KANZHUN Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 29, 2023

Key Takeaways

  • Record Q2 Financials: GAAP revenue of RMB1.49 billion, up 34% yoy, cash billings RMB1.62 billion, up 65% yoy; adjusted net income rose 135% yoy to RMB570 million, with a 38% adjusted net margin, both records.
  • Monthly active users reached 43.6 million, up 65% yoy, with 14 million new verified users; growth was led by blue-collar workers and customers in second- and lower-tier cities, which now contribute over 32% and 50% of revenue respectively.
  • Trailing 12-month paid enterprise customers hit a record 4.5 million (up 18% yoy, 13% qoq), driven by self-serve SME adoption and strong demand in catering, logistics, and urban service industries.
  • Margins continued expanding as adjusted operating margin improved to 29.2% (up 8.8 pp yoy) and gross margin to 81.8%; net cash from operations surged to RMB764 million (over 3× yoy), with RMB14.7 billion in cash and investments on hand.
  • For Q3 2023, management guides revenue of RMB1.53–1.56 billion (up 30–32% yoy), expecting seasonally stronger recruitment demand but acknowledges ongoing uncertainties into September.
AI Generated. May Contain Errors.
Earnings Conference Call
KANZHUN Q2 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Kenjun 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 and A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms.

Operator

Wenbai Wang, Head of Investor Relations. Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to our Q2 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

Phil Wu 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 its forward looking information, except as required by law. During today's call, management will also discuss certain non GAAP financial measures for comparison purposes only. For a definition of non GAAP financial measures and a reconciliation of debt 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. Jixin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO. Hello, everyone. Welcome to our Q2 2023 earnings conference call.

Speaker 1

On behalf of the company and our employees, I would like to express our sincere gratitude to our users, investors and friends of our company for whom have been standing with us during all these difficult times. First, I would like to share with you our performance for the Q2 of 2023. We recorded a GAAP revenue of RMB1.49 billion for the quarter, up 34% year over year. Calculated cash billings was RMB1.62 million, up 65% year on year. Our net income for the quarter was approximately RMB310 1,000,000 and our adjusted net income, which excludes share based compensation expenses, increased by 135% year on year to around RMB570 1,000,000.

Speaker 1

This represents our highest quarterly record in the company's operational history. The effectiveness of BaZi Jupi's business model and our organization, which has been developed for over 10 years, has once again been tested on our strong profitability. In the Q2, our strong user growth trend continued from the Q1. The newly verified users for the quarterly for this quarter reached 14,000,000 and average monthly active users on the Boston app rose to 43,600,000, up 65% year on year. Among all the users we serve, Blue collar users and the 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.

Speaker 1

In terms of enterprise users, our average monthly active users hit historical high in this quarter, primarily driven by increasing demand from blue collar industries, SMEs and 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 work are involved, have increased significantly. Our average daily active positions in the urban service industry, which is defined as position where both the job posting and these enterprise users are active in a single day, a relatively strict standard, exceeded 1,000,000 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 2nd and lower tier cities exceeded 50% for the first time. As we have reported to our investors in our earnings call over the past 2 years, the company has been investing in algorithms and products to improve our captive service capabilities across various user group and cities, utilizing our enhanced understanding of their evolving demand.

Speaker 1

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 in all these areas. We have long been believed that in a mature market in enterprise service, people are willing to pay for value as long as what you 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 RMB4.5 million, up 18% year on year and 13% quarter on quarter. The Q2 this year was challenging.

Speaker 1

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, while various 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 lead to the supply to demand ratio on our platform, long as the ratio of job seeker to enterprise users is continuously improving.

Speaker 1

I would like to take this chance to thank again for all those investors who have understand our advantages and continue to support us. And that's all for my part of the call, and 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 through the details of our financial results of the Q2 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 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.

Speaker 2

Moreover, our calculated cash billings reached RMB1.62 billion, up 65 year on year. Total paid enterprise customers in the 12 months Okay. So I'll start again. So in the quarter, in Q2, we reached 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 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.

