to further penetrating the blue collar sector and what are the potential business models?

Yes. Thank you for your question. Regarding the first one, yes, we have witnessed that some industry has performed relatively good in the third quarter, especially the urban service industry, which brings the growth of both enterprise users and the revenue for blue collars.

The reason behind that is quite easy to understand because the industries which involves face-to-face communications has better recovering conditions compared to last year and also, it is quite easy to start a new company or recover from the original hibernate situation and very few people can provide service in the urban service Industries. And so the difficulty to recover is relatively low but the feelings the recovery trend brought to people has been very good.

And also, it was very easy to acquire customers and consumers for urban services industry. So this industry is the best one. And other industries that performed relatively better are transportation, logistics, automobile, new energy, environment protection and et cetera. But also, we'd like to share some numbers. For third quarter, active online job posting, which is very strict metrics which means the boss need to be very active in recruiting. So the urban service industry's active online job posting for this quarter grew by more than 13% sequentially, among which the restaurant and the retailing grew more than 20% sequentially.

Another convincing number is that among the logistics industries, transportation and warehousing, active online job postings grew more than 25% quarter-over-quarter. In terms of the white-collar industries, a lot of people have already noticed that the new energy and the automobile aftermarket, their industry demand recovered very fast.

Another interesting observation is that people might guess jobs related to artificial technology might increase, which is definitely the case. And also more general job positions, such as from development of Internet technology also show a significant increase in this quarter.

Another interesting number is enterprise with less than 100 employees, their daily average unit posting job in the third quarter compared to last quarter, increased by around 3% while enterprise with more than 10,000 people, their average daily new added jobs increased more than 8%, which also shows the difference in this quarter.

Regarding your second question for our further penetration strategy and the monetization model in blue-collar market. The answer is that, in terms of our current penetration coverage in blue collar users and the user satisfaction rate, which is NPS scores, we are quite satisfied with current situation, and we don't have any more aggressive plans to accelerate this process.

But also, we are continuously exploring the service capability to the blue collar users. For example, in the manufacturing sector, we are exploring close-loop customer service to provide for the manufacturing sector users.

The next question comes from Wei Xiong of UBS.

My first question is regarding the competition landscape. So given the uncertain macro situation and the market conditions, is it the case that the existing recruiting platforms lack the growth potential, while the new entrants seems to make a slow progress, which makes our market leadership even more stronger. Looking into next year, how do we expect the competitive landscape change in the online recruiting market? And second, could management share more color on the paying ratio as well as ARPPU trend on our platform, especially on the KA side, how is the ARPPU growth trending recently?

Thank you for your question. And for the first one about the competitive landscape, the overall situation is relatively stable, no clear change in the third quarter. However, in the past 2 years due to all kinds of pressure internally or externally, I believe actually, every company has quite showed their strategic advantages.

For example, one company, it has very strong advantage in state-owned SOE companies and the strategic clients, and we have been seeing increased competitiveness in that front. For that company, they are good at providing service to mid-to-high-end talent, in that perspective also recognized by the market. And I think every enterprise has its unique characteristics and will continue to further enhance that. And that's my answer for the competitive landscape.

Okay. So regarding your second question of the ARPPU trend. So I'd like to comment a little bit. So we announced that in the quarter, we recorded of 4.9 million of trailing 12 months paid enterprise customers. So as you probably remember that in second quarter, the trailing 12 months paid enterprise customers, that number was 4.4 million. So we roughly increased 0.5 million paid enterprise customers.

So this growth of the paid enterprise customers. I think the main reason is that the overall user growth at this moment is still fast. So when a new user comes to our platform, when they want to pay to use our service, most of them, they prefer purchase or try our service through the self-served online portal to do the online purchase. So that increased our overall paid enterprise customer number.

In terms of the paying ratio, we see an improved trend for the small-sized purchase. And we believe that when they are familiar with our service and they love our service, they definitely will use more, and we definitely will try to convert them into heavy usage and buy the services through our off-line contract sales. And so we believe the paid active users definitely will continue to grow and the paying ratio definitely will also improving and the ARPPU from small medium sized enterprises kept at a relatively stable situation in the quarter. And the same trend happened with key accounts.

