Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun 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&A session. Today's conference is being recorded.

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

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

Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which are based on management's current expectations and 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 cautions you not to place undue reliance on forward-looking statements and do not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only.

For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO..

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 will follow [indiscernible] have increased significantly.

Our average daily active position in the urban service industry, which is defined as a position where both the job posting and these enterprise users are active in a single day and relatively strict vendor, exceeded 1 million 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 second- and lower-tier cities exceeded 50% for the first half.

As we have reported to our investors in our earnings calls over the past two years, the company has been investing in algorithms and products to improve our tested service capabilities across various user group and cities, utilizing our enhanced understanding of the evolving demand.

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 on this area.

We have long been believed that in a mature market in enterprise service, people are willing to pay for value as long as what we 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 4.5 million, up 18% year-on-year and 13% quarter-on-quarter. The second quarter this year was challenging.

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, whereas 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 leads to the supply to demand ratio on our platform as long as the ratio of jobseekers to enterprise users is continuously improving.

I would like to take this chance to thanks again to all those investors who have understand our advantages and continue to support us. And that's all from my part of the call and I'll now turn it over to our CFO, Phil, for the review of our financials. Thank you..

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results of the second quarter 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 a 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. Moreover, our calculated cash billings reached RMB1.62 billion, up 65% year-on-year.

Total paid enterprise customers in the 12 months... [Technical Difficulty]. Okay. So I'll start again. So in the quarter, in the second quarter, we reached a 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 a 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. 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 4.5 million, up 13% quarter-on-quarter, a record-high and back to fast-growing trend.

ARPPU 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.

Hello? Excluding share-based compensation, our adjusted operating costs and expenses increased by 18% year-on-year to RMB1.05 billion in this quarter. Adjusted operating margin is 29.2% for the quarter, up by 8.8 percentage points year-on-year.

Cost of revenues was RMB270 million, 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 first quarter, and this trend is mainly due to sequential revenue growth in the second quarter.

Our sales and marketing expenses were RMB472 million, up 18% year-on-year. Adjusted sales and marketing expenses was RMB408 million, up 12% year-on-year. 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 of last year, while our trailing 12 months paid enterprise customers and MAU increased by 18% and 65% year-on-year, respectively, which strongly demonstrated our continuously improved marketing efficiency.

Our R&D expenses increased by 19% year-on-year to RMB366 million and our adjusted R&D expenses kept stable with the same period of last year. Adjusted R&D expenses as a percentage of revenue reduced in the quarter, showing continuous improving trend sequentially.

Our G&A expenses increased by 27% year-on-year to RMB203 million, and adjusted G&A expenses increased by 14% to RMB126 million, representing 8% of total revenues. Excluding certain one-off expenses, the percentage of adjusted G&A expenses to total revenue showed a downward trend since 2022, benefiting from our improving operating efficiency.

Net income was RMB310 million, and adjusted net income reached RMB568 million, more than double compared with the same period last year and hitting a record high. And our adjusted net margin reached 38%, up 16% -- 16 percentage points year-on-year and 6 -- and 19 percentage points quarter-on-quarter.

Net cash provided by operating activities was RMB600 -- sorry, RMB764 million, up more than 3 times year-on-year and hitting our record-high. The significant increase primarily due to -- from the 16% -- sorry, 65% year-on-year growth of calculated cash billings.

As of June 30, 2023, our cash, cash equivalents, time deposit and short-term investments were RMB12.8 billion and the long-term fixed-income investments were RMB2.0 billion, which totaled RMB14.7 billion.

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

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..

Thank you. [Operator Instructions] Our first question comes from the line of Eddy Wang with Morgan Stanley. Your line is now open..

[Foreign Language] Thank you management for taking my question. I have two questions. The first is about the blue-collar recruitment. As Mr.

Jonathan mentioned that the -- although they're 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 this demand of the white-collar recruitment? 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 a 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 been already used the other online platform and attracted by us or they never used any of the online platform, it's actually just fresh new enterprise that go to our platform? Thank you..

[Foreign Language] [Interpreted] Thank you for your question. I would like to answer the second question first. So, in the past five to six years, among all those online recruitment players, for a new customer who began to sign new contracts with any platform, there is always someone to help him to convert into a custom stack.

There is a process from [indiscernible]. Our role is to help, to let a lot of new users who have never used or paid online recruitment services into this new area. The majority of our annual contract customers, I believe, is from -- it is converted from our own unique customers. A small portion of that, we are sharing with our competitors.

