Kanzhun - Q1 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to the KANZHUN LIMITED first quarter 2023 financial results conference call. At this time, all participants are in 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.

Wenbei Wang (Head of Investor Relations)

Thank you, operator. Good evening and good morning, everyone. Welcome to our first 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 caution 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 their 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 said, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Hello everyone, welcome to our first 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 our employees.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

In general, this is the season when our business began to return to its healthy development trajectory as we step into the post-pandemic era.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

In the first quarter, we recorded revenue of RMB 1.28 billion, representing an increase of 12% and 18% year-on-year and sequentially. Our calculated cash billings reached RMB 1.65 billion, representing an increase of 28% and 49% year-on-year and quarter-on-quarter respectively. We demonstrated our healthy profitability and achieved a net profit of RMB 32.7 million compared to a net loss in the same period of last year. Our adjusted net income, which excludes share-based compensation expenses, was RMB 245 million, increasing by 102% year-on-year.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

After Lunar New Year, our user base grew rapidly. In first quarter, we had 14.61 million newly verified users. The average monthly active users on BOSS Zhipin app were approximately 40 million, up 58% year-on-year. The average daily active users increased by 54% year-on-year on this quarter, with DAU reaching nearly 15 million at, with peak DAU reaching nearly 50 million. Notably, blue collar and lower tier city users were the fastest growing cohort across our user base. In this quarter, blue collar users contribute to more than 40% of the newly verified user growth, with accumulated verified blue collar users accounting for 31% of our total users by end of this quarter.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

In terms of recruitment demand from enterprise users, which many of you care about. Since the first quarter till now, our monthly active enterprise user sales continuously reached record highs in comparative period, while maintaining a consistency high level since the Spring Festival. Among all the industry we served, the urban service industries was the most prominent performer, while the SMEs recovered faster than large enterprises. This is also a demonstration of our software and modeling ability to serve different users from different industries, regions and enterprise scales.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Commercial-wise, thanks to the general recovery of recruitment demand from our enterprise users. The number of our paid enterprise customers in the trailing 12 months period ended March 31st recovered rapidly. This growth trend is expected to continue in the following quarters. Strong user growth has driven the urban service industry to become our second largest revenue contributor, leading to the result that revenue contribution from blue-collar users accounted for over 30% of our total revenue in this quarter. In terms of enterprise scale and regional distribution, the revenue contribution of enterprises with less than 100 employees and those from second and lower tier cities also increased year-on-year.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

On the business operation side, one of our priorities in the quarter was to alleviate the imbalance between supply and demand under current employment market conditions. Specifically, we worked to ensure individuals, especially job seekers, could access more and better employment opportunities on our platform with a continued high quality user experience.

Through deeper understanding and exploration of user demand, combined with continuous efforts to optimize our algorithms, we made some progress in this area. In February and March, following the Spring Festival, the number of successful consent reached, which means the successful resume exchange between job seekers and enterprise users, achieved on average 150 million pairs, and which is an increase by 65% year-over-year. To remind you that our monthly active users increased by 58% year-over-year, which means we have achieved record highs in terms of total number of resume exchanges and the number of resume exchanges per person.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

I would like to take this opportunity to give special thanks to our engineers and product managers who have made their special efforts.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

For those critical users, such as college students, we continue to leverage our resources, trying our best to help them access to more suitable opportunities on our platform. This is an important work for our company this quarter and also the corporate culture that more than 55,000 employees of our company has been upholding.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

We believe many investors and friends are concerned about the challenges and opportunities that the recent development of AI technology has brought to the company. There are only two things we can say as of today. First, the company attaches great importance to this technology development. Secondly, we will, we are and will making reasonable investment and commitment in this area to try to do something.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

In general, since the beginning of the 2nd quarter, our platform has continued to see solid growth trends in our user base and user engagement, both on the job seeker side and enterprise side. It's worth mentioning that the number of active enterprise users and active positions posted have both shown ongoing and steady increase exceeding the levels we saw at end of March. This is actually a quite good scenario. In terms of what we are seeing within different industries, the urban service industry and the travel and tourism industry have continued to perform well. The growth rates for sectors such as warehousing and logistics is a highlight recently, while recruitment demand in manufacturing industries have also demonstrating promising recovering trends.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

With that, I will turn the call over to our CFO, Phil, for a review of our financials. Thanks.

Phil Yu Zhang (Director and CFO)

Thanks, Jonathan. Hello everyone. Now let me walk through the details of our financial results for the first quarter of 2023. We are pleased to deliver a solid quarter results with strong revenue growth as well as healthy profitability and strong operating cash flow. Driven by the robust user growth and rebound of the recruitment demand post the Spring Festival, we have witnessed a re-acceleration of both revenue and calculated cash billing growth. Our revenues reached RMB 1.28 billion, up 12% year-over-year, and our calculated cash billings reached RMB 1.65 billion, representing a year-over-year increase of 28%. Quarterly number of paid enterprise customers alone reached to historical high level, mainly due to increase in number of active enterprise customers and improved paying ratio.

