Kanzhun Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Hong John Limited Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms.

Operator

Wenbin Wong, Head of Investor Relations. Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to our Q3 2023 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao and our Director and CFO, Mr.

Speaker 1

Fiyu Li 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 calls 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 a reconciliation of GAAP to non GAAP financial results, please see the earnings release issued earlier today.

Speaker 1

In addition, a webcast replay of this conference call will be available on our website at ir.jipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO. Hello, everyone. Welcome to our Q3 2023 earnings conference call. On behalf of the company and our employees, management team and Board of Directors, I would like to express our sincere gratitude to our users and investors who trust and support us.

Speaker 1

First, I would like to share with you our performance for the Q3 of 2023. We recorded GAAP revenue of RMB1.61 billion for this quarter, up 36.3% year on year. We booked RMB1.64 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 RMB710 1,000,000. Our adjusted operating income, which excludes other income such as financing returns, was RMB550 1,000,000, keeping our quarterly record high in terms of both absolute amount and margin.

Speaker 1

Our total paid enterprise customers in the 12 months ended this quarter reached 4,900,000, 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 past quarter, the average number of monthly verified active users on the BOS JI Ping app reached 44,600,000, up by 37.7 percent year on year with approximately 12,000,000 newly added WiFi users. Our total accumulated newly verified users for the past 3 quarters of this year exceeded 40,000,000. During our Q3 2022 earnings call in late November last year, we forecasted that the company will add 100,000,000 newly verified users in the next 3 years, which seems to be expected at this moment.

Speaker 1

At the same time, our user activities, which is average DAU as percentage of average MAU, remains stable at a relatively high level. In the Q3, there are more than 135,000,000 monthly average number of mutual achievements on the platform. 3rd quarter is our traditional peak season for job seeking and recruitment, which is the continuous increase in recruitment demand. While the number of average monthly active job seekers remain stable, the average number of monthly active enterprise users and monthly active enterprise increased significantly by more than 5% sequentially, both reaching record highs. In terms of industry breakdown, the Blue collar industry delivered the most outstanding performance, especially the Blue collar urban service sector, which was the largest segment contributor in the increments of both number of job postings and revenue for this quarter.

Speaker 1

This average daily active job posting for urban service sector exceeded 1,000,000. Let's take a look at other new product sectors, which involves more young job seekers. The supply chain logistics and manufacturing industries, especially sub job categories such as transportation, warehousing and workers also posted overall increase. These drivers raised the Blue Core Industry YAML contribution to nearly 35%. Other industries such as consumer goods, automobile aftermarket, new energy, Internet lifestyle service and raw materials related to machinery manufacturing fields also grew very good on a quarter on quarter basis.

Speaker 1

While the overall Internet industry maintained 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. Enterprises is more than 2,000 employees grew the fastest. From the city level perspective, 2nd tier and lower tier cities continue to outperform with increase in both the number of job positions and income. In terms of corporate social responsibilities, this quarter we focused on and dedicated in helping the employment of difficult group of people, which is disabled workers.

Speaker 1

Bus Dripping provided live broadcasting for 33 public equipment activities. Nearly 5,000 enterprises provided more than 11,000 positions for disabled drop seekers and covered more than 422,000 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 friends for their firm support as our profitability continues to be stable and improve.

Speaker 1

The dividend amount is US0.09 dollars per ordinary share, which is US0.18 dollars per ADS for an aggregated dividend amount of approximately $80,000,000 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, Phil, for the review of our financials. Thank you.

Speaker 2

Thanks, Jonathan. Hello, everyone. Now let me walk you through the details of our financial results of the Q3 2023. We achieved a solid financial performance in the past quarter with all key figures beating our expectations. Our revenues exceeded the high end of our guidance to RMB1.61 billion in this quarter, representing a solid 36% year on year growth and 8% quarter on quarter.

Speaker 2

Our calculated cash billings reached RMB1.64 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 paid enterprise customers for the 12 months ended September 30 reached another new high to 4,900,000, indicating an improved paying ratio level among active enterprise users. Despite the slight decline of overall AR PPU, AR PPU 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 AR PPU of key accounts show sequential growth trend, a sign that equipment demand is improving among large enterprises.

Speaker 2

Moving to the cost side, Total operating costs and expenses for this quarter were RMB1.36 billion, up 30% year on year. Excluding share based compensation, our adjusted operating costs and expenses were RMB1.07 billion, relatively stable with the last quarter and up 22% year on year. The quarterly adjusted operating margin, which is 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 the powerful operating leverage. Our cost of revenues increased by 33% year on year to RMB268 1,000,000 this quarter, representing a gross margin of 83.3%, up by 1.5 percentage points quarter on quarter.

