Kanzhun Q4 2023 Earnings Call Transcript

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March 12, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Kanjhun Limited 4th Quarter and Fiscal Year 2023 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Wang, Bunbei Wang, Head of Investor Relations.

Operator

Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to our Q4 and full year 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 Yu Zhang. Before we start, we would like to remind you that today's discussion may contain forward looking statements, which are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different. The company caution 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.

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 4th quarter and full year 2023 earnings conference call.

Speaker 1

On behalf of the company and our employees, management team and the Board of Directors, I would like to express our sincere gratitude to our investors and investors who trust and support us. First, I would like to share our performance with you. In the Q4, the company achieved a calculated cash billings of RMB1.78 billion, up 61% year on year and 9% quarter on quarter. Our GAAP revenue reached RMB1.58 billion, up 46% year on year and remained flattish with last quarter. Our adjusted net income, which excludes share based compensation expenses, was RMB630 1,000,000.

Speaker 1

In the Q4, the average verified MAU on the BOSS JT app reached 41,200,000, representing a 33% year on year increase. In the Q4, we noted an improvement ratio between the demands from active enterprise users and the supplies from job seekers. We also noted continued steady recovery of medium and large scale enterprises since the Q3, all of which contributed to our cash billings, GAAP revenues and profit levels in the 4th quarter to exceed our expectations. Let's take a look for the full year of 2023. The company achieved a calculated cash billing of RMB6.69 billion, up by 45% year on year and the GAAP revenue of RMB5.95 billion, up by 32% year on year.

Speaker 1

Excluding share based compensation expenses, the adjusted net income for the year reached RMB2.16 billion. Furthermore, excluding other income such as wealth management income, adjusted operating income for 2023 was RMB1.64 billion, reflecting our remarkable 191% year on year increase. This resulted in a 27.5 percent adjusted operating margin, underscoring the company's robust profitability capability. In 2023, we attracted more than 49,000,000 newly added verified users, representing the largest annual growth in user base since the company's inception. This year, the number of users we serve has increased by nearly half of 100,000,000 and we are being able to help them with our products, which we are quite deeply proud of.

Speaker 1

As of December 31, 2023, the company has served a total of over 178,000,000 individual users and 13,300,000 enterprises. The average verified MAU on the VOS Jatin app was 42 $27,000,000 in 2023, representing a year on year increase of 47%. Approximately RMB1.5 billion mutual achievements between job seekers and recruiters have been accomplished on our platform throughout the year. In 2023, the number of paid enterprise customers increased by 44% year on year to 5,200,000. Moreover, both the number of paid enterprise users and the paying ratio of active users continue to achieve record highs.

Speaker 1

As the company continues to expand our user coverage, both the user and revenue structure undergoes constant evolution, highlighted by the following key points. First, in 2023, the scale of newly added blue collar users matched that of the white collar users with revenue contribution of the whole year from blue collar users exceeding 34%. 2nd, revenue contribution from 2nd and the lower tier cities exceeded 50%, a 5 percentage point increase year on year. 3rd, revenue contribution from enterprises with less than 100 employees also increased by more than 5 percentage points year over year. All these changes further demonstrated that we are confident that our product can serve different users and also our service can cover different kinds of users.

Speaker 1

This is mainly based on the down to earth research on actual detailed needs from different kind of users and our continuous efforts in technology investments. In January this year, our company's proprietary big model, which we named it, non big large language model, which is believed to be the 1st large language model designed specifically for the recruitment industry has successfully completed its online registration for generative artificial intelligence. Effect of this model has reached the industry leading level on some public benchmarks and has gradually been applied in some recruiting and job seeking scenarios. For example, for those young entrepreneurs who are starting up their companies, we provide them with rapid job posting function. And for those young people or fresh graduate job seekers, who provide them with revenue policy functions, etcetera.

Speaker 1

The company's investment in AIGC mainly focus on 2 principles. First, we keep track of the cutting edge technology to avoid the generational gaps in knowledge. 2nd, focus on industrial implementation and not make big investment blindly. Next, we will briefly update the situation for this spring. Following the spring festival, the company's various user metrics continue to hit historical highs with the peak DAU on the bus trading app approaching $17,000,000 for example.

Speaker 1

From those data, we also identified several characteristics, which are notably different from the same period last year, including the following keywords. First, recruiters, since the spring festival, the daily average number of newly posted job positions and active job positions have both reached historical highs compared with the same period in the previous years. The daily average number of active job positions increased by 20% year on year. The second keyword is large enterprises. Since Spring Festival, the average daily active position from enterprises with more than 10,000 employees increased by 24% compared with the same period of 2023.

