Kanzhun Ltd (BZ) 2021 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Kanzhun Limited Fourth Quarter and Full Year 2021 Financial Results Conference Call. (Operator Instructions). Today's conference is being recorded.

At this time, I'd like to turn the call over to Ms. Wenbei Wang, Head of IR. Please go ahead, ma'am.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our fourth quarter and full year 2021 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 a 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 fourth quarter and the full year 2021 earnings conference call. On behalf of our entire company, I would like to express our sincere thanks to our users and investors for your trust and support.

(foreign language)

[Interpreted] Let's review the performance for the fourth quarter first. The company recorded GAAP revenue of RMB 1.09 billion, achieving a year-on-year growth of 69% during the period, exceeding the high end of our revenue guidance. Our adjusted net income, excluding share-based compensation expenses, reached RMB 350 million, and we maintained profitability over the last 3 consecutive quarters.

While the fourth quarter is not a traditional peak season for China's recruitment market, we successfully maintained our stable performance data through our relentless drive to cultivate our abilities.

(foreign language).

[Interpreted] Despite the challenges the company has faced throughout 2021, we propelled our business forward with improvements to our key performance metrics. Our accumulated verified users rose to more than 100 million, and our GAAP revenue grew to RMB 4.26 billion in 2021, representing a year-on-year growth of 119%.

Our calculated cash billings reached [RMB 5.02 billion] (corrected by company after the call), representing a year-on-year growth of 98%. Our adjusted net income, excluding share-based compensation expenses, reached RMB 850 million, which is the first time the company achieved a positive full year's non-GAAP profit since our initial establishment.

(foreign language).

[Interpreted] We made excellent progress across many areas of our business. Let's start with the overall improvement of the company's service capabilities for our core business platform, which is to enhance user experience and provide more efficient job seeking and recruitment services.

We have increased our ability to understand users' in-depth needs through our relentless efforts on the product and technical levels. For example, we found that many users generate new demand seeking for cross-industry, or cross-professional job opportunities, due to changes in their personal situation, family needs, or fluctuating market conditions.

By optimizing our recommendation algorithm and strategy, combined with our exploration and understanding of career science, we have been able to present more users with more abundant and reasonable recommendation results, further improving user satisfaction levels. Simply put, users are able to achieve more with less irrelevant interruptions.

As a result, we are pleased to see that even with the suspension of new user registrations since latter half of last year, our key indicators for user engagement and achievements on the platform still remained stable and our ecosystem still remained robust. To give an example, the peak DAU following the 2022 Spring Festival exceeded the number in the same period of 2021, which is a record high and proof of our strong user stickiness.

(foreign language).

[Interpreted] As I have mentioned in the previous earnings call, in the absence of new user registrations, we deepened our focus on better serving our existing users. What I just said about developing a deep understanding of users' true needs is a fundamental aspect in taking good care of existing users.

As you can see, our strategy has been proved effective. Along with the continuous growth of our platform's user base, serving our existing users will create increasing values in the long run. Therefore, it will be very important that we are and will continue to do so.

(foreign language).

[Interpreted] On an operational level, we continue to cultivate and refine our services for different user groups. To better serve the white and golden-collar users, we have broadened the source channels for the job openings on our platform, via campus recruitment, cooperation with headhunting consultants etc., so as to provide them with more job opportunities, as well as the powerful and sophisticated job-seeking tools.

Moreover, the proportion of high-income users among total active users on our platform continues to increase. This is because, on the one hand, driven by our refined operations, high-income users' engagement on the platform has increased. And on the other hand, the salaries of many retaining existing users have increased, folding them into the high-income users' bracket. We are sincerely happy for them.

(foreign language).

[Interpreted] We have also made progresses in the blue collar sector. In previous quarters, some investors have asked for our views on the phenomenon of irregularities and dishonesty in the intermediary agencies in blue-collar recruitment for manufacturing industry.

