Kanzhun Limited (NASDAQ:BZ) Q3 2022 Earnings Call Transcript

Kanzhun Limited (NASDAQ:BZ) Q3 2022 Earnings Call Transcript November 30, 2022

Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Kanzhun Limited Third Quarter 2022 Financial Results Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Ms. Wen Bei Wang, Head of Investor Relations. Please go ahead, ma’am.

Wen Bei Wang: 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.

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During today’s call management would also discuss certain non-GAAP financial measures for comparison purposes only. But that — non-GAAP financial measures and then 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 Zhao: 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 accorded GAAP revenue of RMB1.82 billion with quarter-on-quarter growth of 6%. Our calculated cash billings which RMB1.24 billion a sequential increase of 26.4%. Benefiting from our enhanced brand recognition and continuous improvement in marketing efficiency. We maintain the rapid growth in our user-base while further improving our profit margin to obtain over adjusted net income for the third quarter which is gross share-based and compensation expenses, achieved a quarter-on-quarter growth of 5% — 25% reaching RMB377 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 matter we pay more attention to in our daily operations. Referring to job seekers we posted at least one job expectation or enterprise users we posted at least one job position. Compared with the 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 within this quarter. Our average MAU of this quarter reached RMB32.4 million hit a record high. And the company’s efforts on constantly improving the 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 ratio remains 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 growth. There are 2 key factors. At one hand compared to the second quarter many cities started to power from the COVID impact. And another factor is that we can start to acquire new users by end of June. There are 2 data that we can look at in the concept of ruble.

First one is our calculated cash billings achieved 26.4% increase compared to the second quarter. And net — the net debt 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 40% year-over-year. The safety operation has always been the most essential cornerstone driving the development of our company. In the third quarter, we continued to improve our safety capabilities in 3 aspects. The first of which is the technique — technical securities.

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 31, our verification team have finished field visits and inspections to accumulating more than 5 — 500,000 companies. And the third one is about the operational security. We submitted a due applications in Hong Kong in early October, aiming to ensure sustainability of the capital market conditions. For the last quarter up until 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 activity to enterprises will recover quickly once the decision is effectively controlled, evidenced by our experience in July and August.

We have also seen some opportunities as industry undergoes structural changes. For example, internet and network-related positions, including technology, products, design and operations have become 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 found out as our official Asia-Pacific region partner of the 2022 Qatar World Cup. We can further and effectively expand our brand learning through this high-profile and widely covered events, 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 an enterprise efforts to service their customers with sincerity and agility 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 going forward. With that, I will turn to our CFO, Phil, for the review of our financials. Thank you.

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Phil Yu Zhang: 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 RMB1.24 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 RMB1.18 billion. The number of total paid enterprise customers in trailing 12 months ended September 30, slightly decreased to RMB3.73 million, down 1% from RMB3.77 million of June 30.

But quarterly-wise, the number of total paid enterprise customers in the third quarter increased by 15%, 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 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 benefit more and faster from the recovery of a macro environment.

Moving on to the cost side. Total operating costs and expenses for the third quarter increased by 16% year-over-year to RMB1.04 billion. Excluding share-based compensation, total operating costs and expenses increased by 9% year-over-year to RMB879 million in the quarter. Cost of revenues increased by 30% year-over-year to RMB201 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 RMB397 million, mainly due to 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 RMB419 million due to increased technology-related staff.

G&A expenses increased by 27% to RMB156 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 RMB377 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 RMB367 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 RMB13.9 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 RMB1.05 billion and RMB1.09 billion in third — 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 end, 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 facts 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.

Q&A Session

Operator: Thank you. Our first question comes from the line of Eddy Wang from Morgan Stanley.

Eddy Wang: 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?

Jonathan Zhao: Thank you for your question. Regarding your first question about the opening, after opening, what will be the recurrent 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 coverage. 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 at the moment the consensus but we will not pay extra amount for that. And in terms of branding, this year, you have already know that we have sponsored the World Cup. And for this year, we have not — any major marketing events which we can sponsor or to brand — the brand. So it also will be a normal year. So my is that the marketing expense as a percentage of revenue for next year will be — will remain stable and this will not affect our margin in net G&A.

Phil Yu Zhang: And to add a little bit about the — 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.

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

Timothy Zhao: 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? And secondly, it’s about branding activities around the World Cup. Could you maybe share now? And how should we think about the ROI behind these branding activities and especially considering there are some other recruitment platform also the similar branding activities during the World Cup and how should we compete with them and what is our differentiation?