Speaker 1

The 3rd keyword is industry. The daily average number of newly added job positions and active job positions across all industries has shown positive growth since this year's spring festival compared with the same period of 2023, among which the blue collar industry has once again reached a new year high driven by the continuous expansion of urban service sectors. Additionally, the manufacturing and the supply chain logistics sector have shown accelerated year on year growth rate. Within the wide collar industry, sectors such as consumer goods, medical equipment, automotive and advertising and media are leading the growth. The 4th keyword is business.

Speaker 1

There has been a noticeable shift in the types of job position compared with last year. The position is focusing on the development and growth of the enterprise business such as sales guys, human resources, finance and related positions have experienced a clear rebound in growth rate. So we anticipate our quarter on quarter increase in both cash billing and debt revenue for the Q1. I'm pleased to announce the company's Board of Directors approved a new share repurchase plan today, upsizing to repurchase up to US200 million dollars of the company's shares over the next 12 months. This marks our 3rd share repurchase plan alongside US18 million dollars dollars special cash dividend issued in last November, demonstrating the management's commitment and the sincerity towards long term shareholder returns.

Speaker 1

That concluded 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 through the details of our financial results of the Q4 and full year of 2023. We are pleased to deliver a strong set of results for the Q4 and the full year of 2023. For the Q4, our calculated cash billings reached a historical high of RMB1.8 billion, grew by 61% year over year and notably 9% quarter on quarter, beating our expectations.

Speaker 2

Revenues increased by 46 percent to RMB1.6 billion compared to the same period last year and stayed relatively stable sequentially due to the lower seasonality. Confirmed our observation of a gradual recovery, especially at medium and large sized companies. Revenue contribution from key accounts and their ARPU also recovered sequentially in this quarter. For the full year of 2023, our calculated cash billings and revenues increased by 45% and 32%, respectively. Number of paid enterprise customers reached 5,200,000 in 2023, up by 44% year over year, marking another new high level of paying ratio among active enterprise users and demonstrated our ample space and flexibility in monetization.

Speaker 2

Moving to the cost side, total operating costs and expenses decreased by 4% year over year to RMB1.4 billion in the 4th quarter and increased by 16% year on year to RMB5.4 billion in 2023. This year, we managed to achieve a robust user growth while still seeing margin expansion. The annual adjusted operating margin improved from 12.5% in 2022 to a record level of 27.5% in 2023, up by 15 percentage points. Cost of revenues increased by 36% year over year to RMB275 1,000,000 in the 4th quarter and 40% year over year to RMB1.1 billion in 2023. This increase was primarily driven by increased server and bandwidth costs and payment processing costs, in line with the growth of user engagement and transactional growth volume.

Speaker 2

Our sales and marketing expenses decreased by 36% year over year to RMB433 1,000,000 in the 4th quarter as we didn't have similar marketing campaigns like 20 22 FIFA World Cup Sponsorship in the year and remained stable with last year at RMB2.0 billion for the full year of 2023. Even excluding the World Cup sponsored fees, adjusted sales and marketing expenses as a percentage of revenue went down by 7 percentage points this year compared to 2022. When at that time we could only have user growth of half of the year. This proves the effectiveness of our marketing strategy, which emphasizes more towards branding campaigns. Our R and D expenses increased by 46% year over year to RMB430 1,000,000 in the 4th quarter and 31 percent year over year to RMB1.5 billion in 2023.

Speaker 2

Excluding share based compensation expenses, adjusted R and D expenses increased by 62% year over year to RMB316 1,000,000 in the 4th quarter 25% year over year to RMB1.1 billion in 2023. This increase was mainly driven by our further investments in talent and AI technology developments, which incurred AI related server and cloud service fees. Our G and A expenses decreased by 9% year over year to RMB225 1,000,000 in the Q1 and increased by 13% year over year to RMB812 1,000,000 in 2023. Excluding share based compensation expenses, adjusted G and A expenses decreased by 32% year over year to RMB122 1,000,000 in the 4th quarter and 8% year over year to RMB482 1,000,000 in 2023, mainly due to decreased professional service fees. Our net income was RMB331 1,000,000 in the 4th quarter and RMB1.1 billion in 2023, the full year.