I'd like to share our thoughts. The solution is to protect the interests and feelings of the job seekers. To reduce the number of involved parties from four-alias, workers, manufacturers, platforms and agencies into two, whereby platforms stand in solidarity with the workers and then the manufacturers to jointly restrain the negative behaviors of agencies and thus change the rules of the game.

After our efforts, many top agencies have acknowledged our rules, which is established under the premises of protecting job seekers, and today, we will announce the name for this internal project, which we called "Hailuo Project". The word "Hailuo", which means conch in English, is a salute to Mr. Zuo Hui's "Beke". Because Mr. Zuo is believed to be the first person to have effectively regulated the intermediary market to let the agencies earn money with dignity.

By leveraging our technologies, combined with manual verification, we have established a network covering more than 80,000 agencies, leading to the establishment of a new industry service rule and a more transparent and secured product model.

At the same time, we have listed high-quality companies and positions provided by good agencies that have been verified and screened by our offline security team as "Hailuo Selected".

(foreign language).

[Interpreted] Throughout all these years, we have witnessed the irregularities and dishonesty among blue-collar agencies in the manufacturing industry and the harm they have caused to job seekers, employers and recruitment platforms. We firmly believe this phenomenon can be changed. We will continue to work on helping enact the industry's reform. What I just introduced are some achievements so far.

(foreign language).

[Interpreted] Now let's talk about the improvements we have made to our security capabilities on our platform. We believe that compliance with the law is the very basic floor of our business, while the willingness and ability to protect users represents its ceiling.

Let me put it in another way is, the growth of an enterprise, its capabilities to make money should be lower than, subject to, and lag behind its ability to protect the users it serves. We must grow our business based on our capabilities to protect users, instead of putting protection beneath profitability.

This is our philosophical understanding of the Chicken and Egg problem between profitability and user protection. It can also be seen as our understanding of the relationship between enterprise growth and user security, which also represents our spending priorities in our daily work.

(foreign language).

[Interpreted] We have greatly improved the security capabilities of our platforms from 3 aspects, laying a solid foundation for our long-term and sustainable business development. The first is "Personal Information Protection". We have established a comprehensive personal information protection mechanism, both in compliance with the requirements of relevant laws and regulations, and further enhanced by the business attributes of our own platform, which we hope will become a benchmark among human resources service enterprises in China.

The second measure is "Platform User Safety Protection", which focuses on protecting the user's interests and feelings. Here, we have established the industry's first online security team. Combined with online AI screening and security process, we can verify enterprise addresses, recruiter enterprise relationships and identify high-risk positions and businesses in 50 cities offline.

The third is the comprehensive improvement of our "data security" capabilities, leading to the increased investment in technology and talent. In 2021, we increased the security-related headcount by over 750. And currently, our safety-related teams have more than 1,000 people and will continue to expand.

(foreign language)

[Interpreted] We have practiced concerted social responsibility and integrated it throughout the company, both as a responsible corporation and as a highly visible public company.

In 2021, the company has taken an active part to assist college students and the disabled in job-seeking endeavors, provided donations to assist the victims of major natural disasters, and we participated in green construction projects. We have been recognized for our contributions. We were also named in the "Flood Fighting Donations 2021 Top 500 Chinese Enterprises and the "Philanthropy 2021 Top 500 Chinese Enterprises" issued by the China Enterprise Charity Forum.

Both the company and I were awarded a certificate of appreciation from the Ministry of Education of China and were named the "2021 Excellent Partner in the Employment of College Students" for our actively support and outstanding contributions to the employment of college students.

We were also honored to be the exclusive provider of official human resources services for the Beijing 2022 Winter Olympics and the Winter Paralympics, which was a moment of great pride and joy for us as a company headquartered in Beijing, with thousands of Beijing residents as our employees.

(foreign language).

[Interpreted] Regardless of 2021, 8 years since our establishment, in 2022, we will remain true to our mission and values, as we cooperate with cybersecurity scrutiny and prepare for future growth. We sincerely thank the support from our investors, and we will continue to improve the measures with how it works. The USD 150 million share repurchase plan we announced earlier this month is a testament of our management team's confidence and faith in the future development of our business and the belief in our ability to deliver long-term value to our investors and users.