As a result, our number of paid enterprise customers in the past 12 months also recover and expect to continue to increase in the coming quarters. Revenue contribution from small size accounts increased as recruitment demand from SME grew better. Moving to the cost side. Total operating costs and expenses in this quarter were RMB 1.37 billion, up 20% year-over-year. Excluding share-based compensation, adjusted operating costs and expenses in this quarter increased by 15% to RMB 1.16 billion. Considering other operating income, our adjusted operating margin for this quarter is 10.6%.

Cost of revenues in this quarter was RMB 247 billion, up 39% year-over-year, mainly driven by increases in server and bandwidth costs due to higher user traffic and payment processing costs, which is related to the higher growth of cash collections from our online self-service abilities. Excluding share-based compensation expenses, our adjusted sales and marketing expenses were RMB 568 billion, up 15% year-over-year. This increase was primarily due to higher marketing expenses compared to last year as we have strong user and traffic growth this quarter. However, we have observed that overall customer acquisition efficiency has improved compared to the same period of 2021 due to our enhanced branding recognition. This encouraging trend will help us continue to achieve sound profitability while maintaining good user growth momentum.

Sales employees related expenses also increased as a result of higher cash revenue growth. Our R&D expenses in this quarter increased by 15% year-over-year to RMB 333 million, and the G&A expenses in this quarter increased by 6% year-over-year to RMB 165 million. Notably benefiting from our strategy and efforts to improve operating efficiency. Our adjusted R&D expenses and adjusted G&A expenses kept relatively stable with the same period of 2022. Net income in this quarter was RMB 33 million, as compared to a net loss of RMB 12 million in the same quarter 2022. Our adjusted net income for this quarter increased by 102% year-over-year to RMB 245 million, representing an adjusted net margin of 19%.

Net cash provided by operating activities was RMB 544 million for this quarter. As of March 31st, 2023, our cash equivalents and short-term investments increased to RMB 13.5 billion. The robust operating cash flows and cash reserve enable us to be more flexible on capital allocation and future development strategy. Now for our business outlook. For the second quarter of 2023, we expect our total revenues to be between RMB 1.43 billion and RMB 1.46 billion, with a year-over-year increase of 28.6%-31.3%. That concludes our prepared remarks. Now we would like to answer questions. Operator, please go ahead.

Operator (participant)

Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Eddy Wang from Morgan Stanley. Please go ahead. Your line is open.

Eddy Wang (Equity Analyst)

[Foreign Language]. Thank you for taking my question.

Speaker 7

I have two questions. The first one is that if you look at the youth unemployment rate has been reach a record high in April, and we 会 see another, you know, batch of the, you know, graduates in the coming two quarters. Do you think, you know, the high unemployment of the youth could be a long-term structural issue? How it will impact our, you know, business in the longer term? The second question is that you mentioned in April and May, we do witness that the job posting and active enterprise users, the level has been higher than we witnessed in March.

However, if we consider the overall economy recovery actually is slightly lower than we expected, at the same time, we do see the youth unemployment rate has been, you know, high. Do you think this recruitment demand recovery is sustainable into the second half of this year? Thank you.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

[Foreign Language].

Speaker 7

Thank you for your question. I would like to give my conclusion to your first question first. Regarding the current situation that with more job seekers compared to relatively less recruitment demand, which lead to a high unemployment rate of the younger people aged between 16 to 24. Will that trend turn into a long term structural question? My answer is that no. I believe the situation is has been improving. There are two interesting observations I'd like to share with you. First one is that in February, March, April and May, on a year-on-year and historical view, the ratio between job seekers and recruiters is relatively at a very unpleasant level. After January 21st after Spring Festival about 17 to 18 weeks, we have seen that the situation has been improving on a weekly basis.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Another interesting thing is that the graduates this year their active reach out to the small and medium-sized enterprise, the best ratio has raised about over 10% compared to last year. This is a scenario I have never seen historically, which my personal feeling is that people have tried their best to adjust to the environment and to strive for their development opportunities.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

In terms of the impact to the company, this year today, the pressure I have feeling the most is that the situation of more job seekers compared to less job demand job supply, which has placed great pressure to our recommendation system and our customer service system. If we cannot deal with it correctly, that will impact our impact NPS, especially on the job seeker side. We have been working quite hard on this. If you look at the from the perspective of the average achievement or average job resume exchanges each month per person, we have done pretty well up to now.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

About your second question of the recent demand recovery in April and May. We have observed that compared to February and March, weekly newly posted jobs have been increased by 7% on a week basis. Another number is that for each job opening the enterprise user the recruiters behind that the situation of the recruiters actively looking for the people compared to February and March in April and May that situation also increased by 6%. This is encouraging number and I'm glad to look at that. Whether this is sustainable, my answer is pretty sure. The situation is improving and quite sustainable.

Phil Yu Zhang (Director and CFO)

[Foreign Language].

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Operator (participant)

Thank you. We'll now move on to our next question. Our next question comes from the line of Wei Zhang from UBS. Please go ahead, your line is open.

Wei Zhang (Analyst)

[Foreign Language].