Speaker 2

Adjusted net income increased from RMB59 1,000,000 in the Q1 of 2020 2 to RMB629 1,000,000, an increase from RMB799 1,000,000 in 2022 full year to RMB2.2 billion for full year 2023, representing a significant year over year increase. Adjusted net margin for the full year of 2023 reached a record high of 36.2%, up by 18.5 percentage points. Net cash provided by operating activities was RMB927 million for the 4th quarter and RMB3.1 billion for the full year of 2023. As of December 31, 2023, our cash and cash equivalents, client deposits and short term investments totaled RMB RMB12.9 billion, and long term investments in fixed rate notes and wealth management products were RMB2.3 billion. With our commitment to share our success with shareholders and supported by our robust debt reserve, we paid a cash dividend of RMB563 1,000,000 in December 2023.

Speaker 2

Additionally, our Board has repurchased program over the next 12 months and upsized the program to US200 $1,000,000 demonstrating our strong commitment to shareholder returns. And now for our business outlook, we have seen encouraging trend of recovered equipment demand post Chinese New Year, and we are confident to deliver better than expected results for the current quarter. In the Q1 of 2024, we expect our calculated cash billings to increase sequentially by at least 12% 1.2 and revenues to be between RMB1.64 billion and RMB1.67 billion, with a year over year increase of 28.3% to 30.7%. With that, that concludes our prepared remarks. And now we would like to answer questions.

Speaker 2

Operator, please go ahead with questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Eddie Huang from Morgan Stanley. Please go ahead.

Speaker 2

Thank you for taking my question. My first question is about this the recruitment demand situation after Chinese New Year. Can you give us more details in terms of the different industries by different enterprise sizes, this supply demand situation compared with last year? And my second question is what's your forecast or expectation for the revenue growth of the company for this year? Thank you.

Speaker 1

Thank you for your question. Regarding the first question, we are not suitable to comment on the entire drug market, but we as a platform, we have our own data and as one of the players, we would like to share with you our observations. First, it's about the enterprise side, which we have witnessed year on year growth from the enterprise side higher compared to the job seeker side, which resulted in the ratio between job seekers and enterprise users continue to improve. I have been within this industry for quite a long time and within any detailed industries, the ratio between enterprise users and job seekers, the relative balance have been quite significant to me. Since the Sprint Festival this year, my observation is that the ratio between enterprise users and job seekers, it has been rebalancing towards a relatively normal situation.

Speaker 1

Regarding whether the enterprises have restored the confidence for the market and for the future. The data we just mentioned is that both newly posted jobs and online active jobs have reached record new high and very significant year on year growth. And to share with you some detailed trend on particular sectors. For example, for manufacturing workers, logistics, urban service related blue collar sectors have recovered quite well after the spring festival. Another angle is that for those cities along the sea, which is more external related economics shows better user growth after the spring festival, so which implies the manufacturing related to export have been performing quite well recently.

Speaker 1

Another observation we shared we discussed about last spring is that the small and micro companies recovered much better after the spring festival last year. However, this year, the larger companies, they have postponed a recovery trend. However, this year, as we just said, enterprises with more than 10,000 company employees grows much better compared to those medium sized enterprises. And this situation has been started since August last year and continued after the spring festival, which shows the continuity of the white collar recovery. Regarding your second question for our outlook for this year, I was starting with reviewing for the performance for last year.

Speaker 1

So since the beginning of 2023, what we witnessed that we have seen improvement sequentially from Q1 to Q4 and until Q1 this year for the consecutive 5 quarters. And that observation has been proved by our quarter on quarter sequential growth data. And we hope that the trend can continue within this year. And for the Q1 this year, as Phil just discussed, we are expecting our calculated cash billings have at least 12% of quarter over quarter growth compared to the Q4 last year. And given my experience and observations for the operation, I'm pretty sure that in the Q2 we will continue to have sequential growth.

Speaker 1

And that concludes my answer to your questions. Thank you.

Operator

Thank you for the questions. Next question comes from Timothy Zhao from Goldman Sachs. Please go ahead.

Speaker 3

Thank you, management, for taking my questions and congrats on the very strong results. I have two questions here. First, we noticed that some of our competitors have increased marketing spending post New Year. Could management share your strategy for this year's user growth and marketing campaigns? Have you observed any incremental change in the competitive landscape?

Speaker 3

And second question is your outlook regarding this year's operating expenses as well as profitability margin. Thank you.