Speaker 2

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 $4,500,000 up 13% quarter on quarter, a record high and back to fast growing trend. AR PPU 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. Excluding share based compensation, our adjusted operating costs and expenses increased by 18% year on year to RMB1.05 billion in this quarter.

Speaker 2

Adjusted operating margin is 29.2% for the quarter, up by 8.8 percentage points year on year. Cost of revenues was RMB270 1,000,000, 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 Q1, and this trend is mainly due to sequential revenue growth in the Q2. Our sales and marketing expenses were RMB472 1,000,000, up 18% year on year. Adjusted sales and marketing expenses was RMB408 1,000,000, up 12% year on year.

Speaker 2

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 last year, while our trailing 12 months paid enterprise customers and MAU increased by 18% 65% year on year, respectively, which strongly demonstrated our continuously improved marketing efficiency. Our R and D expenses increased by 19% year on year to RMB366 1,000,000, and our adjusted R and D expenses kept stable with the same period last year. Adjusted R and D expenses as a percentage of revenue reduced in the quarter, showing continuous improving trend sequentially. Our G and A expenses increased by 27% year on year to RMB203 1,000,000 and adjusted G and A expenses increased by 14% to RMB126 1,000,000, representing 8% of total revenues.

Speaker 2

Excluding certain one off expenses, the percentage of adjusted G and A expenses to total revenue showed a downward trend since 2022, benefiting from our improving operating efficiency. Net income was RMB310 1,000,000 and adjusted net income reached RMB 568,000,000, more than doubled compared with the same period last year and hitting a record high. And our adjusted net margin reached 38%, up 16 percentage points year on year and 6 19 percentage points quarter on quarter. Net cash provided by operating activities was RMB764 1,000,000, up more than 3 times year on year and hitting our record high. The significant increase primarily due to from the 65% year on year growth of calculated cash billings As of June 30, 2023, our cash, cash equivalents, time deposits and short term investments were RMB12.8 billion and the long term fixed income investments were RMB2.0 billion, which totaled RMB14.7 billion.

Speaker 2

We are confident that our outstanding cash generation capability and ample cash reserve will support our commitment to further business expansion. And now for our business outlook. For the Q3 of 2023, we expect our total revenues to be between RMB1.53 billion and RMB1.56 billion, with a 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 uncertainties 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.

Speaker 2

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.

Operator

Thank you. Our first question comes from the line of Eddie Huang with Morgan Stanley. Your line is now open.

Speaker 3

Thank you, management, for taking my question. I have two questions. The first is about the blue collar recruitment. As Mikhail has mentioned that although they are 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 the demand of the white collar equipment.

Speaker 3

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 the 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 already used the other online platform and be attracted by us or they are never use any of the online platform, it actually just go fresh new enterprise that go to our platform? Thank you.

Speaker 1

Thank you for your question. I would like to answer the second question first. So in the past 5 to 6 years, among all those online recruitment players, for a new customer who began to file new contracts with any platform, there is always someone to help him to convert into a helping staff. There is a process from Our role with True's help is to let a lot of new users who have never used paid online recruitment services into this new area. The majority of our annual contract customers, I believe, is converted from our own unique customers.

Speaker 1

A small portion of that we are sharing with our competitors. As of this year, for the Q2, our offline and in 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 budgets into more cooperative partners. And back to your first question, the fixed external commission that's required for the white collar recruitment demand recovery, I believe, this time.

Speaker 1

This time, which will have effect on the recovery of white collar equipment on the 2 mechanisms. The first mechanism is that the industry that we cover first will expand to other industries to help those industries recover. For example, culture, sports, entertainment, media, new energy, automobile, aftermarket, all these industries which are showing encouraging recruitment trends will impact other industries which can satisfy the And the second mechanism is that as time goes by, there were more concrete evidence, which proved that the market recovery in order to enhance people's confidence to increase their recruitment activity. For example, at beginning in the Q1 of this year, the large companies recover is relatively worse compared to the SMEs, which I assume the other companies, they might be affected by confidence and the forecast. However, since the Q2, we have witnessed that the enterprises with more than 10,000 employees and the medium sized enterprises with between 500 to 1000 employees, their recovery are much faster.

