Kanzhun Limited (BZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Kanzhun Limited Third Quarter 2022 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 2022 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao; and our Director and the 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 may 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 these forward-looking information, except as required by law. During today's call management will also discuss certain non-GAAP financial measures for comparison purposes 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.

Hello everyone. Welcome to our third quarter 2022 earnings conference call. On behalf of the company and our employees, I would like to express our sincere gratitude to our users, investors and friends for your ongoing trust and support. First, I'd like to share with you our performance for the third quarter. In this quarter, we recorded GAAP revenue of RMB 1.18 billion with quarter-on-quarter growth of 6%. Our calculated cash billings reached RMB 1.24 billion, a sequential increase of 26.4%. Benefiting from our enhanced brand recognition and continuous improvement in marketing efficiency, we maintained the rapid growth in our user-base, while further improving our profit margin to obtain a solid level. Our adjusted net income for the third quarter, which excludes share-based compensation expenses, achieved a quarter-on-quarter growth of 55% reaching RMB 377 million. In this quarter, our user base has been increasing rapidly. As of September 30, the newly verified users achieved 14 million. Verified users is a measure we pay more attention to in our daily operations. Referring to job seekers we posted at least one job expectation or enterprise users who posted at least one job position. Compared with accumulated more than 8 million newly verified user as of August 15, which we discussed in our last earnings call. And then -- and we continued our user growth at a sustainable and then brand recognition within this quarter. Our average MAU for this quarter reached 32.4 million, hit a record high. The company's efforts on constantly improving this technology and user service capability in the past year have started to bear fruit. Let's take a look at some numbers. First, the average monthly number of successful mutual communication between job seekers and enterprise users have hit a record high in this quarter, representing a more than 20% year-on-year growth rate and our MAU grew by 12.5% year-on-year. The DAU to MAU ratio remained stable. Another number is that each individual user's achievement, either a job seeker or an enterprise user is still a steady growth. Overall, my impression for the third quarter is that we experienced a reboot in both users and in revenue growth. There are 2 key factors. At one hand compared to the second quarter many cities started to recover from the COVID impact. And another factor is that we then started to acquire new users by end of June. There are 2 data that we can look at in the concept of rubrics. First one is our calculated cash billings achieved 26.4% increase compared to the second quarter. And the next data our average MAU in the third quarter recorded a sequential growth of over 20%. The performance of blue-collar and gold-collar users was more gratifying. The revenue of urban service industry the -- sorry, the cash billing of the urban service industry for the third quarter recorded a 28% year-on-year growth. And the average DAU of our gold-collar workers for this quarter also increased by approximately 30% year-over-year. The safety operation has always been the most essential cornerstone driving the sustainable development of our company. In the third quarter, we continued to improve our safety capabilities in 3 aspects. The first of which is the technical security. In September, we were awarded by the China Academy of Information and Communication Technology, the first data security management capability certification in the online recruitment industry. And the second is user security. As of October 31st, our verification team have finished field visits and inspections to accumulating more than 500,000 companies. And the third one is about the operational security. We submitted a dual primary listing applications in Hong Kong in early October, aiming to ensure sustainability of the capital market conditions. For the last quarter up till now, since the beginning of September, the resurgence of COVID-19 has negatively impacted our business and slowed down enterprise recruitment demand. However, we have observed that recruiting activities of enterprises will recover quickly once the resurgence is effectively controlled, evidenced by our experience in July and August. We have also seen some opportunities such as industry undergoes structural changes. For example, internet and network-related positions, including technology, products, design and operations have become infrastructural in driving digital transformation for traditional industries. The high-end manufacturing industries, such as new energy, automobile and semiconductors have been growing fast. And the active job positions in September increased by more than 40% year-over-year. Despite the short-term turbulence, we are still quite confident in our long-term growth, supported by our high efficient business model. The core strength lies in the fact that our model is extremely efficient in the areas of job hunting and recruitment and is suitable for people in different regions and industries. While our service continued to grow in first-tier cities and among white-collar workers, there is still