Speaker 1

Thank you for your question. Regarding the competitive landscape, yes, we have noticed the newly published third party data and we are quite aware of our own data, which we the conclusion is that we don't notice any fundamental changes regarding the competitive landscape. And for some of our peers who increase their investment in marketing after spring festival this year, Because some of them are not public companies, we cannot have their data. But I have been within this industry for a long term. So I know that because there are some signs of improvement from the revenue side, then people are willing or more willing to invest in the marketing to spend more, which I believe is a reasonable explanation and also anchored echoed by our own data.

Speaker 1

So this is actually a positive sign for me because not only us, as a whole industry are recovering or moving up. So we are not only deck within a warming water. And for our user growth target, we are still targeting for at least 40,000,000 newly verified users this year, because as you said, our peers have increased their investment or marketing, so I will not discuss too much on the details. But I can guarantee you that we will still spend money reasonably. I don't have the ability to increase a lot of our marketing expenses.

Speaker 1

It's not actually necessary. So we will spend reasonably in our nursing but at the same time we will maintain our strong competitive edge in terms of user penetration, in terms of market share and the whole leading position. And that's the answer to your first question.

Speaker 2

So regarding the user acquisition, so definitely there will be expenses. So simply speaking, we would like to keep our user growth at still at a quick or faster pace. But meanwhile, we would like to keep selling marketing as a percentage of revenue at the most flat or in better scenario would be slightly lower than 2023. So this selling marketing percentage of revenue. So regarding the gross margin trend, in short term due to seasonality, Q4 is the low quarter, so gross margin was affected slightly.

Speaker 2

So Q1, the gross margin to be flat and this is mainly because of the high online revenue contribution, which involves higher payment processing fees in short term. But for the full year of 2024, we would like to see gross margin improvement, mainly due to the leverage from personnel costs backed by quick revenue growth. So basically, simply speaking, gross margins to be further improving in 2024. As I just mentioned, selling and marketing expenses, so rest of other items like R and D and G and A, we won't expect to increase these expenses aggressively. So operating margin on bottom line to continue seeing uptrends.

Speaker 2

So basically, we would like to keep our most of the cost or expenses lines in a self disciplined manner. So therefore, we can leverage driven by our faster business or revenue growth for the full year.

Speaker 1

And that concludes our answer to the question. Operator, I'd like to present to the next question.

Operator

Thank you. One moment for the next question. Our next question comes from the line of Yang Bai from CICC. Please go ahead.

Speaker 4

My first question is, what's the company's strategy of commercialization this year? And what are the expected trends in the payment ratio and ARPU? And my second question is, what's the progress of the company's blue collar business and what are the future planning direction for the blue collar sector? Thank you.

Speaker 2

Okay. So I'll answer the first question regarding the monetization or commercialization for our business. So we just reported that for the latest quarter, there was 5,200,000 trailing 12 months paid enterprise customers. So this is this was a historical high. And regarding our commercialization, there were 2 components.

Speaker 2

1 is paying ratio, another is ARPU. So we expect that the paying in terms of the paid enterprise customers in 2024, so we would like to continue to see the growth of the paid enterprise customers sequentially. And in terms of their ARPU, the blended ARPU in the last quarter looked dropped a little bit. This is mainly because of the contribution from small, medium sized enterprises. Their revenue contribution is bigger because of the fast growth from SME Companies.

Speaker 2

And the blended effect makes blended ARPU drop a little bit. But if you look at small, medium sized accounts and the key accounts separately, you would like to see both of them, their ARPU increased in the last quarter. So their ARPU all increased, respectively. And in terms of the paying ratio, compared with 20 22, 2023, the overall paying ratio increased by 3 percentage points. At this moment, the paying ratio for the platform is still at a low level, so we believe there would be still good room to grow.

Speaker 2

So it will take several years to gradually increase the paying ratio for us. And in short term, the paid enterprise customers' growth mainly comes from the user growth. And as we just mentioned, our marketing strategy, so basically in this year, we will still continue to acquire users and at a very quick or faster pace. So basically that will contribute us with new users, new business users, new enterprise, paid enterprise customers. And for the longer term, we expect paying ratio to continue to grow and the recovery from large enterprises as Jonathan just mentioned, we definitely will increase their ARPU.

Speaker 2

So pain ratio increase and ARPU increase, those two parts have good potentials, will support our long term growth with our commercialization.