As of this year, for the second quarter, our offline annual 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 budget into more cooperating partners. And back to your first question, the fixed external commission that's required for the white-collar recruitment demand recovery, I believe it has.

This time which will have effect on the recovery of white-collar recruitment on the key mechanism. The first mechanism is that the industry that recover first will expand to other industries to help those industries to recover.

For example, culture, sports, entertainment, media, new energy, automobile, aftermarket, all these industries, which are showing encouraging recruitment trends, will impact other industry which can affected by the recovery strategy.

And the second mechanism is that as the time goes by, there are more concrete evidence which prove that the market is recovering in order to enhance people's confidence to increase their recruitment activity.

For example, at beginning -- in the first quarter of this year, the large company, this recovery is [relatively worse] (ph) compared to SME, which I assume another company, they might be affected by confidence and the forecast.

However, since the second quarter, we have witnessed that the enterprises with more than 10,000 employees and the medium-sized enterprises between 500 to 1,000 employees will recover much faster.

And for your question about the supply and demand, whether there is a structural imbalance, we may have saw that -- for industries like real estate and Internet, we do saw the decline in recruitment demand, but I don't think it has been strong enough to concrete structural imbalance. That's my answer for your question..

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

[Foreign Language] Thank you management for taking my question. I have two questions.

I think first, in the current market environment where we see a bigger number of the jobseekers than the recruitment demand, what is our strategies 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? And if we break it down into SMEs, offline billings and white-collar versus blue-collar, what will be the breakdown change over time in the second half? And secondly, is on the OP margin in the second half.

Just wondering if management have any guidance, that would be very helpful. Thank you..

[Foreign Language] [Interpreted] Thank you for your question. So, in the first and second quarter of this year, we do have -- we do expect a lot of jobseekers will find it more difficult to find a job and much easier for the enterprise to do the recruitment.

But we have been quite -- very, very cautious on whether we should initiate some kind of monetization for the jobseekers who are much more difficult under these circumstances and we take -- we took no action.

And for the enterprise users, I just talked about number, which is our last 12-month paid enterprise customers number is 4.5 million and which is approximately over 2 million than paid enterprises, that is a very small portion compared to more than 15 million enterprises in China.

So, we have learned that from 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 continue to bring more customers from platform and converting them into paid customers.

And for your question, whether there are new initiatives for monetization products, in terms of monetization strategy, we believe that if you can provide higher value, if you can provide [indiscernible] massive scale, you should definitely can do something, do more things in the new monetization products, new commercial products.

That is actually part of the things what we are doing. And hopefully, you can be patient enough to see that. Regarding your question about the trend in ARPU, our CFO will take that question..

Thanks, Timothy, for 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 metric was back to 4.5 million 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. So their purchase of our service is more through online self-serve 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.

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 first quarter and second quarter, we continuously saw faster revenue growth.

So given the future revenue streams will continue to rise while major cost and expenses items are capped as mild growth pace, we think that our operating margin will maintain at healthy level and with upside potentials.

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

Thank you. That's all of our answer to your question. And operator, please proceed to the next question..

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

[Foreign Language] Thank you management for taking my questions. I actually have two for today. The first one is regarding our recent recovery trend. Like Jonathan has just mentioned, we've witnessed some encouraging trends from enterprise users in August.

So, I would like to further understand, does that comply to our normal seasonality, or is there something that's quite unusual for this year? And then within that, what is the recovery momentum out there for our [KA] (ph) accounts? If management could share any operating metrics like engagement ratio, paying ratio and ARPU and et cetera, that would be much appreciated.

So that was my first question. And then my second question is a little bit broader. We all acknowledge that this year, it seems that 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..

first one is the Golden March and Silver April; next -- second one is Golden September and Silver October, which both means a market condition. And the second one, for Golden September and Silver October, which is definitely starting from August. And this has more relation to the larger companies.

For all those good -- for all those graduates from top universities who will graduate in July 2024, many larger companies will be starting to do the recruiting for the top talent during September to November this year.

On top of the seasonality, another factor is that I believe the recruitment demand is gradually recovering alongside the economy and which will be shown in the data as follows. In August, the daily active enterprise users number have reached a historical high.

Enterprises in all kinds of sizes, large companies, mid-sized and small-sized, all size of companies have shown a very fast recovering trend improvement. To be honest, I cannot clearly distinguish which part is from seasonality, which part is from a recovering economy, but we still need to take some time to observe.

