Kanzhun Limited (NASDAQ:BZ) Q3 2023 Earnings Call Transcript

Kanzhun Limited (NASDAQ:BZ) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Third Quarter 2023 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.

Wenbei Wang: Thank you, operator. Good evening, and good morning, everyone. Welcome to our third 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 operations that involve known and unknown risks, uncertainties and other factors not under company’s control, which may cause actual results, performance or achievements of the company to be materially different. The company’s 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.

Peng Zhao: Hello, everyone. Welcome to our Third Quarter 2023 Earnings Conference Call. On behalf of the company and our employees, management team and Board of Directors I would like to stress our sincere gratitude to our users and investors will trust and support us. First, I would like to share with you our performance for the third quarter throughout the history. We recorded GAAP revenue of RMB 1.61 billion for this quarter up 36.3% year-on-year. We booked RMB 1.64 billion in calculated cash billings, up 32.1% year-on-year. Our adjusted net income, which excluded share-based compensation expenses, increased by 89.6% year-on-year to . Our asset operating income, which excludes other income such as financing returns, was RMB 550 million, making a quarterly record high in terms of both absolute amount and margin.

Our total paid enterprise customers in the 12 months reached 4.9 million up 32.4% year-on-year and 8.4% quarter-on-quarter, both the total paid enterprise customer number and active user paying ratio continue to improve. In the third quarter, the average number of monthly verified active users on the BOSS Zhipin app reached 44.6 million, up by 37.7% year-on-year with approximately 12 million newly added verified users. Our cohort accumulated newly verified users for the past few quarters of this year exceeded 40 million. During our third quarter, late November last year, we forecasted that the company will add 100 million new verified users in the next 3 years, which seems to be expected at the moment. At the same time, our user activeness which is average as a percentage if I will pay you with main stable at a relatively high level.

In the third quarter, there are more than 135 million monthly average number of neutral achievements on the platform. Third quarter is a conditional peak season for [indiscernible] recruitment. The continuous increase in recruitment demand. While the number of average monthly active drop sequence remains stable, the average number of monthly active user enterprise seasons and monthly active enterprise increased significantly by more than 5% sequentially, both due to record highs. In terms of industry breakdown, the blue-collar industry delivered the most outstanding performance, especially the blue collar other service sector which was the largest second contributor in the recruitment of both number of job postings and revenue for this quarter with added daily active job posting for other service sector exceeded 1 million.

So let’s take a look at other blue-collar sectors, which involves more young job seekers. The supply chain logistics and manufacturing industries set some job categories such as transportation, warehousing and workers also boosted overall increase. These drivers raised the blue collar industry revenue contribution to nearly 35%. Other industries such as consumer automobile, aftermarket, new energy, internet, lifestyle service and raw materials related to machinery manufacturing sales also grew fairly on a quarter-on-quarter basis whilst the overall internet industry maintaining growth momentum on a quarterly basis. In contrast to the first half of the year, the recovery of demand from larger enterprises increased relatively more quickly in this quarter in terms of the number of newly added and active job positions.

Future prices with more than 2,000 inquiries go faster. From the city level perspective, second tier and lower-tier cities continued to outperform. The decrease in both the number of job positions and income. In terms of corporate social responsibility, this quarter, we focused on and dedicated in hoping the employment of typical group of people, which is workers. Provide [indiscernible] public recruitment activities. Nearly 5,000 enterprises providing more than 100,000 positions for the group of job seekers and cover more than participants. One more thing to add, with the company’s Board approval, we declared a special cash dividend for the first time. This is a return to our shareholders and for their firm support as our profitability continues to be stable and improve.

The amount is USD 0.09 per [indiscernible] share which is USD 0.18 per [indiscernible] for an accredited dividend amount of approximately USD 80 million. This is expected to be distributed in the mid to late December this year. That’s all for my part of the call, I will now turn it over to our CFO, for the review of our financials. Thank you.

Yu Zhang: Thanks, Jonathan. Hello, everyone. Now let me walk you through the details of our financial results of the third quarter 2023. We achieved a solid financial performance in the past quarter with all key figures exceeding our expectations. Our revenues exceeded the high end of our guidance to RMB 1.31 billion in the representing portfolio year-on-year growth and quarter-on-quarter. Our calculated cash release reached RMB 1.64 billion, up 32% year-on-year and 1% quarter-on-quarter. The good results were mainly due to strong user growth plus healthy user engagement as well as recover on recruitment demand in the quarter. The number of customers for the 12 months ended September 30 reached another new high to 4.9 million indicating an improved the paying ratio level among active enterprise users.

Despite the slight decline of overall ARPPU, A-R-P-P-U stands for average revenue per paying user, which was mainly dragged down by the increased revenue contribution from small-sized accounts. We are happy to see that the ARPPU of key accounts show sequential growth trend, and find out recruitment demand is improving among large enterprises. Moving to the cost side. Total operating costs and expenses for this quarter were RMB 1.36 billion, up 40% year-on-year. Excluding share-based compensation, our adjusted operating costs and expenses were RMB 1.07 billion, relatively stable with the last quarter and up [indiscernible] year-on-year. The quarterly adjusted operating margin keeps a record high, improved from 25.7% in the same period last year to 34.2% this quarter, up by 8.5 percentage points year-on-year.

This strong profitability once again proved our efficiency, our effective monetization model and powerful operating leverage. Our cost of revenues increased by 33% year-on-year to RMB 268 million this quarter, representing a gross margin of 83.3% up by 1.5 percentage points quarter-on-quarter. Our gross margin bottomed up from the first quarter this year and achieved a sequential improvement in the past 2 quarters mainly due to the recovery of the revenue growth momentum on top of an effective cost control. Our sales and marketing expenses were RMB 457 million up 15% year-on-year. Adjusted sales and marketing expenses was RMB 389 million, up 10% year-on-year, and this increase was primarily due to increased sales, employee-related expenses and enhanced advertising activities.