With that, I will turn to our CFO, Phil, for the review of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Thank you for joining our earnings call today. Before I begin, please note that all amounts are in RMB, and all comparisons are on a year-on-year basis, unless otherwise stated.

We are pleased to close 2021 with solid financial results. In this quarter, our total revenues increased by 69% to RMB 1.09 billion, beating the high end of our guidance range. And our total revenues for the full year of 2021 achieved 119% growth to RMB 4.26 billion, with online recruitment services revenue accounting for about 99% of our total revenues. Our calculated cash billings increased by 24% to RMB 1.17 billion in the quarter and was up by 98% to RMB 5.02 billion in 2021.

Now I would like to further elaborate on the topline, which represents a sustainable and quality growth. Despite we were suspended for new user registrations in early July, we have recorded strong user growth in the first half of 2021. There were 20.7 million newly verified users from January to June, among which 3.4 million are enterprise users. Our total accumulated verified enterprise users reached 14.9 million by first half, a 79% year-on-year growth.

Meanwhile, to guarantee user experience and better serve our existing users, we continued to provide innovative commercial products, but controlled the pace of our monetization. Benefiting from our resilient model and high user retention, we see that both customer demand and willingness to pay are well maintained, which resulted to a 4.0 million paid enterprise users in 2021, with an 82% year-over-year growth, a key contributor to our total revenue growth.

Moving on to the cost side. Let's look at the fourth quarter numbers first. Excluding share based compensation, total operating costs and expenses grew by 25% to RMB 726 million, translating to an adjusted operating margin of 34%.

Our cost of revenue increased by 89% to RMB 150 million in the quarter, with our gross margin remained stable at 86.3%, primarily driven by increased headcount, especially in security and operation personnel, a testimony of our efforts to improve platform security and user safety.

Sales and marketing expenses increased by 16% to RMB 374 million, representing 34% of our total revenue, down by 15.5 percentage points year-over-year, continued our trend of improving marketing efficiency since last quarter as a result of reduced marketing activities during the user registration suspension.

Research and development expenses increased by 31% to RMB 199 million, primarily due to enhanced investments in R&D talents.

General and administrative expenses decreased by 81% to RMB 119 million in this quarter, which were mainly due to RMB 533 million share-based compensation expenses, recognized, related to the issuance of Class B ordinary shares to TECHWOLF LIMITED in the same quarter of 2020. Excluding share-based compensation expenses, our adjusted G&A expenses increased by 74%, primarily as a result of increased headcount.

Our net income reached RMB 233 million compared to the net loss of RMB 529 million same quarter last year. Excluding share-based compensation, our adjusted net income was RMB 349 million in this quarter, translating to an adjusted net margin of 32%, demonstrating the healthy and robust margin profile of our core business.

For 2021, our total operating cost and expenses, excluding share-based compensation, grew by 51% to RMB 3.4 billion, representing an adjusted operating margin of 21%, an increase of 36 percentage points compared to 2020, resulting from improving operating efficiency, among which our gross margin remains robust at 87% with cost of revenue increased by 131%.

Sales and marketing expenses increased by 44% to RMB 1.9 billion, and R&D expenses increased by 60% to RMB 822 million. G&A expense were RMB 1.99 billion for the year, primarily due to the one-off share-based compensation expenses of RMB 1.5 billion relating to the issuance of Class B share to TECHWOLF LIMITED. Excluding share-based compensation, our general and administrative expenses increased by 60% to RMB 310 million.

Our net loss for the year was RMB 1.07 billion. Excluding share-based compensation, we achieved a non-GAAP net profit of RMB 853 million for the year. Our net cash generated from operating activities was RMB 535 million for the fourth quarter and RMB 1.6 billion for the full year.

And as of December 31, 2021, end of the year, our cash, cash equivalents and short-term investments totalled RMB 12.2 billion. Our cash reserve and robust operating cash flows will set a solid foundation for our long-term sustainable growth.