huge growth potential in lower-tier cities and with blue-collar users. We have sponsored -- we are the official Asia-Pacific region sponsor of the 2022 Qatar World Cup. We can further and effectively expand our brand awareness through this high-profile and widely covered event, especially among those blue-collar and lower-tier cities. For certain historical period, user growth is always a primary driver for our business long-term and sustainable development. Our platform has a robust scale effect and can support more accurate matching within a larger population. We are still at the stage of focusing on achieving rapid user growth. We expect to obtain at least an additional 100 million users in the next 3 years. We are quite confident of this and we believe that it will be the most effective driver for our business development. There are always cycles in the economy. However, there are almost no cycles in our enterprise effort to service their customers with sincerity and agility, leveraging science and technology. Success rates are always staying true to our core values and original aspiration, doing the right thing in good space at all times is what we have been doing. We have done like this in the third quarter, and we will keep doing so moving forward. 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. In this quarter, our business began to recover backed by a strong user growth in the third quarter. Our calculated cash billings recorded a fast rebound with over 26% sequential growth to RMB 1.24 billion. Our total revenues being dragged down by the impacted performance in the previous quarters due to new user registration suspension and COVID resurgence in the second quarter, recorded a 6% year-over-year -- 6% quarter-over-quarter growth to RMB 1.18 billion. The number of total paid enterprise customers in trailing 12 months ended September 30, slightly decreased to RMB 3.73 million, down 1% from RMB 3.77 million of June 30. But quarterly-wise, the number of total paid enterprise customers in the third quarter increased by 15%, 1-5, compared to the second quarter, mainly due to the increase in small-sized accounts, driven by our active enterprise user growth in the relative mild recovering macro conditions. Revenues from small-sized accounts also contributed a higher sequential recovery compared to other accounts, which proved that this SME segment of business customers that we particularly specialized in, are more resilient in the economy, and our customer base mixed with various sized companies, including both large accounts and small medium-sized accounts are in a much balanced and healthy structure. It should help us absorb more impact when facing economic downturns and it can also let us benefit more and faster from the recovery of a macroenvironment. Moving on to the cost side. Total operating costs and expenses for the third quarter increased by 15% year-over-year to RMB 1.04 billion. Excluding share-based compensation, total operating costs and expenses increased by 9% year-over-year to RMB 879 million in the quarter. Cost of revenues increased by 30% year-over-year to RMB 201 million, primarily driven by increased server and bandwidth costs in accordance with growing user traffic and increased employee-related expenses as we continue to strengthen our security-related personnel. Sales and marketing expenses decreased by 5% year-over-year to RMB 397 million, mainly due to a decrease in marketing expenses as a result of our improved brand recognition and marketing efficiencies. R&D expenses increased by 39% year-over-year to RMB 219 million due to increased technology-related staff. G&A expenses increased by 27% to RMB 156 million, primarily due to increased headcount and increased share-based compensation expenses. Our overall human-related costs remained stable compared to last quarter, and we have enhanced the cost control under current market conditions. Excluding share-based compensation expenses, our adjusted net income for the quarter was RMB 377 million with an adjusted net margin of about 20-- 32%, which rebounded back to the historical record in the third quarter last year, further demonstrating our high-quality and sustainable operating leverage and profitability. Net cash generated from operating activities was RMB 367 million for the quarter, representing a 36% year-on-year growth. As of September 30, 2022, our cash, cash equivalents and short-term investments increased to RMB 13.9 billion, which would position us well for the future growth. Looking forward, as the near-term resurgence of COVID cases are still at a high level across China, which are affecting the recruiting demand of enterprise users, we expect our total revenues to be between RMB 1.05 billion and RMB 1.09 billion in the fourth quarter, with a slight year-on-year decrease of 3.8% to 0%. Given that there is still the whole month of December before the quarter ends, some level of uncertainties are still ahead. However, as Jonathan just mentioned, and as you have witnessed from our third quarter results, user growth is the key to our business. Our market-leading position and competitive needs are further strengthened since the resumption of user registration in recent months, and our users are still accumulated fast and the online recruitment market in China is proved to be with good room to grow. With the effectiveness of our model being still intact, we are confident that we can ride through the current headwinds and continue our secular growth in China's human resource technology markets. That concludes our prepared remarks. 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.

