Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Third Quarter 2021 Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a Q&A session. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Ms. Wendy Wang, Head of Investor Relations. Please go ahead, ma’am..

Thank you, operator. Good evening and good morning everyone. Welcome to our third quarter 2021 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 observations that involve known or 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 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 purposes 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. In addition, a webcast replay of this conference call will be available on our website at ir.jpn.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO..

[Foreign Language] Hello, everyone. Welcome to our third quarter 2021 earnings conference call. On behalf of our entire company, I would like to express our sincere thanks to our users and investors for your trust and support. The third quarter is the first complete reporting period after our company went public and it is also a special period.

As many of you already know, new user registration on the BOSS Zhipin app has been suspended since July 5, 2021 in compliance with the cybersecurity review. As a company, which has grown rapidly since its establishment, the suspension of new user registration has brought great challenges to our team.

However, we have also taken this as an opportunity to focus on improving our service for existing users and reinforcing the development of our core competencies and have made some substantial progress over this last month.

I believe that an enterprise which aspire us to grow big might not necessarily be able to become strong, but a company which can go stronger definitely has a better chance to become bigger. [Foreign Language] Let’s start with our key numbers. We managed to achieve decent results in the third quarter of this year.

We recorded total revenue of RMB1.21 billion in the quarter, an increase of 105% year-on-year and our adjusted net income excluding share-based compensation expense was RMB385 million. In the third quarter, our average MAU on the BOSS Zhipin app reached 28.6 million, representing a year-on-year growth rate of 28.6%.

[Foreign Language] The suspension of new user registration throughout the entire third quarter, which indeed had an impact on our business. However, we believe that the robustness and the effectiveness of our business model remains unchanged, which was proven by many of our key performance indicators.

Firstly, our monthly active user numbers remained relatively stable with MAUs decreasing in only mid-single digits quarter-over-quarter. Secondly, both user activeness and engagement on our platform which is we presented the DAUs as a percentage of our MAUs and our user retention rate remain stable.

We believe that the fundamental reason for this is the effectiveness of our service model, which was built and refined with mobile-native recommendation and directed functionalities over the past seven years and have truly deliver efficient and valuable job seeking and recruiting service to our users, especially for those SMEs and long-time job seekers, BOSS Zhipin is a more effective platform for them in many cases.

[Foreign Language] I will briefly share with the efforts we have taken to go stronger during the suspension period for new user registration. In early July we immediately initiated a business optimization program the cause of which is to provide better service to commercial customers.

We also launched an existing user protection plan where we focused on two things. The first was serving more senior job seekers who have greater work experience, a longer job seeking cycle and the higher job searching cost. We devoted more resources to support headhunter advisors working together with them to better serve senior job seekers.

Second, we launched a project [indiscernible] to help folks relatively with advantages of recruiters and job seekers in the market with better opportunities.

Leverage and powerful support from our recommendation algorithm and industry expertise we are pursuing the fairness of the bilateral resource allocation among job seekers and recruiters on our platform. College students and the small and the micro enterprise are user groups who benefit the most.

Office and labors not only to our service capabilities, but also enhance our team’s consistency and confidence to work together. [Foreign Language] Meanwhile, we have achieved progress in one of our core strategic development areas, which is blue-collar service.

We continue to enlarge advantages in urban service sector resulting in its revenue contribution continuing to increase.

We also have begun to actively work in the manufacturing sector, focusing on making comprehensive improvements to the job posting authentication and the governance around EOD co-intermediaries, optimizing our blue-collar job seekers user experience.

We are increasingly confident that through our selective and classified management of blue-collar intermediaries and our continued investment in technology and offline verification team, we will create a safe and reliable job seeking platform for blue-collar users.

[Foreign Language] We continue to invest heavily in our platform and technology infrastructure. Our offline security verification and routines have extended to cover 50 cities. Combined with our online view algorithms, we are able to verify the authenticity for more than 90% of our enterprise classic.

We saw increasingly strong cracked down in restrictions of non-standard orthodox recruitment situation. We have effectively reduced the user compound rates. We firmly believe that protecting the safety and experience of job seeker is the lifeline of an online common platform.

[Foreign Language] Let me now talk about the ongoing progress of cybersecurity review. We are actively cooperating with a regulator and maintain ongoing communication.

At the same time, we have strengthened our foundation on data security and the privacy protection in accordance with a high standard of industry, as well as the series evolution and regulations on data security and personal privacy protection. This work is extremely necessary for internet platforms in any field.