But at least the current trend is quite encouraging. For the recovery of KA customers, the number 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 500 employees.

And in terms of the company strategy, I would like to share with you several forward -- several things we have been calling to all this year. The first one is based on the NPS, we are continuing to increase our market share.

As we said, we have trailing 12-month paid enterprises nearly over 2 million, which is a small portion compared to 15 million enterprises in China. We still have a very long way to go.

And our second strategy, which is also something we have been doing for quite a long time, which is to continue to invest in technology not only for application technology, but also career science -- fundamental science.

Actually, for the second quarter, which is a relatively tough time, we captured the growth in the blue-collar and lower-tier cities, I believe which is the result of all these years of continuous investment in technology, which help us to capture the opportunity when the environment allows.

In my understanding for our continued increase investment in technology and the fundamental science, which is also what we saw for all those larger companies, advanced companies we respect is that their outstanding [indiscernible] coming from their own capabilities allow them to adapt to new alternatives once they come.

That's my answer for your questions. Thank you..

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

[Foreign Language] Thank you management for taking my questions. First, I just want to follow up on the recovery pace of the enterprise hiring demand.

Given that we're experiencing a long period of uncertainties in the macro and the enterprise seems to lean forward or focus more on cost controls, 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.

Thank you..

[Foreign Language] [Interpreted] Thank you for your question. And I will start with small and medium regular micro-enterprises. For example, for small enterprises only -- that have 10 employees, when two of them need the job, they simply need to recruit two more in order to keep on with the business.

I think those activities are the same for small and medium-size enterprises, any time they need to do the recruitment whenever they have demand. And for large companies, as we have all known that larger companies are more caution and slow in terms of decreasing their headcount budget. And I can give you two examples.

The first one is the large companies have been less active in laying or firing people. 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.

Those business opportunities, which all of those well-trained administrators will take. And in terms of when we can expect enterprises across all industries and those different sizes starting to do a very aggressive recruiting, I don't have a clear view at this moment. For share repurchase and capital allocation, Phil will take the question..

So last year, we had our first tranche of share buyback program. The size is -- size was RMB150 million, 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 RMB150 million. We just executed a little bit, and we will continue to execute it going forward.

Regarding our situation, we have high cash positions and good profitability plus a 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 trying to find appropriate ways to increase shareholders' value.

So, please give us some time..

Thank you. That's all for our answers. And operator, please proceed to the next question..

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

[Foreign Language] Okay. I will translate by myself. The first one is the service industry and warehousing logistic blue-collar workers have been at a stable growth point throughout this year.

We want to know if our performance stands out compared to other competitors in the same period? And what our main competitive advantages are? How do we currently view the sustainability of this business? Second one is for the platform C2B ratio.

What are the recent trends since the beginning of the year? How has the renewal rate of long-term customers and the speed of income recognition changed compared to before? Thank you..

[Foreign Language] [Interpreted] Thank you for your question.

Our blue-collar users accounted for more than [40%] (ph) of our total users and as I just said, job posted daily -- average active job posting for their services industry has exceeded more than 1 million every day, which these two numbers combined together showcase a very strong advantage with double-sided network effect and that also demonstrated by our very smooth growth in further expanding into the lower-tier cities.

A very strong double-sided network effect has helped us to gain our strong advantages in the white-collar and the first-tier city area, and this will also help us to further expand into lower-tier cities and blue-collar users.

And the achievements we have for blue-collar users have a very high relationship with the project we reported for, that is a [indiscernible] project. And there is a situation in the online recruitment for blue-collar users.

For a job, which is – the actual salary is RMB5,000 per month, those people will post the job with more than RMB8,000 per month, [indiscernible] revenue.

And from a platform perspective, alongside with our continuous investment in technology and they do stick to their policy of protecting the jobseeker and help those recruiters -- help those users who can tell the truth who 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 platform.

And based on that policy and now the power of technology, the current project we have been doing for quite a while has shown very strong credibility for the blue-collar ecosystem..

Okay. So remaining a couple of questions, I'll answer one by one. So first of all, your question is the C2B ratio for the platform. So, we witnessed the 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 began.

We think this is a very clear evidence that shows overall economy is through a rail recovery. 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 like NDRR, net dollar retention rate, we are seeing both metrics are sequentially bottomed out from the beginning of the year. The trend will likely to go on in the following quarters.

And last question regarding the revenue recognition thing, in short-term, because of a higher percentage of contribution from SME clients and the 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..

Thank you. Due to time constraints, 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..

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

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