Speaker 1

I will briefly talk about the Blue Collar business. So our Blue Collar business has experienced continued healthy growth. So data point to support that which is our revenue grew by 32% year on year. However, the revenue contribution from Blue Collars goes up by 6 percentage points from 28% to 34%, which is a very powerful demonstration of the good performance of our Blue Collar business. And there are 4 detailed sectors within Blue Collars, which are urban service, manufacturing, constructions and warehousing and logistics.

Speaker 1

Every sub sector, the numbers of users have these less than white collar combined together, they are quite considerable amount. So we need to better serve them. Within urban service sector, we have been doing well. We have a good recommendation and rotation. So we also made some money from there.

Speaker 1

Within manufacturing, we are still under very hard exploration, which actually this has been going for a while. We talked about there are 4 players within manufacturing recruitment business, which are the factories, which is employers, the workers, the agents, the offline agents, which who have been playing there for a long time. And the last one is the platform. So the game is that in a considerable long term, longer term, within those four parties, among 2 or 3 of them, there have been contradictory situations. So actually it's a zero sum game.

Speaker 1

But we have been the hard sorting story for quite a long time and we made some progress. And also the industry situation for manufacturing in the past 2 or 3 years have been quite different from previous period. So we will continue to work on that area. So that's my update on our progress on Blue collar business. And that does conclude our question for CICC.

Speaker 1

And operator, let's move to the next question.

Operator

Certainly. The next question comes from the line of Robin Chu of Bernstein. Please go ahead.

Speaker 5

So two questions, please. One, it's good to see management raise the buyback for the coming year. I was hoping that you could share some thoughts on capital return policy going forward and the monthly pace of buybacks. Given there's almost $2,000,000,000 of cash on the balance sheet, will the company commit to a systematic capital return program going forward as revenue and cash flows grow? Second, how keen to hear management talk about future product development and specific ways the company could leverage AI to capture more value and profit in the recruiting process?

Speaker 5

Also, would love an update on overseas expansion if management has any new thoughts or concrete plans? Thank you.

Speaker 1

Thank you for your question. So regarding the cash allocation, so it is actually to make the fast arrangement, optimize the allocation of company's capital and continues to increase shareholder return is a duty for any public company, any management of public company and the CEO of any public company is our pursuant and our duty. And we have roughly, as you said, RMB 15,000,000,000 cash on hand. So for me, the priority to use this cash, there are priorities. The top priority will always be we will use our money for future development for user growth to expand our advanced model to more user groups, to more industries, areas and countries to initiate our business.

Speaker 1

And the second priority to provide shareholder return, we are currently exploring a possibility following our initial special cash dividend last year to pay cash dividend continuously in the future. And the last one from share repurchase perspective. So we just approved this US200 $1,000,000 new repurchase program. So that's what we have been doing and we are going to do. So we want to utilize this share buyback program to guarantee our shareholders their shareholding percentage.

Speaker 1

And we will in the future, we will coordinate between all these several methods or several ways to provide the best return to our shareholders. And from the AI investment, our policy, like we just discussed, first is to keep up with the latest leading technology and teams to avoid any knowledge gap, generational gap compared with the 1st year teams. And secondly, we will continue to pursue the industrial implementation and not to bring the investment to compete with chips compared with spending of electricity powers, which is not worthwhile. We will spend our money Regarding the opportunity that AI have brought about for our company and for our industry, I would like to share with you one of my understanding, which is if something is development cannot go proceed without artificial intelligence without AI, then we need to invest that. So if something can function quite well, even without AI, then we should be very cautious on the investment.

Speaker 1

That's a distinguish between whether we should spending more from an industrial perspective. And about the overseas business, which many of the investors may concern, our policies are also quite clear. 1st is we will go overseas to make money. 2nd, so we want to make money from wealthy people. 3rd, the recruitment and job seeking business is quite serious.

Speaker 1

This is regarding the power and protection of job seekers. So which have a quite high requirement for the local labor law. And 4th, so based on those requirements and considerations, we will invest in the top like 5 or 6 GDP countries or areas where the legal environment are quite clear and mature and the enterprises are used to pay for services and all those traditional business model can make good money. So that's quite clear. We don't go to mature market, Asian pairs, good loss and wealthy people.

Speaker 1

So that's our strategies for overseas business. And for your reference, And that's wrap up our answers for those questions. And due to the time constraint, that will be the last question. Operator?

Operator

Thank you. At this time, I will turn the conference back to Wenbei for any additional or closing remarks. Okay.

Speaker 1

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

Operator

That does conclude today's conference call. Thank you for participating. You may now disconnect your lines.

Speaker 1

Thank you. Bye bye.

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