I have 2 questions. First is the -- if we consider that the reopening process to gradually happen in the early spring, so how do you think the recruiting activities you picking up quickly, fast or do you expect that it will take maybe 1 or 2 months of lead time before these enterprise users to post their jobs? The second question is, if we expect that the reopening to gradually happen in next year, so what's our expectation in terms of the -- your sales, marketing and customer acquisition costs, because we believe that certain of the other online recruitment platform will also spend some money to acquire new customers. Considering all this competition and considering that we also have a quite ambitious new user acquisition plan in the next 3 years, how do you think the -- is best level? And what kind of the margin should we expect for the 2023?

Thank you for your question. Regarding your first question about the reopening -- after reopening, what will be the recruiting speed for the enterprise equipment. So based on my observations for the past years, majority of enterprises can have a very quick recovery with some very limited exceptions, such as very huge, mega enterprises, because they may take some time to readjust their expectations, for the growth, for the revenue and also for the expenses and for the marketing and human resources and headcount. But for SMEs, they have a relatively much faster recovery. And regarding your second question about our plans for marketing of next year, our marketing efficiency for the digital market will not decrease. As I just mentioned, we are planning for over 100 million new users in the next 3 years. If everything goes normal, we are expecting around 40 million newly registered users next year, and that's a normal circumstances, but we will not pay extra money for that. And in terms of branding, this year, you have already know that we have sponsored the World Cup. And for next year, we have not visit any major marketing events, which we can sponsor or do brand -- [ or do brand advertising for ]. So it also will be a normal year. So my concern is that the marketing expense as a percentage of revenue for next year will be -- will remain stable and this will not affect our margins in net G&A.

And I will add a little bit about the -- when the reopening is there. First of all, our cash revenue, we would like to gear up and then our accounting revenue, because of we need some time to book the revenue, then we would like to see our accounting revenue gradually catch up those cash collections with the reopening. So there is a delay effect. So please remember that. So at the beginning of the recovery, we should pay more attention to the cash revenue and then our accounting revenue continue to gradually catch up.

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

I have 2 questions. First is considering that December is the month when many big enterprises sign annual contract or renew contract with us. Could you maybe share some color on what kind of status that we see across the big contracts? And what percentage of the enterprises may have some upselling potential? Secondly, it's about branding activities around the World Cup. Could management maybe share the rationale? And how should we think about the ROI behind these branding activities and especially considering there are some other recruitment platform also doing similar branding activities during the World Cup and how should we compete with them and what is our differentiation?

Thank you for your question. Regarding your first question about our resigning of annual contract at the end of the year, so it has already been 2 months past for the fourth quarter. And what we have observed in terms of the resigning of our key accounts, that we are happy to see that basically, we have signaled -- very, very seldom customers who have stopped any new signings at, so it is basically quite good. And in terms of the upsell or dollar amount, the net dollar retention rate of all our key accounts are still continuing shifting above 100%. It is not a fact of our historical results, but it's still [ explained ] under current circumstances. And about your second question for our sponsorship this World Cup, because we are a very young company, the average age of our employees is around mid-20s and football is the competitive sport every way. You have probably seen from the news that our data goes back, the population on earth has reached more than 8 billion. And I believe that from a perspective of human civilization, if something -- if a relative item will be left, and football is -- it definitely should be one of them. It's a very big thing and we are happy to support FIFA. And on top of supporting FIFA, the first thing we consider is that we think it's a good business for doing all those marketing campaign and advertisement on CCTV and other channels. So in 2018, the Russia World Cup, more than 650 million Chinese audience have watched the event. And for the Qatar World Cup this year, we don't have the exact number now. I believe the people should be -- the audience base will be larger, it should be more than 700 million to 800 million. And if we assume, each audience can watch like 4 to 5 games during the whole World Cup event, then there will be more than 4 billion people and fans who have watched our advertisement. You know that the-- our advertising is quite frequent between the bands and so the cost for one person to watch our branding is very well achieved. So it's a good business if you consider the vast audience base, the ages who watch the game -- age of people who watch the game first time and the cost, it's a quite good business. And you noticed that several of our peers have also did the same thing, but I believe this is a good thing so we can give our audience, our customers more choice. They can choose what kind of platforms the best they can bet. And that's my answer to your question. Thank you.

I just have slight comments. So we also consider that brand advertisement is more like an investment rather than cost or expense item because of the return is better, because of its more effective than traffic acquisition cost, and it's long-lasting. So that's probably the very short answer to your question as well.

Operator, we can move on to the next question.

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

I have 2 questions. First is that if we look at first quarter next year and normally, it's a strong seasonality for recruitment market. So in addition to the World Cup sponsorship that we mentioned already, could management elaborate your plans in user acquisition, marketing and promotions in the first quarter? Do we have a target for user growth in this peak season? And also, how should we think about the margin level in the first quarter? My second question is, it seems the large enterprise customers may have relatively more resilient recruitment budget compared to the SMEs, given the uncertainties in the macroenvironment. So just wondering what the company consider to maybe shift our strategy or focus towards the key customer side given this backdrop? And also what's your latest thoughts and progress in the mid-to-high-end recruitment segment?