Notably, ratio of selling and marketing expenses continue to decline while our trailing 12 months paid enterprise customers and MAU continue to grow once again showcased our enhanced marketing efficiency and our superior economy of scale. Our R&D expenses in this quarter increased by 43% year-on-year to RMB 440 million, and our adjusted R&D expenses was RMB 306 million, up 39% year-on-year, primarily due to our further investments in talent and technology developments especially in areas related to AI technology. Our G&A expenses increased by 41% year-on-year to RMB 219 million in this quarter and adjusted G&A expenses remained relatively stable with sustained period last year. Our net income was RMB 426 million this quarter. More than doubled in the same quarter last year, and our adjusted net income set a new record as reached RMB 740 million consulting to an adjusted net margin of 44%, up 12 percentage points year-on-year.

Net cash provided by operating activities grew by 122% year-on-year to RMB 830 million for this quarter mainly contributed by increased cash collection from operations. As of September 30, 2023, our cash, cash equivalents time deposit and short-term investments were RMB 4.8 billion and the long-term investments in wealth management products were RMB 2.3 billion, which totaled as RMB 15.1 billion, supported by our ample cash reserve and outstanding cash generation capabilities, we will try our best to deliver sustainable returns to our shareholders. And now for our business outlook. For the fourth quarter of 2023, we expect our total revenues to be between RMB 1.51 billion and RMB 1.55 billion, a year-on-year increase of 40% to 43%. Based on our current progress, we expect the cash balance in Q4 to continue to grow sequentially, mainly due to key accounts contributions.

With that, that concludes our prepared remarks. Now we would like to answer questions. Operator, please go ahead.

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Q&A Session

Operator: [Operator Instructions]. Your first question will come from Eddie Wang of Morgan Stanley.

Eddie Wang: My first question is regarding the job market trend in the third quarter and in the fourth quarter so far. Have you see any continue improving in terms of the supply demand dynamic between the job seeker and the employers. And what have you seen of the recovery of the KA [indiscernible] In the third quarter and so far and the second question is the special dividend we have just announced. What have you been considered to adopt this special dividend plan at this time? And is there any further plan to increase the shareholder return in the future.

Peng Zhao: Thank you for your question. Regarding your first question, the recruitment market trend in October and November, we observed that the recruitment demand will still continue to cover and that’s a very good information. A little bit different is that for the third quarter, it traditionally high season for recruitment, that’s what we call gold in September and October. This year, the third quarter is fairly good. So for the fourth quarter, traditionally, [indiscernible] wise , there will be some pullback for coming demand. But the overall trend, if we take into the consideration of [indiscernible] is still quite good. Regarding the recovery of larger companies, we observed that their job postings, their motivation to post more job has been increasing, but this time, I need a progress, they need to take some time to fully recover.

As we introduced before, smaller companies, especially companies say covered [indiscernible] contract and still maintain very good trend at this stage. For the larger companies, they are under recovering trend, common tax that we need to do for some time. And 1 more point to add with regard to cover of the number of recruiters and job postings from the larger companies, their support to the job market will be even bigger because for 1 single recruiters in larger companies, they can post more numbers of job posting and more categories of jobs, which also means they can recruit more headcount for 1 single job posting and that’s something we are expecting. We also want to emphasize that for the third quarter, average monthly active recruiters number of average monthly active recruiters on which a historical high, which is a very clear sign as the overall trend, overall demand is recovering.

Yes. And for your second question regarding our contributions of this dividend payment, we alongside with our development history, we always received very strong support from our shareholders, and we would like to share our results with our shareholders and 1 of that is dividend payment. We have so from other — many other companies, and we decided to take the talent activity and to share our results with our long-term shareholders, and we are very happy to do that. And also, this is under the premises that the company had very good and strong operating cash flows, and the company now holds over more than RMB 15 billion of cash and related cash management products. And that’s why we are very confident to do the dividend payment. And also, I want to add that we have already announced the 2 terms of share repurchase programs, and we purchased a very some amount of shares under certain conditions.

And this is a very good method to continue to share our results and return to our shareholders on a broader view, and we will continue to do that.

Operator: The next question comes from Timothy Zhao of Goldman Sachs.

Timothy Zhao: Congrats on the very strong results as well as the strong outlook. I have 2 questions. First, could Kanzhun share more detailed color regarding the recruitment demand for different type of individual users, including blue collar, white collar, college students in the third quarter and fourth quarter so far. Besides on the enterprise side, how did the job posting and payment behavior performed in the quarter? And what is our outlook for fourth quarter? And my second question is regarding blue collar, that does note that the company has made multiple progress in the blue collar job posting revenue year-to-date, including, as you mentioned, third quarter blue collar contributed close to 35% of revenue. Could management share or elaborate your strategy to further penetrating the blue collar sector and what are the potential business models had.

Peng Zhao: Yes. Thank you for your question. Regarding the first one, yes, we have witnessed some industry has performing relatively good in the third quarter especially in the urban service industry, which brings the increase of the growth of both enterprise users and the revenue for blue collars. The reason behind that is quite easy to understand because the industries which involves face-to-face communications has better recovering conditions compared to last year and also it is quite easy to start a new company or recover from the original situation and some very same people can provide with [indiscernible] Industries. And so their recovery, the difficulty to recover is certainly now but the feelings, the trend and current trend that [indiscernible] People has been very good.