Speaker 2

Our gross margin bottomed out from the Q1 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 RMB457 1,000,000, up 15% year on year. Adjusted sales and marketing expenses was RMB389 1,000,000, 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 clients, paid enterprise customers and MAU continued to grow, once again showcased our enhanced marketing efficiency and our superior economy of scale.

Speaker 2

Our R and D expenses in this quarter increased by 43% year on year to RMB414 1,000,000 and our adjusted R and D expenses was RMB306 1,000,000, up 39% year on year, primarily due to our further investments in talent and technology development, especially in areas related to AI technology. Our G and A expenses increased by 41% year on year to RMB219 1,000,000 in this quarter and adjusted G and A expenses remained relatively stable with the same period last year. Our net income was RMB426 1,000,000 this quarter, more than doubled that in the same quarter last year. And our adjusted net income set a new record and reached RMB714 1,000,000, translating to an adjusted net margin of 44%, up 12 percentage points year on year. Net cash provided by operating activities grew by 122 percent year on year to RMB 8 13,000,000 for this quarter, mainly contributed by increased cash collection from operations.

Speaker 2

As of September 30, 2023, our cash, cash equivalents, time deposits and short term investments were RMB12.8 billion and the long term investments in wealth management products were RMB2.3 billion, which totaled as RMB15.1 billion. Supported by our ample cash reserve and outstanding cash generation capability, we will try our best to deliver sustainable returns to our shareholders. And now for our business outlook. For the Q4 of 2023, we expect our total revenues to be between RMB1.51 billion and RMB1.55 billion, a year on year increase of 40% to 43%. Based on our current progress, we expect the cash billings in Q4 to continue to grow sequentially, mainly due to key accounts contributions.

Speaker 2

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

Operator

Thank Your first question will come from Eddie Huang of Morgan Stanley. Please go ahead.

Speaker 3

Thank you, management, for taking my question. My first question is regarding the job market trend in the Q3 and in the Q4 so far. Do you 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 employers in the Q3 and so far?

Speaker 2

And the second

Speaker 3

question is the special dividend we have just announced. What have you been consider to announce this special dividend plan at this time? And is there any further plan to increase the shareholder return in the future? Thank you.

Speaker 1

Thank you for your question. Regarding your first question, the recruitment market trend in December October November, we observed that the equipment demand is still continuing to cover and that's a very good observation. A little bit different is that for the Q3, it's traditionally the high season for recruitment. That's what we call both in September and the same October. This year, the Q3 is especially good.

Speaker 1

So for the Q4, traditionally seasonality wise, there will be some fallback for the equipment demand. But overall trend, if you take into the consideration of seasonality, it's still quite good. And regarding the recovery of larger companies, we observed that their job postings, their motivation to post more jobs has been increasing, but this is forming a progress. They need to take some time to fully recover. As we introduced before, smaller companies, especially wire trading companies, they recovered much earlier, faster and still maintained a very good trend even at this stage.

Speaker 1

For the larger companies, they are on the recovering trend, recovering path, but we need to give them some time. And one more point to add. With the recovery of the number of recruiters and job postings from the larger companies, the support to the job market will be even bigger because for 1 single recruiters in larger companies, they can bring more numbers of job postings and more categories of jobs, which also means they can recruit more headcounts for 1 single job posting. And that's something we are expecting. And we also want to emphasize that for the 3rd quarter, average monthly active recruiters number of average monthly active recruiters reached a historical high, which is a very clear sign that the overall trend overall demand is recovering.

Speaker 1

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 one of that is dividend payment. We have sold out from other many other companies, and we decided to take that take the current opportunity 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 we have very good and strong operating cash flows and the company now holds over more than RMB15 1,000,000,000 of cash and related cash management products. And that's why we can 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 program, and we repurchased a very some amount of shares under certain conditions.

Speaker 1

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. Please go ahead.

Speaker 4

Thank you management for taking my question and congrats on the very strong results as well as the strong outlook. I have two questions. First, could management share more detailed color regarding the recruitment demand for different type of individual users, including blue collar, white collar, colored students in the Q3 and Q4 so far? Besides on the enterprise side, how did the job posting and paying behavior perform in the Q3? And what is our outlook for Q4?

Speaker 4

And my second question is regarding Blue Collar because I know that company has made multiple progress in the Blue Collar, the postings and revenue year to date, including, as you mentioned, Q3 blue collar contributed close to 35% of the revenue. Could management share or elaborate your strategies in order penetrating the blue collar sector and what are the potential business models ahead? Thank you.