Speaker 7

Thank you management for taking my question. Firstly regarding the enterprise users, could management comment on the recovery trends for your KA users and SME users separately, for example, in terms of the user engagement, paying ratio, recruiting cycle, etc. What has been trending in the past few months? Are there any noticeable changes compared to a few years ago? Secondly, just want to follow up on the blue collar recruiting business, could management share more progress in that regard, as well as your strategic focus for the year? Given we have made very good progress in the services sector, if we want to see bigger breakthrough in the manufacturing sector, what actions do we plan to take this year? Thank you.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Okay, for the comparison between large companies and SMEs, one interesting point is that we have seen different situations in January and February. We have observed that the SMEs have been recovered very rapidly, while the large companies is more slow, more slowly. In April and May, the situation is different. One data to look at is for the enterprises with less than 100 person, the daily active job posting increased by 1% in April and May, compared to January and February. For the enterprises with people more than 10,000, the daily active jobs increased by 7% in April and May, which they showed a trend with faster recovery.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Another data which we often look at internally, which is in April and May, among the different job categories within an enterprise, the jobs related to marketing and development, has increased faster, which means people, these jobs are related to the company's development, to help them either spending more or earning more money, which means they have better confidence at this stage.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

generally speaking, there are millions of enterprises and tens of millions of job seekers on our platform each month. They our witness that they have been working very hard try to solve their own problems, and we are also try our best to help them with that. The general solution is that April and May is better than February and March for either large companies and SMEs.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

About your question on blue-collar. The first thing is on the urban service industry, which we have a high confidence of with and we have demonstrated a strong value after years of efforts. After the COVID with the fast recovery for urban service industry, all of our prove efforts have some concrete evidence on numbers. We just discuss that either users and revenue contributions from blue-collar, from urban service industry and blue-collars have increased rapidly.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Other major sub sectors for blue collar includes manufacturing, construction, logistic and warehouse, etc. We have also been doing our job to create more values for all those industries. We, we are not as confident as those urban service sector, but we are on our way and we are on the right direction. That is my view for this.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

There are hundreds of millions of manufacturing workers, 40-50 million of construction workers and maybe 20-30 million of logistic warehousing job seekers. For all these sectors, they have their own industry know how. We have been actively and progressively to explore all those solutions to this industry to try to provide more value to them while achieve our own business development.

Wei Zhang (Analyst)

[Foreign Language].

Speaker 7

Thank you management.

Jonathan Peng Zhao (Founder, Chairman, and CEO)

[Foreign Language].

Speaker 7

Thank you.

Operator (participant)

Thank you.

Wenbei Wang (Head of Investor Relations)

Thank you.

Operator (participant)

Once again, to ask a question you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by. Our next question comes from the line of Timothy Zhao from Goldman Sachs, please go ahead, your line is open.

Timothy Zhao (Equity Research Analyst)

[Foreign Language].

Speaker 7

Thank you management for taking my question.

I have 2 questions here. One is regarding the enterprise paying ratio and ARPU trend. Could management share any new products or new strategies in improving the overall enterprise paying ratio especially related to the small size and medium-sized customers, as well as the new customers the company has acquired? Secondly, regarding the sales marketing, we understand the 1st quarter is typically the peak quarter in terms of sales marketing spending. Just wondering if management could provide some updates on the company's sales marketing plan for the rest of this quarter, for the rest of this year. What is our margin forecast for this year? Thank you.

Phil Yu Zhang (Director and CFO)

Okay. Thank you. I'd like to answer those two questions. Regarding our paying ratio for the quarter. Generally speaking, our paying ratio improved a little bit in the quarter compared with last year. In terms of the ARPU kept stable in the quarter. I think the overall paying ratio improvement is mainly because of a healthy growth of job seekers and business customers in urban services and a few other like the logistic and the tourism sectors. The competitions between the business customers that are, you know, let the platform naturally, you know, increase a little bit about our paying ratio. Rest of other sectors maintained quite stable paying ratio in the quarter.

In terms of the new business customers and business customers from lower tier cities, they are the key contributor to this growth. This is the first question. The second question regarding our selling marketing expenses and our overall expenses. You're right that the first quarter in terms of the seasonality, normally, it's a high quarter because there is usually industry-wide branding campaign happened after Spring Festival. In our situation, we did a little bit brand advertisement in the first quarter. Looking ahead, there's no other big marketing event in rest of the year. This is a branding advertisement.

In terms of our traffic acquisition costs, which is related to our user growth, supported by our well-established brand and recognition, I think this area is shown with a very high efficiency in the first quarter. We believe that this high efficiency will further continue in following quarters. So that means in terms of the branding and in terms of the traffic acquisition marketing, so the overall selling marketing will be, you know, will be capped in a disciplined situation. So our overall marketing spending will hope to generate further like leverage in the year. And other cost items like R&D, like GA, will follow the suit in the similar trend.

Our overall operating margin for 2023 compared with last year will, you know, will be up in our part. That's pretty much our, you know, directional thought regarding our operating margin. That's my answer to the second question.

Timothy Zhao (Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. 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.

Wenbei Wang (Head of Investor Relations)

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

Operator (participant)

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