Speaker 1

And for your question about the supply and demand, whether there is a structural imbalance, We may have thought that for industries like real estate and Internet, we do saw that declining improvement demand, but I don't think it has been strong enough to concrete a structural imbalance.

Operator

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

Speaker 4

Thank you, management, for taking my question. I have, I think, 2 questions. I think first, in the current market environment where we see a bigger number of the job seekers and recruitment demand, what is our strategy in improving the ARPU as well as the paying ratio of the enterprise users? And do we have other monetization consideration on our massive user base? And what is our guidance or outlook on the paying number of customers as well as ARPU trend into the second half of this year?

Speaker 4

And if we break it down into SMEs, off line billings and white color versus blue color, what will be the breakdown change over time in the second half? And secondly is on the OPE margin in the second half. I'm just wondering if management have any guidance. That would be very helpful. Thank you.

Speaker 1

Thank you for your question. So in the first and second quarter of year, we do have witnessed that a lot of job seekers will find it more difficult to find a job and much easier for the enterprise to do the recruitment. So but we have been quite very, very cautious on whether we should initiate some kind of monetization for the job seekers who are much more difficult under these circumstances and we took no action. And for the enterprise users, I just talk about number, which is our last 12 months paid enterprise customers numbers is 4,500,000 and which is approximately over 2,000,000 unpaid enterprises. That is a very small portion compared to more than 50,000,000 enterprises in China.

Speaker 1

So we have learned that from the our successful practice in blue collars and lower tier cities this year, we have we saw that our business model is very adaptive. So we will continue to bring more customers, strong platform and convert it into paid customers. And for your question, whether there are new initiatives for monetization products, In terms of our monetization strategy, we believe that if you can provide higher value, if you can provide all of this value in a massive scale, you should definitely can do something, do more things in your monetization products, in your commercial products. That is actually part of the things what we are doing and hopefully you can be patient enough to see that.

Speaker 2

Thanks Tim for these questions. So regarding the paid enterprise customers number, in the quarter, we did record a very healthy rebound for the paid enterprise customers number. So that metrics was back to 4,500,000 for the trailing 12 months paid enterprise customers. And in recent months, we witnessed a very quick increase for the small, medium sized enterprise users pay to use our service. So this is the main driver behind that increased number.

Speaker 2

So their purchase of our service is more through online self served purchases. So basically, because of their contribution to the online their contribution to our total revenue increasing, so that drags a little bit of the overall ARPU. In terms of the large enterprises, their ARPU this year's ARPU compared with prior years is a little bit lower, but sequentially, we are witnessing that their ARPU is recovering. So from the beginning of this year, we're continuously seeing that their ARPU are increasing. So in terms of the sector, blue collar, particularly urban services from lower tier cities contribute higher for the paid customers.

Speaker 2

And the quick rebound of paid enterprise customers, this fact also reflects, I think, firstly, this is a sign of a recovery of the many aspects of the economy. Secondly, our recruiting services can bring good value propositions to those businesses. So that's the reasons behind. And in terms of the company's margin, in this quarter, so basically in Q1 and Q2, we continuously saw faster revenue growth. So given the future revenue streams will continue to rise, while major cost and expenses items are kept at mild growth pace, we think that our operating margin will maintain at healthy level and with upside potentials.

Speaker 2

This comment is more like a mid to long term comment. We expect our operating margin to steadily improve along with good top line growth. But in short term, it will subject it to seasonality and other one off events.

Speaker 1

Thank you. That's all our answers to your questions. And all questions please proceed to the next question.

Operator

Thank you. Our next question is from the line of Yubei with Haitong International. Your line is now open.

Speaker 5

Thank you, management, for taking my questions. I actually have 2 for today. The first one is regarding our recent recovery trend. Like Zhouzong has just mentioned, we've witnessed some encouraging trend from enterprise users in August. So I would like to further understand, does that comply to our normal seasonality?