And now for our business outlook. For the first quarter of 2022, we expect our total revenues to be between RMB 1.10 billion and RMB 1.12 billion, representing a year-over-year growth rate of approximately 40% to 42%, a further testament of our effective business and monetization model. With our user engagement data remains robust, we are confident of a full recovery and expedited the growth when time is ready.

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 from Morgan Stanley.

(foreign language) My question is regarding the first quarter guidance. We noticed that the guidance has been very resilient and we still expect Q-on-Q growth. So I just want to hear your thoughts on 3 questions.

First is that, what's the hiring sentiment in the first quarter? Have the hiring sentiments have been affected by the macro [weakness] as well as the COVID-related lockdown. Second question is about -- we have heard that there is some headcount cut in the TMT industry recently. I just want to know if there's any impact from this TMT sector. And on top of that, what the hiring sentiment of the SMEs in China in the first quarter?

And the third question is about our operation. What [are the incremental, efforts we have done on improving operation efficiency] (corrected by the company after the call) in the first quarter to secure this very solid the first quarter revenue guidance?

(foreign language)

[Interpreted] Okay. I will answer your first question regarding our guidance for the first quarter of 2022. I would like to emphasize that the first quarter of every year is a big season for recruiting because after the Chinese New Year festival lots of employees, after receiving their year-end cash rewards, and they were looking for job again, [and switch their jobs. So as I just mentioned] (corrected by the company after the call) the fourth quarter is not a peak season, but the first quarter is peak season, very robust season for recruiting market.

(foreign language).

[Interpreted] And regarding your second question on the [macro economy] (corrected by the company after the call) impact, you just mentioned that we have seen lots of Internet -- news came out for the heavy lay off of the employees [in the internet industry] (added by the company after the call). We have noticed that within the Internet sector, the big companies such as the Internet giants, they are not very active in recruiting. But for the whole industry wise, we observed that middle and small-sized enterprises are still very active. They are still hiring a lot of people. So from the overall Internet industry perspective, we didn't notice very significant changes.

(foreign language).

[Interpreted] And you talked about the impact of the COVID-19. We observed that there are 2 impacts of this situation. First one is this impact has been observed for a long time, that is more and more people coming online for their job seeking and recruiting activities. They are -- they want to use the direct chat functions to increase their hiring efficiency.

And the second thing that some industries, where the COVID-19 has a more severe impact. [There are] (added by the company after the call) some cities where the people need to keep their social distance and stay at home, we saw that they have been impacted. Especially in the urban service sector of the blue collars, [in certain cities,] (added by the company after the call) where lots of restaurants need to be shut down temporarily, the hiring activities naturally goes down. But, overall, in the last year, we were not impacted very seriously. And this year, from the first quarter till today, we saw some impact in several cities and several industries, but no material impact on us.

(foreign language).

[Interpreted] And the second question, you mentioned about SME, small and medium-sized enterprises. This is quite an interesting topic. On our platform, more than 80% are SMEs, and they have a characteristic of very vibrancy, always try to survive. So, when people left the company, they need to hire another person immediately to live on. So, from a micro level, [unlike] (corrected by the company after the call) many big enterprises, they might decrease their headcount or even lay off people because they lose confidence in maybe 6 months or 1 year from now. And they again hire people as their business grows.

And this point is very important, not only to the recruitment market, but to the overall Chinese economy, which provides more resilience to the overall economy. [This is because these individual positions posted by each of the SME recruiters can be] (corrected by the company after the call) accumulated as a very big number of job openings and hiring needs, and this will bring the hope to the overall market. And that's my answer, and I will pass to Phil.

I can offer you with some additional information. So first of all, our first quarter guidance, that number does include the consideration of macro impact during the fourth quarter. In the last quarter of last year, we did notice some like weakness in certain industries, for example, like in real estate [intermediary] (added by the company after the call) area and in online education area. In those areas, we did see declining with the revenue contribution.

