Kanzhun Limited (NASDAQ:BZ) Q2 2023 Earnings Call Transcript

Kanzhun Limited (NASDAQ:BZ) Q2 2023 Earnings Call Transcript August 29, 2023

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ 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: Thank you, operator. Good evening and good morning, everyone. Welcome to our second quarter 2023 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao; and our Director and CFO, Mr. Phil Yu Zhang. Before we start, we would like to remind you that today’s discussion may contain forward-looking statements, which are based on management’s current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company’s control, which may cause actual results, performance or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and do not undertake any obligation to update this forward-looking information, except as required by law.

During today’s call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

Jonathan Peng Zhao: [Foreign Language] [Interpreted] Hello, everyone. Welcome to our second quarter 2023 earnings conference call. On behalf of the company and our employees, I would like to express our sincere gratitude to our users and investors and friends of our company whom have been standing with us during all these difficult times. First, I would like to share with you our performance for the second quarter of 2023. We recorded a GAAP revenue of RMB1.49 billion for the quarter, up 34% year-over-year. Calculated cash billings was RMB 1.62 billion, up 65% year-on-year. Our net income for the quarter was approximately RMB310 million, and our adjusted net income, which excludes share-based compensation expenses, increased by 135% year-on-year to around RMB570 million.

This represents highest quarterly record in the company’s operational history. The effectiveness of BOSS Zhipin business model and our organization, which has been developed for over 10 years has once again been tested on our strong profitability. In the second quarter, our strong user growth trend continued from the first quarter. The newly verified users for this quarter reached 14 million and average monthly active users on the BOSS Zhipin app rose to 43.6 million, up 65% year-on-year. Among all the users we serve, blue-collar users and users from second and lower-tier cities grew faster, benefiting from our continuous efforts in a quite long period to expand our penetration to lower-tier cities and blue-collar populations. In terms of enterprise users, our average monthly active users hit a historical high in this quarter, primarily driven by increasing demand from blue-collar industries, SMEs and the lower-tier cities.

Breaking down by sectors: recruitment demand in catering, hotel, tourism, beauty and personal care, as well as transportation and the logistics warehousing, where more urban and supply chain logistics will follow [indiscernible] have increased significantly. Our average daily active position in the urban service industry, which is defined as a position where both the job posting and these enterprise users are active in a single day and relatively strict vendor, exceeded 1 million for the first time and has become the largest job offering on our platform. The revenue contribution from blue-collar users increased to more than 32% of our total revenues for this quarter, while the revenue contribution from second- and lower-tier cities exceeded 50% for the first half.

As we have reported to our investors in our earnings calls over the past two years, the company has been investing in algorithms and products to improve our tested service capabilities across various user group and cities, utilizing our enhanced understanding of the evolving demand. Our years of past efforts enable us to achieve good progress as we capture the opportunity arising from blue-collar workers and SMEs growth this year. Moving forward, we will remain committed to innovation and further improve on this area. We have long been believed that in a mature market in enterprise service, people are willing to pay for value as long as what we are offering is truly valuable. By the end of the second quarter, our paid enterprise customers for the trailing 12 months rebounded and resumed its fast growth momentum, hitting a record-high of 4.5 million, up 18% year-on-year and 13% quarter-on-quarter.

The second quarter this year was challenging. However, we have witnessed some positive updates recently from an operational perspective. Following the graduation season in July, we saw overall recruitment demand on our platform recover quickly and has retained a sustainable promising upward trend since the beginning of August. The blue-collar urban service industry continued to outperform across all sectors, whereas white-collar positions have stabilized and started to recover, especially white-collar positions across personnel, finance, administration, operations and manufacturing. As a result, the number of our active enterprise users reached a new high for this year as well as a record high in our corporate history. Also, this trend leads to the supply to demand ratio on our platform as long as the ratio of jobseekers to enterprise users is continuously improving.

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

Phil Yu Zhang: Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results of the second quarter of 2023. In this quarter, we reached record-breaking results across different sets of operational and financial figures, including MAU, revenues, total paid enterprise customers, profitability metrics and operating cash flows. Driven by our robust user growth and healthy user engagement, our revenues maintained a rapid growth momentum and hit a new high at RMB1.49 billion, representing a solid 16% quarter-on-quarter growth and a 34% year-on-year growth. Moreover, our calculated cash billings reached RMB1.62 billion, up 65% year-on-year. Total paid enterprise customers in the 12 months… [Technical Difficulty].

Okay. So I’ll start again. So in the quarter, in the second quarter, we reached a record-breaking results across different set of operational and financial figures, including MAU, revenues, total paid enterprise customers, profitability metrics and operating cash flows. Driven by our robust user growth and healthy user engagement, our revenues maintained a rapid growth momentum and hit a new high at RMB1.49 billion, representing a solid 16% quarter-on-quarter growth and a 34% year-on-year growth. Moreover, our calculated cash billings reached RMB1.62 billion, up 65% year-on-year. Total paid enterprise customers in the 12 months ended July 30, 2023, reached 4.5 million, up 13% quarter-on-quarter, a record-high and back to fast-growing trend.

ARPPU for paid enterprise customers decreased slightly, both sequential and year-on-year, mainly due to faster revenue growth for small-sized accounts as recruitment demand from SMEs recovered better compared to larger companies. Moving to the cost side. Total operating costs and expenses for this quarter were RMB1.31 billion, up 26% year-on-year. Hello? Excluding share-based compensation, our adjusted operating costs and expenses increased by 18% year-on-year to RMB1.05 billion in this quarter. Adjusted operating margin is 29.2% for the quarter, up by 8.8 percentage points year-on-year. Cost of revenues was RMB270 million, up 55% year-on-year, representing a gross margin of 81.8%, up by 1.1 percentage point compared to the last quarter. The gross margin started to bottom out from first quarter, and this trend is mainly due to sequential revenue growth in the second quarter.