Thank you for your question. About your first question on marketing plans for the first quarter next year. So our World Cup campaign end on December 18, and the Spring Festival start from January 22 next year, and there are only 5 weeks in between. And by end of January, people will go back to work, where the traditional recruitment peak season will start. So there are only 6 weeks in between the World Cup campaign and the Spring Festival. So I can assume the 2 events are fairly connected. And given the strength and frequency and the intensity of our marketing campaign for the World Cup, we strongly believe that this campaign effect can continue through the Spring Festival. So our marketing plan for the peak season up to Spring Festival will not require extra money. So on the other hand, you benefit from the World Cup campaign. And that's part of our strategy. Another part is that for the reopening everybody are concerned, we are also highly focused on that. So our marketing plan, the efficiency and like a intensity on our marketing input, we are highly connected to the reopening process. So currently, we look at [indiscernible] and are focused on the progress. And on top of our strategy and focus on reopening and -- we think that we will not do a marketing event which have huge net impact on our margin in the first quarter next year. Regarding your second question about our relationship of our key account customers. Currently, we do not have any plan to deploying our resources towards the key accounts, apart from the SMEs. But I can assure that whenever we would like to strengthen our total resources, we will also increase that for our key account customers. Quite a long period of time, the massive -- huge number of SME customers in China who demand better service, and that's what we are doing. We are work on better serve all of our customers, including especially SMEs. And that's my answer to your question.

To the market logistics, in China, more than 90% of the enterprises are small medium-sized companies. So basically, our own company composition is also in the same pattern. So we have more than 80% of our enterprise customers or companies, they are the small, medium-sized enterprises. So they are the very important components to our business. And as just mentioned, compared with the peers, we are more specialized in this area. So we definitely will serve them well and try to provide them with better service. But meanwhile, we definitely will also pay more attention to KA accounts because they we have a much balanced structure as just mentioned as well.

Our next question comes from the line of Natalie Wu from Haitong International.

I have 2. First is regarding the paid enterprise user number. We see that this number has a bit decreased, again to 3.7 million this quarter. Just wondering if management can share with us the active and the number this quarter. And how did that change on year-on-year, on quarter-on-quarter basis? Or how should we see the paying conversion ratio change? How much of that is related with the pandemic and how much is related with the initiative cleaning up action by the company? And how much is related with the natural churn? And second question is related with the blue-collar. Just wondering, can management help us understand how much revenue currently comes from the blue-collar business? And the related MAU and paid enterprise number, some metrics like that? And how should we see the future growth for that business? And also under the scheme of reopen, how should we see the growth rate if the blue-collar business could outgrow the white-collar business in the reopen scheme?

Okay. Thank you. So I'll answer the paid enterprise customer question first. So the 3.73 million, that number was trailing 12 months paid enterprise customers. So that number reduced mainly because of in the second quarter, the COVID impact reduced our paid enterprise customers in that quarter. And starting from third quarter, we see quick recovery of quarter-over-quarter sequential paid enterprise customer growth. But because of this trailing 12 months, so it's-- the second quarter did have some impact to our-- the total paid enterprise customers number. But if you look at the quarter-over-quarter, if you look at all the paid enterprise customer in third quarter versus the paid customer in the second quarter, we see a very clear quarter-on-quarter growth. And in terms of the active enterprise customers, that number we see starting from like June-July and August we see gradual recovery. And compared with the second quarter, it's a pretty good sign of business booming. But starting from September because of the COVID measure -- the COVID control measures, we see some like impact to the active enterprise customers' number. And so the similar things with also business in the early fourth quarter of this year. In terms of the paying ratio, paying ratio is -- I think, it's quite stable in second quarter. In third quarter and even in October and November, overall, the paying ratio among the active enterprise customers is quite stable. And the ARPU is also very stable. So the impact is mainly with the total active enterprise customers, which is highly related to the COVID control measure. And in July and August, when the COVID measure is not that stringent, we see recovery. So we believe in our coming months, once the COVID is gone, we definitely will see a good come back for the active enterprise customers. So this is the first question. And regarding the blue-collar, I can offer you with some like data. In terms of the users of blue-collar, at this moment in terms of the MAU it accounts for roughly 30% of our total users. And in terms of the revenue contribution, blue-collar accounts for roughly like 26% of our GAAP revenues in third quarter.

And on top of Phil's answers I would like to submit some data. So for logistic industry, we have seen a 20% year-on-year growth in terms of cash billing. And for other service industry, a 28% year-on-year growth, while our total cash billing compared to last year only grew by 1%. So you can see our blue-collar sector has experienced a very fast increase. And we have quite good confidence that we will acquire additional 100 million new users in the upcoming 3 years, which is double the current total user base. And I believe along 2/3 will be what we call traditional blue-collar workers, including logistics, including urban service and manufacturing and et cetera. And that's all for my input.

And also, one more thing to mention is that we've resumed the user growth from the end of June and middle of the year normally is not the peak season for blue-collar to find jobs. Normally, seasonality wise it's the Spring in the -- after the Spring Festival that is the peak season for the blue-collar to come out to find job. So in upcoming years, because of our -- currently we can grow our new users. So we expect that in the peak season after Spring Festival we can further grow our blue-collar segment users and customers.

Due to time constraint, 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 IR team directly or TPG Investor Relations. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]