And also, we noticed that for some [industries] (added by the company after the call) like new retail type of online e-commerce and live show type of Internet service, also, there were some declines. And after Spring Festival, we noticed that in some retailing sectors, there was a little bit of weakness. But we've been noticed some growing sector, for example, like advanced manufacturing. So overall, I think the macro economy does have impact to the online recruitment service area.

But because we have a broad customer base with our service. As Jonathan just mentioned, we have a huge number of small, medium-sized enterprises. We catch the very resilient demand from high-quality industries and high-quality companies.

So overall, we think that the macro impact to our business is limited, is controllable. Within our overall revenue contribution, the IT, technology and the Internet [sector is] (added by the company after the call) still one of the major areas, and their growth in last quarter of 2021, is still healthy. And in the first 2 months of this year, they also recorded nice growth, although their growth is slightly lower than the overall growth.

And the top Internet or top technology companies, their contribution to our overall revenue is very small. [The total revenue contribution of the Top 100 companies] (corrected by the company after the call) is around mid-single digits. So we have a diversified revenue contribution from all of the industries and all of the companies. So that reduced [the size of the macro economy impact on us] (corrected by the company after the call).

And in terms of your last question regarding what we did during the last quarter, last probably like third quarter and fourth quarter, how we achieved our growth. One of the reasons is that the key accounts, all those higher-quality companies, they enhanced their spending with the platform. As we previously communicated, we have 3 layers of funnel to do our business. So basically, we have a lot of users who use our service for free, and we have a large number of small and medium-sized employers, they use our service with a small amount of purchase, and we have offline contract signing purchase.

So basically, our high-quality service and our good user experience effectively help us continuously convert those free users into small amount purchasers and then into those offline contract buyers. During the past the third quarter and the fourth quarter, we continued with this development. So that contributes to a healthy revenue contribution to our business.

And overall, our paying ratio with all of the business users on our platform remained stable. So that's basically the full picture.

Our next question comes from Timothy Zhao from Goldman Sachs.

(foreign language) Congrats on the strong results. My first question will be about the competitive landscape in the online recruitment industry. As we see some of our peers have launched some new initiatives, including in the blue-collar segment as well as college graduates. Could management share your view on the latest competitive landscape and how it will evolve in '22?

And my second question is about the R&D expenses as the absolute amount has been in a mild growth over the past 2 quarters, and the percentage of [R&D expense over] (corrected by the company after the call) revenue also decline significantly. Can management share how we should look at the R&D expenses in this year? And what kind of areas that we are going to invest in? And shall we expect any new product or new features?

So I can answer your second question first. Regarding the R&D expenses. Basically, we maintained steady growth with our R&D engineer headcounts during the past couple of quarters. So our total number of R&D engineers, by first half of last year, that number was 980. By the third quarter, that number was 1,070, and by the end of last year, that number was 1,140. So from that, [during the third quarter and the last quarter] (corrected by the company after the call) of last year, although we were still in the Cybersecurity Review and our revenue [was passively impacted, we still steadily increased our R&D personnel] (corrected by the company after the call). We think that we will further invest in this area to continue this pace.

(foreign language).

[Interpreted] I'd too like to add something on the second question, about our R&D expenses, which is how we will spend our money. We will continue to hire more people, more expensive engineers, and product managers to improve our [R&D] (added by the company after the call) capability. As I mentioned in my speech just now, we help switching to more refined operations to our existing users to understand their in-depth needs in order to [let them receive more] (corrected by the company after the call) achievements and less interruptions on our platform to increase the user's overall experience. This is very difficult and very costly. We will continue to do that.

(foreign language).

[Interpreted] To answer your first question about competitive landscape, I have several points to make. The first one is we have noticed that during the past half year, there are other enterprises within our industry, they had taken some actions in either blue collar or white collar services. We have noticed that and we fully respect them.

According to our very uncomplete statistics, there are lots enterprises and institutions within this industry, these are fully competition industry. So it's natural that there will be some ideas [generated by some people, and they] (corrected by the company after the call) are thinking ahead of us in doing that. It's very normal, we have noticed, and we respect them.