Speaker 5

Or is it something that's quite unusual for this year? And then within that, what is the recovery momentum out there for our KA accounts? If management could share any operating metrics like engagement ratio, paying ratio and ARPU and etcetera, that would be much appreciated. So that was my first question. And then my second question is a little bit broader.

Speaker 5

We all acknowledge that this year is since the macro environment has been a little bit weaker than we thought it would be. So I'm just wondering under such a condition, what is our top strategic priority for now or maybe for the remaining couple of months this year and for next year as well? So at the same time, what are the things that we might just want to lay back a little bit to wait for better opportunities in the future? So that was the second question. Thank you, management.

Speaker 1

Thank you for your question. For your first question, whether the August is the trend is manageable, for the online recruitment market, there are 2 keywords. First one is the golden March and silver April. The second one is golden September and silver October, which both means a better market condition. And the second one for Golden September and Silver October, which is definitely starting from August.

Speaker 1

And this has more relations to the larger companies. For all those graduates from top universities who will graduate in July 2024, many larger companies were starting to do the recruiting for the top talent during September to November this year. On top of the seasonality, another factory that I believe the recruitment demand is gradually recovering alongside of the economy and which is the In August, the daily active enterprise users number have reached a historical high. Enterprises in all kinds of sizes, large companies, medium sized and small sized, all size of companies have showed a very fast recovery trend in improvement. To be honest, I cannot clearly distinguish which part is from seasonality and which part is from the recovered economy, but I still need to take some time to observe, but at least the current trend is quite encouraging.

Speaker 1

For the recovery of key customers, the answer is quite simple, but we have saw that enterprises with more than 500 employees is newly posted number of newly posted jobs, the growth rate the sequential growth rate is faster compared to enterprises with less than 540 And in terms of company strategy, I would like to share with you several things we have been holding true in all these years. The first one is based on the NPS, we will continue to increase our market share. As we said, we have 12 12 months paid enterprises nearly over 2,000,000, which is a small portion compared to 15,000,000 enterprises in China. We still have a very long way to go. Then our second strategy, which is also something we have been doing for quite a long time, which is to continue to input, invest in technology, not only for application technology, but also career front fundamental studies.

Speaker 1

Actually, for the Q2, which is relatively tough time, we can capture the growth in the blue collar in the lower tier cities, I believe, which is a result of all these years of continuous investment technology, which help us to capture the opportunity when the environment allows. In the final understanding for our continuous to increase investment in technology and fundamental science, which is also what we saw for all those larger companies, advanced companies we respect is that their outstanding alpha coming from their own capabilities allow them to adapt to new opportunities once they come. That's my answer for your question. Thank you.

Operator

Thank you. Our next question comes from the line of Zhong Wei Zhong with UBS. Your line is now open.

Speaker 1

Thank you, management, for taking my

Speaker 5

questions. First, just want to follow-up on the recovery pace of the enterprise hiring demand. Given that we are experiencing a long period of uncertainties in the macro and enterprises seems to lean forward or focus more on cost controls. And does that will that last a little bit longer, which means that after the macro environment stabilizes and started to warm up, enterprises might still need a little bit while to restart headcount expansion. And second, just given our very resilient cash position and profitability, just want to get an update on the progress of our share buyback program, as well as management's other thoughts regarding shareholder returns?

Speaker 5

Thank you.

Speaker 1

Thank you for your question. And I will start with small and medium micro enterprises. For example, for small enterprises, when we have 10 employees, when 2 of them leave the job, they simply need to recruit 2 more in order to keep on with our business. I think those activities are the same for small and medium sized enterprises on spending time. They need to do the recruitment whenever they have And for large companies, as we have all known that larger companies are more cautious and slow in terms of increasing their headcount budget.