Speaker 1

Yes. Thank you for your question. Regarding the first one, yes, we have witnessed some industry has performed really relatively good in the Q3, especially the urban service industry, which brings the increase of growth of both enterprise user and the revenue for Blue Collars. The reason behind that is quite easy to understand because the industries which involves Phase 2 phase communications has better recovery condition compared to last year. And also, it is quite easy to start a new company or recover from the original hibernate situation and some very few people can provide service in the urban service industries.

Speaker 1

And so that they're recovering the difficulty to recover is relatively low, but the feelings, the trend, the recovery trend that brought to people has been very good. And also, it was very easy to acquire customers and consumers for other service industry. So this industry is the best one. And other industries performed relatively better are transportation, logistics, automobile, new energy, environment protections and etcetera. I'd also like to share some numbers.

Speaker 1

For 3rd quarter, active online job posting, which is very strict metrics, which means the boss need to be very active in recruiting. So the urban service industry's active online dropout in for this quarter grew by more than 13% sequentially, among which the restaurant and the retailing grew more than 20% sequentially. Another convincing number is that among logistics industries, transportation and warehousing in terms of active online job postings grew more than 25% quarter over quarter. In terms of the blue collar white collar industries, one thing people a lot of people have already noticed is that the new energy and the automobile aftermarket, these 2 industry demand recover relatively very fast. Another interesting observation is that people might guess jobs related to artificial technology might increase, which is definitely the case.

Speaker 1

And also a more general job position such as strong development of Internet technology also showed a significant increase in this quarter. And another interesting number is enterprise with less than 100 employees, the daily average newly posting jobs in the Q3 compared to last quarter increased by around 3%. While Enterprise was more than 10,000 people, their average daily newly added jobs increased more than 8%, which also shows the difference in this quarter. Regarding your second question for our further penetration strategy and the monetization model in blue collar market, The answer is that we in terms of our current penetration coverage in blue collar users and the user satisfaction rate, which is NPS scores, we are quite satisfied with current situation and we doesn't have any more aggressive plans to accelerate this process. But also we are continuously exploring the service capability to the blue collar users.

Speaker 1

For example, in the manufacturing sector, we exploring the cost group service to provide for the blue manufacturing sector users. And that's my answer to your question. And operator, let's proceed to next question.

Operator

The next question comes from Wei Zhang of UBS. Please go ahead.

Speaker 5

Thank you management for taking my question. My first question is regarding the competition landscape. So given the uncertain macro situation and the market conditions, is it the case that the existing recruiting platforms lack the growth potential while the new entrant seems to make slow progress, which makes our market leadership even more stronger. Looking to next year, how do we expect the competitive landscape to change in the online recruiting market? And second, could management share more color on the paying ratio as well as ARPU trend on our platform, especially on the KA side, how is the ARPU growth trending recently?

Speaker 5

Thank you.

Speaker 1

Thank you for your question. And for the first one about competitive landscape, the overall situation is relatively stable, no clear change in the Q3. However, in the past 2 years, due to all kinds of pressure internally or externally, I believe actually every company has quite showed their distinctive advantages. For example, one company, it has very strong advantages in state owned SOE companies and good strategic clients. And we have been seeing increased competitiveness in that front.

Speaker 1

For a land company, they are good at providing service to mid to high end talents and that perspective is also recognized by the market. And I think every enterprise has its unique characteristics and we are continuing to further enhance that. And that's my answer for the competitive landscape.

Speaker 2

Okay. So regarding your second question of the ARPU trend, so I'd like to comment a little bit. So we announced that in the quarter, we reported RMB 4,900,000 of trailing 12 months paid enterprise customers. So as you probably remember that in the second quarter, the trailing 12 months Payless customers, that number was 4,400,000. So we roughly increased 500,000 paid enterprise customers.

Speaker 2

So this growth of paid enterprise customers, I think the main reason is that the overall user growth at this moment is still fast. So when a new user come to our platform, when they want to pay to use our service, most of them they prefer purchase our or try our service through the self serve online portal to do the online purchase. So that increased our overall paid enterprise customer number. In terms of the paying ratio, we see improved trend for the small size purchase. And we believe that when they familiar when they are familiar with our service and they love our service, they definitely will use more and we definitely will try to convert them into heavy user usage and buy the service through our offline contract sales.

Speaker 2

And so we believe the online and the sorry, the active users, the paid active users definitely will continue to grow and the paying ratio definitely will also improving. The AR PPU from small medium sized enterprises kept at relatively stable situation in the quarter. And the same trend happened with the key accounts. So basically large corporates, their ARPPU also increased, driven by the increasing recruitment demand. But the contribution to our revenues, small sized enterprises, they contribute higher larger revenue to the overall of our business.