The second point is that till now we haven't been able to grow our users over 7 or 8 months. According to the third-party data, which I believe you all can see, our user number, our MAU and DAU is still ahead of our peers by a large amount. And our user activities, our user time spent and the user frequency, we are ahead of [our competitors] (corrected by the company after the call) very steadily. And the reason is that we have paid a lot of attention and focused on protecting our existing users. There is a view that we have already accumulated over 100 million users, and there are 600 million non-farm employees in China. But in the United States, there are about 130 million workforce, and we have already achieved that number.

So [there are enough users for us] (corrected by the company after the call) to better serve them. So we fully respect our competitors or our peers for their innovation and their actions. But we have confidence we can better serve our existing users and to maintain our market position.

(foreign language).

[Interpreted] For your last question about what the new products we have been doing and can tell the market. We have done a lot of research and initiatives on many aspects. But [there is nothing we think is worth discussing] (corrected by the company after the call) today. We might release [the products] (added by the company after the call) in future when it's mature. As I just said, there are 600 million non-farm working population in China, and we only serve over 100 million of them. So we will continue to refine our service and products to understand their in-depth needs of the users, to accumulate more industry knowledges and there's still a very long way to go.

And to supplement another competitive view, which is we believe what we should do today is just to continue to provide best service to our users.

Given this opportunity, I'd like to update the number we provided in the third quarter last year. So due to the Cybersecurity Review process because we are not allowed to grow users during the third quarter results, we mentioned the number of failed user registrations around that time.

So by the end of March 15, we recorded the accumulated number of failed user registration as 34 million users. So that's a huge number, and we believe there's still a very strong market demand. And because of -- we have very strong user service capabilities, and we deliver the best user experiences. So once we are allowed to grow, we definitely can grow our users.

And that concludes our answers for this question.

Our last question comes from the line of Wei Xiong from UBS.

(foreign language) First question, I want to ask, as we're still under the impact of the Cybersecurity Review, just wondering if the company have any plan to quickly restore the user growth momentum once the Cybersecurity Review is behind us?

And second, just on the margin trend, we've seen that 4Q margin is, again, very solid. And how should we think about the margin trend in the first quarter and also 2022?

(foreign language).

[Interpreted] I will answer your first question about our growth strategy after resuming new user registrations. Firstly, thank you for your good wishes. And once we are allowed to grow users, the first thing we will do is to increase our marketing expenses because it's very important to increase the user base we are serving.

And there are characteristics of job seekers. When they start looking for jobs, they need to notice the platform, and history has proven that when people come to our platform, their stickiness is very high, but they need to first notice that. So we will spend our money very cautiously and smartly. And that's my answer.

So I can offer a little bit more. First of all, so as Jonathan just mentioned, once we are allowed to grow, we definitely will increase our marketing activities, because we consider user growth as the core driver and the right thing to do during our current stage. Having said that, we definitely will spend money wisely, and we will try our best to balance top line growth and user growth with profitability. So that's what we think about.

And during the last quarter of 2021, our profit number already showed to investors that we have a nice margin. And so basically, that's our core margin profile. And during the 2022 full year, we think that we would like to try to at least maintain the full year margin situation. But having said that, we need to consider our growth strategy once we are allowed to grow.

And for the first quarter, first quarter normally is, seasonality high-spend quarter. From the 2021 #1, #2, #3, #4. From that, you can see the first quarter of 2021 is the only loss quarter in last year. [This is] (added by the company after the call) because, normally, we would like to spend more with our marketing activities in the first quarter. And in this year, we have the Olympic game marketing campaign. So that means we will continue the seasonality pattern.

The first quarter of 2022, the margin would be low, but after that, starting from second quarter, the margin will recover to the normal situation. So that's pretty much the situation. That's mainly because of the seasonality issue.

Due to time constraint, that concludes today's question and answer session. At this time, I'll turn the conference back to Wen Bei for any additional or closing remarks.

Thank you once again for joining us today and we sincerely apologize for the signal interruption during this call. And if you have any further questions, please contact our IR team directly or TPG Investor Relations. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.

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