The building of this kind of core competence is also extremely necessary for enterprise, truly doing responsibility for users, for sociality, for investors and viewers responsibility for an era.

We can confidently say that during this period, the company has not only invested heavily in data security and privacy protection, but we have also greatly improved our capabilities in this area. I believe this ability will create sustainable value for the company’s long-term development.

[Foreign Language] Here, users and investors this quarter is the first company reporting period after our releasing. During this quarter, we have been under cybersecurity review and we’re not able to grow our user base.

Under such a special situation, as a public company, we have always been committed to leverage the power of technology, to take the social responsibility and to make a valuable contribution for the development of individuals and the prosperity of enterprises we serve.

I and team both securely believe that this kind of internal reinforcement is necessary and meaningful. I can see clearly that the effectiveness of our business model and technology capabilities continues to be validated.

The recruitment and training of our technical team, security team and the sales team is still growing steadily and we are full of confidence for the future. [Foreign Language] With that, I will turn to our CFO, Phil for the review of our financials. Thank you..

Thanks Jonathan. Hello everyone. Thank you for joining our earnings call today, I would like to give a brief overview of our third quarter 2021 financial results. And then I will discuss our outlook for the next quarter. Before I began, please note that all amounts are in RMB and all comparisons are on a year-on-year basis, unless otherwise stated.

Our performance in the third quarter once again, demonstrated our effective business model and improving leverage. Despite the suspension of new user registrations, our total revenues reached RMB1.2 billion in the quarter, up 105% year-on-year beating the high end of our guidance range.

Our calculated cash billings increased by 62% to RMB1.2 billion, with online recruitment services, revenue accounting for more than 99% of our total revenues. We are pleased with the rapid growth of our paid enterprise customers, which reached a new record of 4.0 million in the 12 months ended September 30, 2021. Moving on to the cost side.

Total operating costs and expenses were RMB903 million for the quarter, an increase of 62%, resulting in a positive operating income of RMB311 million. Our cost of revenues increased by 125% to RMB154 million in the quarter, with gross margin remaining robust at 87%.

Sales and marketing expenses increased by 47% to RMB416 million in the quarter, primarily due to our increased headcount and enhanced brand advertising activities.

What is noteworthy is that our sales and marketing expenses represented 34% of our revenue in the quarter, down by 13.7%, percentage points year-on-year, which was partly due to our continuing improvement in marketing efficiency, but it was also a result of a reduced marketing expenses as we continue to be suspended from accepting new user registrations.

Research and development expenses increased by 50% to RMB209 million. General and administrative expenses increased by 84% to RMB123 million, both primarily as a result of increased headcount and the share-based compensation expenses. Our headcount for R&D and sales continued to grow sequentially in the quarter.

We are firmly committed to continuing to invest in technology and top talent to further enhance our core competences. Our net income reached RMB286 million in the third quarter compared to RMB33 million in the same quarter last year.

Excluding share-based compensation, our adjusted net income was RMB385 million in the third quarter, translating to an adjusted net margin of 31.8%, representing a 23 percentage point improvement.

Our numbers in the third quarter can showcase the healthy and robust margin profile of our core online recruitment business that we believe our business can achieve as our business matures in the future. Our net margin – sorry, our net cash generated from operating activities was RMB269 million this quarter.

And as of September 30, 2021, we had cash and cash equivalents and short-term investments of RMB11.9 billion. Our cash reserve gives us great confidence in our ability to execute our growth strategy, which we believe will yield considerable return in the long-term.

And now for our business outlook, for the first quarter, the last quarter of 2021, we expect our total revenue to be between RMB1.02 billion and RMB1.05 billion, representing a year-on-year growth rate of approximately 58% to 62%. The cybersecurity review has had a real impact on our revenues, as revenues correlate directly to our users.

The guidance for the next quarter is based on assumptions that the review will last at least until the end of December. As Jonathan just mentioned, our operating data shows that we still have a healthy user base and a healthy paying ratio and that our paid customer retention and the ratio also remains stable.

With the business and the monetization model still affected, we have faith that we can be back on our previous growth track as soon as we resume our new user registration in the future. That concludes our prepared remarks. Now we would like to answer questions. Operator, please go ahead with questions..

Thank you. [Operator Instructions] Your first question comes from Eddy Wang from Morgan Stanley. Please ask your question..