Speaker 1

And I can give you 2 examples of the numbers. The first one is the large companies have been led active in the lay of foreign people and so that situation is becoming less and less. And another thing is that we have all witnessed a lot of large companies. They do the layoff on one hand and do the recruitment on the other hand simultaneously, which is actually this is a very good opportunity for them to fire those people who are expensive and low quality and have some people with high quality, but less much more cheaper. So this is the opportunity which all of those well trained administrators will take.

Speaker 1

And in terms of when we can expecting enterprises across all industries and different sizes starting to do a very aggressive recruiting, I don't have a clear view at this moment. For share repurchase and the capital allocation, Phil will take your own question.

Speaker 2

So last year, we had our first tranche of share buyback program. The size was $150,000,000 and we used up the money at the end. This year, we have announced a new round of share repurchase program in Q1. The total size is also 150,000,000. We just executed a little bit and we will continue to execute it going forward.

Speaker 2

Regarding our situation, we have high cash positions and good profitability plus positive free cash flow. We do appreciate shareholder continued support and we definitely will think about how to improve shareholders' return. Company is doing some research and try to find appropriate ways to increase shareholders' value. So please give us some time.

Operator

Thank you. Our next question comes from the line of Yong Bae with CICC. Your line is now open.

Speaker 6

Okay. I will translate by myself. First one is the service industry and warehouse and logistics, blue collar workers have been a stable growth point for at least a year. We want to know if our performance stands out compared to other competitors in the same field and what our main competitive advantages are? How do we currently view the sustainability of this business?

Speaker 6

2nd one is, as for the platform PC ratio, what are the recent trends since the beginning of the year? How has the renewal rates of long term customers and the speed of income recognition changed compared to before? Thank you.

Speaker 1

Thank you for your question. Our Blue collar users accounted for more than 30% of our total users. And as I just said, job posting daily average active job posting for the service service sales industry has exceeded more than 1,000,000 every day, which these two numbers combined together showcase a very strong advantage with double sided network effect. And that's also demonstrated by our very smooth growth in further expanding into the lower A very strong double sided network effect have helped us to gain our strong advantages in the white collar and the 1st tier cities area and this will also help us to further expand into lower tier cities and blue collar And the treatment we have for Blue collar users has a very high relationship with the project, with the project score that is the high wall project, country project. And there is a situation in the online recruitment for blue collar users.

Speaker 1

For a job, which is the actual salary is RMB5000 per month. Those people who post a job with more than RMB 8,000 per month are much easier to exceed revenue. And from a platform's perspective, alongside with our continued investment in technology and they do stick to your policy of protecting the job seekers and help those recruiters help those users who can tell the truth, who are more authenticated, have more exposure and those who are not be punished, then you will you can attract more and more blue collar users coming to your And based on that policy and now the power of technology, the current projects we have been doing for quite a while have showed very strong durability for the blue collar ecosystem.

Speaker 3

Okay.

Speaker 6

So,

Speaker 2

remaining a couple of questions, I'll answer 1 by 1. So first of all, your question is the C2B ratio for the platform. So we witnessed platform C2B ratio as a key indicator of platform demand and supply. So basically, this demand and supply ratio continue to improve starting from year begin. We think this is a very clear evidence that shows overall economy is through a rail recovery.

Speaker 2

In terms of what I just mentioned is the platform active user demand and supply ratio. And in terms of the daily newly acquired users, so this C2B ratio in short term, partially due to seasonality and partially due to macro recovery, we believe in August, we are seeing much improved C2B ratio and that ratio is best year to date. We consider this as a very encouraging sign. And in terms of second question, annual contract retention and in terms of their NDRR, net dollar retention rate, we are seeing both metrics are sequentially bottom out from the beginning of the year. The trend will likely to go on in the following quarters.

Speaker 2

And last question regarding the revenue recognition thing. In short term, because of a higher percentage of contribution from SME clients and less a little bit less annual contracts, our online purchase normally will be consumed by those customers in short term, short period of time. So revenue recognition in short term will slightly faster than before. However, this is just a temporary situation and mainly related to faster SME growth in the near term. So that's my question that's my answer to your question.

Operator

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.

Speaker 1

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

Operator

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

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