Speaker 2

So basically, there is smaller ARPU blended with higher ARPU led the overall blended ARPU decline a little bit. So basically, small size, they maintained good ARPU and the large accounts, their ARPU increased, but the overall blended ARPU increased a little bit. This is the current situation with the platform in quarter 3.

Speaker 1

And that's all for our answer to your question. Operator, let's proceed to next question.

Operator

The next question comes from Robin Zhu of Bernstein. Please go ahead.

Speaker 6

My first question, so how does management think about the magnitude and nature of growth investments for 2024? How does the company plan to balance growth versus margin expansion as we go forward? 2nd question, thoughts on the state of the hiring market going into 2024, the state of renewal discussions with key accounts going into the next year and to the extent that possible, if management can share any outlook on 2024 growth and ARPPU growth and retention and so on?

Speaker 4

Thank you.

Speaker 2

Okay. So I'll answer the first question. So we've previously announced that we will achieve 100,000,000 new users in next 2 to 3 years. So basically, according to this year's progress, we are on track. So by the end of October, we achieved 40,000,000 verified new users.

Speaker 2

So basically, this year, we would like to have very good results in terms of the new users growth. Definitely, next year, we will continue our growth for the new users. And when we talk about the user growth, you have noticed that in Q3, we achieved the historical high of our operating margin. So basically, we managed to grow users without spending too much marketing expenses. We previously communicated with our strategy.

Speaker 2

So our strategy is putting more resources on brand advertisement over traffic acquisition costs. So basically, this strategy works well. And so next year, we will further increase new users, and we will continue to follow this strategy, and we will try our best to find the best balance points between the growth and the profitability. So what I mean is that the growth is a priority for the company, and all the growth comes from the this again from the new user growth. And we will do it carefully and spend our market expenses carefully.

Speaker 1

I will take your second question for the outlook to next year. I will go back to our forecast by end of November 2022 with 100,000,000 newly verified users. By end of September, we have already achieved 40,000,000, but we are not planning to change our target at this moment because we believe that we will based on the recovery trend of the enterprise side of users on its quality and recovery speed, to adjust our acquisition for job secret side, which will achieve a relatively better to better balance the supply and demand. And in terms of how in the end the enterprise side will perform, we don't have the exact focus at this moment. But based on what we have observed this year, that the recruitment demand recovered every quarter and believe so we believe and we sincerely hope that the enterprise side will perform continue to perform very good next year.

Speaker 1

According to 3rd party numbers, you can see that our monthly active users in October has been quite close to number 1, and we are already the largest in terms of daily active users. And the user activities, which is DAU as percentage of MAU, we maintained the highest among our peers. And we believe this trend, this growing trend will continue to maintain. In terms of the large companies renewing their contract by end of this year, yes, we are expecting the larger companies to spend their budget for next year and sign the contract in the coming months. But we see a very encouraging trend, but still the full year cover of the equipment demand for other companies still need to take some time.

Speaker 1

And that's our answer to the question. And to consider the time constraint, we will take one last question. Operator?

Operator

The next question comes from Yang Bai of CICD. Please go ahead.

Speaker 2

The first is, we have seen the company's gross margin has rebounded in these two quarters. What has the company's expectation for future gross margin change? And the second one is, could the company give more color on the plans for new products and business such as the progress of a large language model, globalization and other new initiatives? Thank you. I'd like to answer the gross margin question.

Speaker 2

So basically, you said our gross margin bottomed out for a conservative 2 quarters. And so basically, this gross margin improvement is the result of faster revenue growth and relatively controlled and stable cost of the business. So in the Q4, so next quarter, we expect due to the seasonality reason, Q4 is revenue low quarter. So the gross margin is would be affected by the lower revenue. So temporarily, the gross margin will contract in Q4.

Speaker 2

But for 2024, for the next year, because of revenue growth, we expect that the gross margin will return to recovery trajectory because of our cost, we'll maintain at a mild growth, but we probably will have faster Rev growth. So that will secure our gross margin to recover further recover based on this year's base. So this is a gross margin trend.

Speaker 1

About new initiatives, the first one is we believe that already proven and established user service model and also revenue model, we want to extend our service to other developed countries and areas. And we are currently on the progress of doing that. And hopefully, in the next 3 to 5 years, we'll create another revenue growth contributor. In terms of large language models, which is a question the investors complained a lot, Actually, since the beginning of this year, we have made some substantial investment into this area, and we continue to focus on it. One thing worth mentioning is that one of our laboratory, Nanbei, recently open source of company's model and we have seen very good results for that.

Speaker 1

That's a 30% live streamline chat model. Among the same size of open source models, we believe we are among the top 10 players domestically.

Operator

That concludes today's question and answer session and today's conference. Thank you for attending today's presentation and you may now disconnect.

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