[Foreign Language] Thank you for taking my question. I have two questions. Firstly is about the macroeconomic slowdown in China.

Do you think there’s any impact on the overall online recruitment segment and if there’s any impact in our business in the fourth quarter and in 2022? And the second question is about do you have any visibility of when the cybersecurity investigation will be completed and when we – it’s likely to resume our new user registration time line?.

[Foreign Language] I will first answer your second question about when the cybersecurity review will finish or we can resume user registration. The company doesn’t have a clear time line as of today. But as I have just mentioned, there are two things we can do.

The first one is we cooperate and actively cooperate with the regulators to maintain proactive communication in hope of this review can end as soon as possible.

The second is that we are – under the provision of the regulators, we are actively to enhance our data security and personal privacy protection according to the recent issued laws and regulations. [Foreign Language] Okay. To answer your first question, the macro economy would definitely have an impact on the recruiting business, the theory is valid.

But I have several myself opinion. The first one is that China is a totality if which is – which has lots of small and micro enterprises. There are tens of millions of companies and hundreds of millions of people, which one company normally hires no more than tens of people.

And for small and micro enterprises, they characterize is that the macro impact on the company is relatively small. They are quite strong. I have been working in this industry for 15 years. And I have seen the financial crisis in 2008 and the market has cooled down.

So I need to use example to demonstrate my theory that if we put together five – box and we use our 8-pound hammer to beat it, the box will be damaged altogether. But we put together 1,000 ping-pong balls and we use the same 8-pound hammer to beat them, the top two ping-pong balls might broke but the rest will be safe.

And that’s the difference between our economy, which is compromised with big and key customers and the economy is compromised with small micro enterprises. So when the macroeconomic goes down, the latter will provide. [Foreign Language] And for the market, I have two more opinions.

The first one is if the economy continued to go down, a industry which is the small and micro enterprise take up the majority that there is a certain level of delay, so when the market can recover, going down gradually smooth.

[Foreign Language] And my second opinion is that combined with the industry and ourselves, because we are offering a service which can suit the small and the micro enterprises much better. Average recruiters spending our platforms quite limited as for one month is no more than several hundred of RMB. So we had the best value for money.

Even in the current situation when the macroeconomic goes down, when people want to cut down their recruiting budgets as a platform, we better value for money, we can still attract lots of users to paying for our service. And that’s my opinion for this question..

[Foreign Language] Our next question comes from Wei Xiong of UBS. Please ask your question..

[Foreign Language] Thank you, management for taking my questions. First, I want to ask about the competition side, given that your ability to grow new users remains impacted in the past few months.

Have we seen any changes in the competitive landscape in the online recruitment market? And in the meantime, what are the areas that management has been focused on in order to maintain your competitive advantages in the longer-term? And second, just on the user growth outlook for next year.

If we assume that the new user growth can be resumed early next year, what would be your user growth target for the next year? And associated with that what is your user acquisition strategy and the impact on the margin and the selling and marketing expenses next year? Thank you..

Thank you for your question. I will have to answer your first question – the first part of your first question, and then Jonathan can add more about what we have done with the competition.

So regarding for the competitive landscape, we think that’s from third-parties data, you can see that basically in past quarter or a couple of months, there was no big change. So our service still head appears with largest monthly active users and the daily active users. So our gap with the peers is still large enough.

And so you can chat with some third-party market research tracking data to find the fact. And in terms of the user engagement level, like time-span – like daily app using frequency we are still highest among peers.

So basically the company is still in very healthy situation, even we have suspended or have been suspended with user registration during the past quarter. And thirdly, regarding for our user retention, our own data shows that we were not – our users were not affected by the cybersecurity review. The user retention ratio keeps very stable and healthy.

So all of those shows that we are still very healthy and robust in a very good situation. [Foreign Language] Okay. For your second part of question during the type of security review, what we have done, I will help with down into details for you. For the jumble we have we have provided our surveys it has seen seven years, four months, nine days.

And during all that time, we had been growing very fast. For example, if I had $100, I will put $60 on the growth and $40 on our infrastructure, and the things we cannot go our users for the entire quarter. So, I put $100 in the infrastructure. So, what is infrastructure? I have two part for you.

The first one is, we continue to improve our data to currently and personal privacy protection. We are proving and investing heavily in technology, in experts, in our overall system and capabilities for several months, we have some achievements, and this has to have long-term value for our company.