Our sales and marketing expenses were RMB472 million, up 18% year-on-year. Adjusted sales and marketing expenses was RMB408 million, up 12% year-on-year. This increase was primarily due to increased headcount in sales department. Notably, brand advertising and customer acquisition costs remained relatively stable with the same period of last year, while our trailing 12 months paid enterprise customers and MAU increased by 18% and 65% year-on-year, respectively, which strongly demonstrated our continuously improved marketing efficiency. Our R&D expenses increased by 19% year-on-year to RMB366 million and our adjusted R&D expenses kept stable with the same period of last year. Adjusted R&D expenses as a percentage of revenue reduced in the quarter, showing continuous improving trend sequentially.

Our G&A expenses increased by 27% year-on-year to RMB203 million, and adjusted G&A expenses increased by 14% to RMB126 million, representing 8% of total revenues. Excluding certain one-off expenses, the percentage of adjusted G&A expenses to total revenue showed a downward trend since 2022, benefiting from our improving operating efficiency. Net income was RMB310 million, and adjusted net income reached RMB568 million, more than double compared with the same period last year and hitting a record high. And our adjusted net margin reached 38%, up 16% — 16 percentage points year-on-year and 6 — and 19 percentage points quarter-on-quarter. Net cash provided by operating activities was RMB600 — sorry, RMB764 million, up more than 3 times year-on-year and hitting our record-high.

The significant increase primarily due to — from the 16% — sorry, 65% year-on-year growth of calculated cash billings. As of June 30, 2023, our cash, cash equivalents, time deposit and short-term investments were RMB12.8 billion and the long-term fixed-income investments were RMB2.0 billion, which totaled RMB14.7 billion. We are confident that our outstanding cash generation capabilities and ample cash reserve will support our commitment to further business expansion. And now for our business outlook. For the third quarter of 2023, we expect our total revenues to be between RMB1.53 billion and RMB1.56 billion, with year-on-year increase of 30% to 32%. Given that there is still a whole month of September before the quarter ends, some level of uncertainty is still ahead.

However, we are glad to witness an encouraging growth trend leading by the improved recruitment demand since the beginning of August, especially in online standalone purchase from SMEs. As the autumn recruitment season approaches, which is our — normally, which is our high season, we are also expecting better recruitment demand from larger companies in the coming months. That concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead.

See also 12 Most Undervalued EV Stocks To Buy According To Hedge Funds and 20 Countries With Lowest Rate of Economic Growth in 5 Years.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Eddy Wang with Morgan Stanley. Your line is now open.

Eddy Wang: [Foreign Language] Thank you management for taking my question. I have two questions. The first is about the blue-collar recruitment. As Mr. Jonathan mentioned that the — although they’re seeing improving demand for the white-collar in terms of job posting, but what do you think as the macro improvement or the other factor will impact this demand of the white-collar recruitment? And we all know that the blue-collar demand actually is stronger than the white-collar. So, do you think this kind of dynamic in the recruitment in China will have a long-term impact on the competitive landscape of the online recruitment platforms? My second question is in terms of the new addition of the annual subscription enterprise users, are they from the enterprise that has been already used the other online platform and attracted by us or they never used any of the online platform, it’s actually just fresh new enterprise that go to our platform? Thank you.

Jonathan Peng Zhao: [Foreign Language] [Interpreted] Thank you for your question. I would like to answer the second question first. So, in the past five to six years, among all those online recruitment players, for a new customer who began to sign new contracts with any platform, there is always someone to help him to convert into a custom stack. There is a process from [indiscernible]. Our role is to help, to let a lot of new users who have never used or paid online recruitment services into this new area. The majority of our annual contract customers, I believe, is from — it is converted from our own unique customers. A small portion of that, we are sharing with our competitors. As of this year, for the second quarter, our offline annual contract customers, majority are from the conversion of our online paid customers.

However, according to our observation, there is evidence that the trend — the customers from other online recruitment platforms converting to our customers, the trend is increasing. From an operational perspective, it’s not simply switching from A to B, but dividing their budget into more cooperating partners. And back to your first question, the fixed external commission that’s required for the white-collar recruitment demand recovery, I believe it has. This time which will have effect on the recovery of white-collar recruitment on the key mechanism. The first mechanism is that the industry that recover first will expand to other industries to help those industries to recover. For example, culture, sports, entertainment, media, new energy, automobile, aftermarket, all these industries, which are showing encouraging recruitment trends, will impact other industry which can affected by the recovery strategy.

And the second mechanism is that as the time goes by, there are more concrete evidence which prove that the market is recovering in order to enhance people’s confidence to increase their recruitment activity. For example, at beginning — in the first quarter of this year, the large company, this recovery is [relatively worse] (ph) compared to SME, which I assume another company, they might be affected by confidence and the forecast. However, since the second quarter, we have witnessed that the enterprises with more than 10,000 employees and the medium-sized enterprises between 500 to 1,000 employees will recover much faster. And for your question about the supply and demand, whether there is a structural imbalance, we may have saw that — for industries like real estate and Internet, we do saw the decline in recruitment demand, but I don’t think it has been strong enough to concrete structural imbalance.

That’s my answer for your question.

Operator: Thank you. Our next question comes from the line of Timothy Zhao with Goldman Sachs. Your line is now open.