So basically, large corporates, their ARPPU also increased driven by the increasing recruitment demand. But the contribution to our revenue, small size enterprises, they contribute the higher, larger revenue to the overall of our business. So basically, there are smaller ARPPU blended with higher ARPPU, letting the overall blended ARPPU declined a little bit. So basically, small size they maintain the good ARPPU and the large accounts, their ARPPU increase, but overall blended ARPPU decreased a little bit. This is the current situation with the ARPPU in quarter 3.

The next question comes from Robin Zhu of Bernstein.

My first question, so how does management think about the magnitude and nature of growth investments for 2024. How does the company plan to balance growth versus margin expansion as we go forward? Second question, so it's on state of the hiring market going into 2024, the state of renewal discussions with key accounts going into the next year? And to the extent that possible if management can share any outlook on '24 growth and ARPPU growth and retention.

Okay. So I'll answer the first question. So we previously announced that we will achieve 100 million new users in the next 2 to 3 years. So basically, according to this year's progress, we are on track. So by the end of October, we achieved 40 million verified new users. So basically, this year, we would like to have a very good results in terms of the new user growth.

Definitely, next year, we will continue our growth for the new users. And when I talk about the user growth, you have witnessed that in third quarter, we achieved a historical high of our operating margin. So that basically, we managed to grow users without spending too much market expenses. Previously, we communicated with our strategy. So our strategy is putting more resources on brand advertisement over traffic acquisition costs. So basically, this strategy works well.

And so next year, we will further increase new users. And we will continue to follow the strategy, and we'll try our best to find the best balance point between the growth and the profitability. So what I mean is that the growth is a priority for the company and all the growth begin from new users growth, and we will do it carefully and spend our market expenses carefully.

Yes. I will take your second question. For the outlook to the next year, I will go back to our forecast by end of November 2022 with 100 million newly verified users. By end of September, we have already achieved 40 million, but we are not planning to change our target at this moment because reason is that we will -- based on the recovery trend of the enterprise side users on its quality and recovery state to adjust our acquisition for job seeker side to better balance the supply and demand.

And in terms of how -- in the end, the enterprise side will perform, we don't have exact forecast at this moment. But based on what we have observed this year, that the recruitment demand recovered every quarter and so we believe and we sincerely hope that the enterprise side will continue to perform very good next year.

According to third party numbers, you can see that our monthly active users in October has been quite close to #1, and we are already the largest in terms of daily active users. And the user activeness which is DAU as a percentage of MAU, we maintained the highest among our peers, and we believe this growing trend will continue to maintain.

In terms of the large companies renewing their contract by the end of this year, we are expecting the larger companies to spend their budget for next year and sign the contract in the coming months. We see a very encouraging trend, but still the full recover of the recruitment demand for larger companies still need to take some time.

The next question comes from Yang Bai of CICC.

The first question is we have seen the company's gross margin has rebounded in these 2 quarters, what are the company's expectations for future gross margin change? And the second one is could the company give more color on the plans for new products and business such as the progress of a large language model, globalization and other new initiatives.

Well, I would like to answer the gross margin question. So basically, you said our gross margin bottom out for consecutive 2 quarters and -- so basically, this gross margin improvement is a result of faster revenue growth and relatively controlled and stable cost of the business. So in the fourth quarter, so next quarter, we expect due to the seasonality reason, Q4 is a revenue low quarter. So the gross margin will be affected by the lower revenue.

So temporarily, the gross margin will compact in Q4. But for 2024, for the next year because of the revenue growth, we expect that the gross margin will return to recovery trajectory because of our costs, we will maintain at a mild growth that we probably will have a faster revenue growth. So that will secure our gross margin to further recover based on this year's base. So this is the gross margin trend.

About new initiatives. The first one is we believe that already proven and established user service model and also a new revenue model, we want to expand our service to other developed countries and areas, and we are currently on the progress of doing that and hopefully in the next 3 to 5 years, we'll create another revenue growth contributor.

In terms of large language models, which is a question the investors will concern a lot. Actually, since the beginning of this year, we have made some substantial investment into this area, and we continue to focus on it. One thing worth mentioning is that one of our laboratory Nanbeige recently open sourced model and we really have seen a very good result for that. That is a 16-byte chat models, among the same sized open sourced models, we believe we are among the top 10 players domestically.

Due to time constraints, that will conclude today's question-and-answer session. Since there are no closing remarks. That concludes today's question-and-answer session and today's conference. Thank you for attending today's presentation, and you may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]