And second part is on the user end, who will be the easiest to lose from our platform? We identified, two kind of users. The first way is for those who have a longer job-seeking period. So, when they cannot find a job, they don’t go and they might have a longer working period and a higher work switch cost and might have a higher income.

So they’ll senior job seekers, because as I just said, we have put a lot of efforts and resources to work together with headhunters to provide better service for those senior job seekers and to improve their NPS. The second kind of user group is jobseekers and recruiters, who are relatively disadvantages in the market.

And under our circumstances when we are growing very fast, we are not focused on our efforts on those people. And – but currently, we can focus all our resources and all our efforts, and our team has a better competencies to provide our service for those people. This is the project way, and we do have some substantial progress on that part.

The funny thing is that all those two kinds of people do have some value for the senior jobseekers if we can provide better service for them if they have a better ecosystem on our platform. So they can attract more enterprises who have a need for that kind of senior jobseekers.

And the second group of users, they might not have a great economic value at this moment. They are relatively disadvantages, but we believe that as a public company, we should show them more social responsibilities for those – for them. So they have more social value.

So we believe to do the – to all our – and they were during this period should have both economic and the social values for ourselves and for the society. And that’s my answers for your question..

So regarding your second question, the user growth target for next year, this question is hard to answer at this moment, because we are not clear when we will be allowed to grow our users. So we can only do it during our normal operation.

So it’s – I think the time is not today, but what I can say is that from the discussions above, you can understand that our business model is still valid and very effective. And during the whole third quarter, we still served as the largest groups of jobseekers and employers and users maintain a very healthy engagement level on our platform.

So they like our platform. And since the beginning of cybersecurity review process, during the past four months, they were failed the registration like records from 17 million users. So 17 million users as we recorded. So that was a huge number.

So a lot of users, they want to register our platform, but they cannot do it during the past couple of months. So what – so the only thing that we can say at this moment is that once we were allowed to grow our users, we will do it – where we’ll regain our lost users at full speed..

[Foreign Language] Thank you, management..

Your next question comes from Colin Liu of China Renaissance. Please ask your question..

[Foreign Language] So I have two questions for management. The first one is regarding the potential opportunities from senior jobseekers and which we normally call gold-collar workers. I just want to ask if there’s any difference in terms of revenue model from this segment compared with other positive business.

The other question is about well, if the cybersecurity review continue to rose out to the first quarter next year which we will make the company to meet some very practical time windows such as Chinese New Year and the Beijing Winter Olympics which further impact new user acquisition.

I just want to check if the management has any other measures you can to counter such negative impacts. [Foreign Language].

Thank you for your question. And regarding the gold collar, you do have a very sound understanding of our industry. So we do call our senior job seekers as blue collars. And in terms of what kind of revenue model, very coincidently, our team do have the same question, which is how we contract some kind of service. But we still have content internally.

The first one is currently, we will focus on how to provide better service for those senior job seekers, for headhunters, for the enterprises who will post those senior job openings to optimize our ecosystem. The second one is that we don’t have a clear revenue model as of now.

But in the past, and still ongoing, is that all those enterprises who are recruiting senior job seekers, they purchase the same standard products we provide currently, and this is continuing to happen. And for the additional revenue model, we don’t have a clear clue right now.

But we have a belief that if we can provide a good service for our users that we have – what we have done for the past seven years, we will create a price through our value to fund the new revenue model. And your second question which is even harder to answer regarding how long we will see the user registration.

If we cannot resume the new user registration after the Chinese New Year festival and regarding the Winter Olympics, which we can regarding as a marketing event opportunity, normally, the screen – after spring festival is the peak season for recruiting.

If we cannot acquire new users by then, we currently are not thinking of any new ways to acquire new users. You see the view was not finished by them. But what we will continue to do is that I have think of that clearly, what we will continue to do is that we will continue to improve our infrastructure.

And one day, if the user registration resumes, I’m thinking whether or not invest in the marketing in a very aggressive way that are still properly and do our service as normal, and that’s my plan for now. And answer for you question. [Foreign Language].

As due to time constraints. That concludes today’s question-and-answer session. At this time, I will turn the conference back to Wendy for any additional or closing remarks..

Thank you, Operator. And thank you once again for joining us today. If you have any further questions, please contact our IR team directly or TPG Investor Relations. Thank you..

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect..