KANZHUN LIMITED

Q2 2021 Earnings Conference Call

8/27/2021

spk03: Ladies and gentlemen, thank you for standing by and welcome to the Kanjin Limited Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's 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 Capital Market and IR. Please go ahead, ma'am.
spk01: Thank you, operator. Good evening, everyone. Welcome to our second 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 calls for 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.jping.com. With that, I will now turn the call to Jonathan, our founder, chairman, and CEO.
spk02: Hello, everyone. Welcome to our first press conference as a listed company. I would also like to thank our users Hello, everyone. Welcome to our first earnings call as a public company.
spk01: I would like to take the opportunity to express our sincere thanks to our users, employees, and investors. Thank you for your trust and support. We will continue to focus on our main business, improve the efficiency of connecting talents to jobs utilizing the power of technology to deliver user satisfaction by optimizing efficiency, equality, and choice.
spk02: We are very happy to report that in the second quarter of this year, to achieve a good performance. In the second quarter of this year, our GAAP income was RMB 11.7 billion, which achieved 173.9% of the same growth. In the second quarter, our cash income calculated was RMB 14.4 billion, which achieved 175.3% of the same growth. While maintaining a high growth rate, we also achieved non-GAAP profits in the second quarter,
spk01: We are pleased to report that we have achieved strong results in the second quarter this year. We recorded a total revenue of RMB 1.17 billion, an increase of 173.9% year-over-year. Our calculated cash billings reached RMB 1.44 billion, with a year-on-year increase of 175.3%. While we maintained our rapid revenue growth, we also achieved a positive non-gap profitability in this quarter. Our adjusted net income, which excluded share-based compensation expenses, were RMB 248.5 million.
spk02: We believe that our growth in quality is due to our efficient business model, continuous improvement in technical level, and excellent commercialized products, as well as the improvement in service capability and the expansion of user size. We believe our quality growth is a result of our efficient business model, continuous enhancement of technology, and superior commercial products.
spk01: which leads to the expansion of our user base and improved service capabilities. In the past quarter, the average MAU of both G-Ping app reached 30.4 million, a year-on-year growth of 44.5%. The ratio of DAU to MAU is relatively stable, indicates that we have maintained high user growth and activities.
spk02: Now, let's take a closer look at the progress at the user level. Overall, in the second quarter, we will continue to develop platforms for the entire industry, the entire population, and the entire product range. From the perspective of the job seekers, we will further consolidate the advantages in white-collar and high-end cities, and continue to improve the penetration rate and service capabilities of these people and cities. At the same time, we will strive to extend and cover more low-end cities and traditional industries. Lanling, as the largest job seeker population, is also an important service target for us at the moment. is also the main driving factor of our user growth. The number of blue-collar users is also continuously increasing. For blue-collar recruitment, the overall penetration rate is lower in onlineization, and there is a difference in behavior patterns different from white-collar recruitment. We have also done targeted adjustment and optimization in the field of matching algorithms, authenticity of positions, security of users, and usability of products. In the field of gold-collar recruitment, we have actively started cooperation with the head of the chain. Now let's take a closer look at our progress at the user level.
spk01: Overall, in the second quarter, we continue to follow the path to be a platform that covers all industries, user groups, and job categories. From the perspective of job seekers, we further improved our service capabilities and the penetration rate among the white collar workers and the higher tier cities by continuing to solidify our competitive advantages. At the same time, we were aiming to expand our coverage in lower tier cities and the traditional industries. Being the largest group of job seekers, blue-collar workers are our important target users presently and the main driver of our user growth. The total number of the blue-collar users on our platform keeps increasing steadily. Due to the low online penetration rate of blue-collar recruitment and the different behavioral preference from the white-collar users, we have made tailored adjustments and optimizations in aspects such as matching algorithms, job authenticity, user safety, and product usability. To better serve our Gold Collar users, we actively cooperate with headhunters and have made pleasant progress. We have also noticed that in the second quarter, which is typically the beginning of graduation season for college students, a large number of college students joined our platform. Through enhanced and diverse services such as online publicity and live campus recruitment activities, we have become the most preferred online recruitment platform for college graduates. 从企业端用户来看,我们注意到随着疫情之后经济的持续恢复,所带来的招聘需求的释放,以及人力资源成本的持续上升,以及人才招聘市场中供求关系倒置等等影响。
spk02: More and more companies are starting to pay attention to the efficiency and return rate of the recruitment platform. Thanks to our efficient model and good cost performance, our platform's end users continue to maintain a fast growth pattern. As of June 30, 2021, our total end users reached 14.85 million, which is 78.5% of the total growth. The total number of perfected enterprises is 7.21 million, with a growth of 76.1%. From the perspective of corporate users, in the second quarter, our BOSS group accounted for 65.8% of the entire recruitment group, maintaining stability. It is worth mentioning that the proportion of small and medium enterprises increased to 83.6%, which is also closer to the overall size of our country's enterprises. This has further verified that for a huge number of small and medium-sized enterprises in China, the service model of the manager's direct dialogue with the client is in line with the rules. We will further study the recruitment needs and characteristics of small and medium-sized enterprises, and provide services to a larger number of small and medium-sized enterprises. From the perspective of the service industry, on the one hand, we maintain and expand the advantages in the fields of Internet technology, city services, and other areas. At the same time,
spk01: On the enterprise user side, we have noticed that more and more enterprises started to attach greater importance to the efficiency and return of investment of the recruitment platform as a result of various factors, including the gradually released recruitment demand brought about by the sustained post-pandemic economic recovery, the increased cost of human resources, and the inverted supply and demand in the talent recruitment market. Thanks to our efficient and cost-effective business model, numbers of our enterprise users maintain this rapid growth trend. As of June 30, 2021, the cumulative number of verified enterprise users reached 14.85 million, with a year-on-year growth of 78.5%. The cumulative number of verified enterprises reached 7.2 million, with a year-on-year growth of 76.1%. For the enterprise user composition, our boss population accounted for 65.8% of the whole enterprise users in the second quarter, which remains stable. It's worth mentioning that the proportion of small and medium-sized enterprises has increased to 83.6%. which is closer to China's overall enterprises size ratio. This further proves that for the massive number of small and medium-sized enterprises in China, direct chat between enterprise managers and job seekers is inconsistent with their demands. We will provide even better service for a greater scale of small and medium-sized enterprises by further studying their recruitment needs and their characteristics. We also aim to actively expand into traditional industries, such as manufacturing and finance, while maintaining and strengthening our advantages in the industries we already well covered, like internet, technology, and urban services.
spk02: In terms of product and research, we continued to maintain two to three weeks of group app delivery. For example, the display and management of personal information, group messages, video interviews and other functions maintain continuous optimization, and continue to improve the user experience. As a technology-driven enterprise, technical talent is our core competitive ability. We also continue to make a lot of investment in talent reserves. As of June 30, we already have more than 1,000 production teams. In terms of algorithm, In terms of our R&D capability,
spk01: We continue to iterate our main app by every two to three weeks to optimize functions such as recruitment and job-seeking information display and management, bulk messaging, and video interviews, aiming to improve our user experience and encouraging their engagement. As a technology-driven company, technology capabilities are core to our competitiveness, and we have been continuing to invest heavily in acquiring talents. As of June 30th, we had an R&D team with more than 1,000 employees. In terms of algorithms, on top of continuous pursuant of improving matching accuracy, we also pay a great deal of attention to delivering customized and fair recommendation results to enable more long-tail job seekers and SME enterprise users to be recommended and exposed, and to facilitate as many users as possible to engage and fulfill their demands on our platform, ultimately improving user interaction and satisfaction.
spk02: At the operational level, we are constantly optimizing, constantly improving and clarifying the frequency operation capabilities, and deepening research and optimization for specific industries and specific categories. At the same time, we continue to make a lot of investment in security. Our offline security audit team has covered 40 cities, For the city, we have established the ability to reach the site in two hours if there is a complaint and it is necessary in any recruitment location. We will continue to increase the number of cities covered. The safety and protection of the job seekers as the basis of the entire platform, especially for the recruitment of blue-collar workers, the job seekers of blue-collar workers, the authenticity of platform security and position information, We continue to improve and refine our operational capabilities in detailed categories.
spk01: We are also conducting in-depth research and optimization for position classification of job categories in specific industries. At the same time, we have made significant investment in platform security. Our offline security and review teams have covered 40 cities in China. In each covered city, our team is able to arrive at the recruitment location within two hours after receiving users' complaints. and we plan to further expand our city coverage in the future. Security of job seekers is the cornerstone of our platform's operation. Platform security and authenticity of job information have always been a crucial obstacle hindering the online penetration of blue-collar recruitment and job seeking in the past. In coordination with the expansion of our blue-collar business, we have made a series of security upgrades to further consolidate the infrastructure of our platform.
spk02: We continue to improve the sales ability of the sales team and the coverage of the region. In the second quarter, we opened new branches in Foshan and Dongguan, and set up a total of 25 branches. At the same time, we also focused on strengthening the professional training of the sales team, and improving the efficiency of a single salesperson. In terms of market promotion, we continue our detailed market promotion strategy, continue to launch brand ads, We continue to improve the sales capability and expand the geographic coverage of our direct sales team.
spk01: In the second quarter, we established new branches in Foshan and Dongguan, bringing our total number of branches to 25. At the same time, we focused on strengthening the professional competency training for our sales force and improving the efficiency of individual sales personnel. As for marketing, we continue to implement dedicated marketing strategies for user acquisition through both brand advertising and online traffic. we were honored to have been appointed as the official human resource supplier for the Beijing Winter Olympics. As a result, underpinned by our strengths and economies of scale, we continue to see significant improvement in the marketing promotion efficiency, which field our CFO will discuss this later in more details.
spk02: Now let's talk about the online security review that everyone is very concerned about. As we announced before, Currently, the company is actively cooperating with the National Internet Security Office's network security review. At the same time, according to the country's latest data security law, personal information protection law, and other legal regulations, we are actively investigating and revising the security of the platform and user privacy of the company. Currently, according to the requirements of the supervision, our BOSS application still stops the registration of new users. This will have a certain impact on the growth and income of current companies, but we believe that supervision is necessary for the regulation of the industry and protection of users, which can ensure the long-term stable development of the industry and the company. During this period, we have worked hard to strengthen the service to old users, and we have worked hard to cooperate with supervision in order to successfully complete the relevant review,
spk01: Now, let me spend some time to talk about the cybersecurity review that everyone is caring about. As we previously announced, the company is currently actively cooperating with the Cyberspace Administration of China on the cybersecurity review. At the same time, the company is conducting its own self-examination and rectification program focusing on security and user privacy protection in accordance with the latest national laws and regulations such as the data security law and personal information protection law. In compliance with regulatory requirements, our new user registration remains suspended on our both shipping app, which will, to some extent, impact the company's user growth and revenue. However, we firmly believe that the regulations are necessary to regulate the industry and protect the users and will ensure the long-term sustainable growth of the industry and the company. Given the current circumstances, we make more efforts to better serve our existing users. Meanwhile, we fully cooperate with review teams' work in the hope of completing the process earlier. However, the company does not yet have a clear timetable for either the completion of reviewing, Or when shall we be able to resume new user registrations?
spk02: Overall, China's online recruitment market still has plenty of room for development. There are also a considerable number of applicants and recruiters who have not used online recruitment services. The depth of existing services and the value they can provide to users are also being further explored. We will rely on recommendation, treatment, and movement such a new generation of online recruitment model, and insist on the idea of customer satisfaction first, continue to invest in technology, enrich our product content, improve our service capability, and increase the coverage of more industries and more regions. Although there are some environmental fluctuations in the short term, but in general, the effectiveness of our business model has not changed fundamentally and continues to be verified. To summarize, China's online recruitment market still has ample room for sustainable development.
spk01: and a considerable number of job seekers and recruiters have now started to use online recruitment services. The existing service offering and the value provided to customers have yet to be fully explored. As a new generation of online recruitment, we are adopting an innovative model by combining the recommendation, direct chat, and mobility with our dedication to the concept of user satisfaction first. We will continue to invest in technology enrich our product offering and enhance our service capability, penetrate into more industries and regions. Although there are some fluctuations in the short-term external environment, fundamentally our business model remains effective and will be further demonstrated. We are full of confidence in the future growth potential and believe that we can continue to provide fair, valuable, and more efficient service to nearly 600 million workers and 14 million enterprises, especially small and medium-sized enterprises and those long-tail workers in China.
spk02: That's all for my introduction. Next, our CFO, Bill, will introduce our financial situation. Thank you.
spk01: With that, I will turn to our CFO and Director, Phil, for the review of our financials. Thank you.
spk10: Thanks, Jonathan and Wenwei. Hello, everyone. Thank you for joining our earnings call today. I would like to give a brief overview of our second quarter 2021 financial results, and then I will discuss our outlook for the third quarter. Before I begin, please know that all amounts are all in RMB and all comparisons on a year-over-year basis, unless otherwise stated. We continued to achieve robust operational financial growth in the second quarter this year. Our calculated cash billions increased by 175.3% to RMB 1.44 billion, and our total revenues increased by 173.9% to RMB $17 billion in the quarter, beating our target. This rapid revenue growth was mainly due to the increase of revenue from our online recruitment service, which increased by 174.7% to RMB $1.16 billion, contributing to over 99% of our total revenues. The increase of revenue from online recruitment service was driven by the strong growth of our paid enterprise customers following the expansion of our user base and enhanced service capabilities. As Jordansson just mentioned, with the recovering of recruitment demand and increasing penetration of online recruitment service, especially for enterprises, together with our innovative model, we have seen rapid growth of our accumulated enterprise users which grew by over 78.5% to 14.9 million by the end of June 30, 2021. With more enterprise users posting jobs on our platform, more positions became commercially mature enough to be identified as hard position, which we can charge a fee for job posting, which leads to a higher paying ratio These two factors combined contributing to our strong paid enterprise customers growth, which increased by 135.9% to 3.61 million in the trailing 12 months ended June 30, 2021. Compared to 1.53 million in the same period ended June 30, 2020, Furthermore, number of our key accounts grew by 146.6% in the trailing 12 months ended June 30, 2021, and leading to 229.3% growth in revenue from key accounts in this quarter, demonstrating the enhanced ability of serving large enterprises, converting more users to long-term customers and cross-selling more service to existing paid customers. Now, turn to our cost side. Total operating cost and expenses were RMB $2.59 billion for the quarter. If we exclude share-based compensation expenses, which were RMB $1.66 billion, including our RMB $1.51 billion reward to our core management. Our adjusted total operating cost and expenses were RMB $933.7 million, an increase of 63.1% compared to $572.3 million in the same quarter last year. resulting to a positive adjusted operating income of RMB 239.8 million. Our gross margin remains stable at 87.7% with cost of revenue increased by 164.2% to RMB 143.2 million in this quarter. primarily driven by higher third-party payment processing cost, operational employee-related cost, server and bandwidth cost, resulting from increased user base and transaction volume. Sales and marketing expenses increased by 45.8% to RMB 534.2 million in this quarter. primarily due to our increased sales and marketing employee-related expenses and enhanced brand advertising and customer acquisition activities. Noteworthy, our sales and marketing expenses represented 45.7% of our revenue in this quarter, down by 40 percentage points from 85.9% in the same quarter last year. This declining sales and marketing percentage demonstrated a higher efficiency of our marketing initiatives and is a proof of our strong economy of scale. During this quarter, our R&D expense increased by 113.7% to R&D $250 million. primarily as a result of increased R&D personnel payroll, other employee-related costs, and share-based compensation. We will continue to invest in R&D talent as one of our core growth strategies, allowing us to maintain our leading technology capabilities, which is the essential of our competitiveness. General and administrative expenses were RMB $1.67 billion for this quarter, mainly resulting from a one-time issuance of Class B ordinary shares to TechWolf Limited, which is a company controlled by our founder as a reward approved by the board before the IPO. Excluding share-based compensation, our G&A expense grew by 68.2% to RMB $83 million this quarter, which was mainly due to the expansion of our GNAT. As a result of the foregoing, our net loss was RMB $1.41 billion in the second quarter. Excluding share-based compensation, we achieved profitability under the non-GAAP measure. Our adjusted net income in this quarter this year was RMB 246.5 million compared with adjusted net loss of RMB 143.4 million in the same quarter last year, translating to an adjusted net margin of 21.1% for this quarter, representing a 54-percentage-point improvement. This operating leverage was driven by the economy of scale and our continued efforts in increasing efficiency, and also is a proof of our strong network effect. Supported by the strength of our profitability, we recorded the net cash generated from operating activities of RMB 671.2 million in this quarter, compared to net cash used in operating activities of RMB 14.2 million in the same period of 2020. Moving to the balance sheet, as of June 30, 2021, our cash and cash equivalents and short-term investments were RMB 11.7 billion compared to RMB 4.5 billion as of December 31, 2020. The increase was primarily attributable to net proceeds from our successful listing as well as our growth in operating cash flow in the quarter. Now turning to our business outlook for the next quarter. For the third quarter of 2021, we expect our net revenue to be between RMB 1.18 billion and RMB 1.21 billion. representing a year-on-year growth rate of approximately 100% to 105%. As we just discussed, there are still uncertainties regarding the ongoing cybersecurity review and timing to resume new users registration. The impact on our revenue was reflected in the outlook, but still subjected to change. This estimate was based on the assumption that the review will last till the end of September. In closing, we delivered strong results for our first quarter as a public company, and I would like to thank again to our team, our esteemed users, and shareholders. In spite of the uncertainty of the cybersecurity review, we are still in a fast-growing stage with healthy financial status and improving leverage. Our long-term competence stays unchanged, and the business model remains effective. I'm excited about the coming quarter and looking forward to share our progress with you again. This concludes our prepared remarks. Now we would like to answer questions. Operator, please go ahead.
spk03: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there may be a short pause while we collate the questions. Your first question comes from the line of Tian Hu of PH Capital. Please ask your question.
spk04: good evening management and happy Friday just a couple of questions the first one is you know so we we saw some data about the growing weakness of China economy so under this kind of a circumstances you know from your you know a frontline you know employment activities what do you see different industry their employer's confidence level in terms of hiring people. So that's number one. Number two, so the data security review has been in place for more than a month, and we don't know when this review is going to be lifted. So let's say if the government review is going to last for a while, And during this period, at this point, we can't really obtain the new customer online. So what's companies' strategy to deal with it, to cope with it, and to get new customer online? So that's the two questions. Thank you.
spk10: OK. So I can answer your first question first. And our CEO can comment on your second question. So our business, you know, we have a diversified industry contribution for our business. So new economy industries as a whole account for a large portion, but a single industry and a single company contribution is low. So I think overall, although the macro is not very strong, might be the situation, but we haven't seen such kind of strong signal on our platform. So our business growth is mainly driven by paying users growth. We are still in the stage of seeing structural user increase at this moment. So we haven't seen direct impact from macro, but we will closely monitor. So recently, there are some industries, I think probably some investors you would like to ask a question so I can comment at this at this time so some industries for example like education industry you know as that's just one of the new economy industries just account for a small percentage in our total revenue so education industry this industry is accounting for only mid-single digits for our total revenue now. So we think any one industry's impact to our business is limited. So regarding the company-wise, so some companies, they might got some impact from either macro or either some regulation-related things. We think that because we serve a large number of small, medium-sized companies, so we have a relatively low contribution from top customers. Top 20 customers only account for less than 4% of total revenue. So changes in any single company or, as I just mentioned, a single industry to our business would be only, you know, limited, have a limited impact on our growth trend. So that's my answer to your question.
spk04: Thank you, Phil.
spk02: The increase in the number of new users has an impact on the growth of MAU and DAU in the past full month of July. However, due to the large number of users, the number of users can use the software normally. At the same time, for a life cycle of a worker, he needs to have a new way of looking for work and finding work. So compared to July, the MAU is relatively stable. The proportion of DAU and MAU also means that the activity of the users is also good. During this time, we focus on serving the old users well. This has also done a lot of work and has also worked. In addition, it will also be affected from the income level, because the stop of new registered users is not only for those on the C-end, but also for businesses on the B-end. users are not allowed to add or register. During this period, we have focused on the service of the old users in the sales team and the customer service team. We have also done targeted training and improvement in terms of professionalism and service depth. How much impact will it have on the final stop of adding users depends on how long it will take to stop adding users. We also noticed that we did a prediction guide for the income of the third quarter. This guide actually has to say that there is a predetermined premise, that is, it is predetermined to stop users from adding this thing will continue until the end of the third quarter, that is, after the end of September. Please note that in fact, as a company, we have no sufficient foundation to do any prediction on this matter. But we should give an estimate of a three-level income. So it's more reasonable for us to stop new users from continuing to the end of September to make an estimate so that we can give an estimate of a three-level income You just said that if we stop adding new users, how can we add new users? There is no way to add new users. We will not make any alterations. We strictly follow the rules to stop adding registered users. Then I want to say that I have been thinking about the impact of stopping adding new users on business for a while. It is a stage-based impact. From a long-term perspective, OK. Now I will cover the question. OK.
spk01: So we are under the cyber security review, and since July the 15th now, our new user registration was suspended, and this did have impact on our business. So this suspension of user registration has impact on our MAU and DAU, but since our large base of existing users can use our app normally, so the MAU for July remains relatively stable. And our DAU to MAU ratio also remains stable, which means that we continue to keep our user activities. In the meantime, we are focusing to better serve our existing customers, which we make a lot of efforts. And on the revenue side, we are also impacted, because this suspension was not only for job seekers, but also for enterprise users. Our sales team and customer service team focusing on serving the existing customers and on the professional and in-depth service capability, we conducted some captive training to our teams. And the extent of the impact depends on how long the review will last. You can see that we have given guidance for our next quarter revenue, but this is an assumption that this new user registration suspension will last until the end of September. But in fact, as an enterprise, we cannot and we should not to predict on the timing of this suspension. But since we need to give this revenue guidance, we just make assumption that this will last till the end of September, which we think is appropriate and reasonable. This has nothing to do with our estimate on when this will resume. And this is not something we should to do. But as your question on what we can do to increase our new users, we cannot do anything about that because we are not allowed for new user registration and we are focusing on our existing users. But I believe that this suspension of the impact to our business is temporary and the effectiveness of our business model is not affected in the long run. And lastly, I'd like to emphasize that our whole company is fully cooperating with the review team on their work. And that's all for my questions and answers.
spk04: Thank you. Thank you. Thank you for the answer.
spk03: Your next question comes from Eddie Wang from Morgan Stanley. Please ask your question.
spk08: Mr. Zhao, Yu Ge, Wenbei. Thank you for accepting my question. First of all, congratulations on the excellent performance of the second quarter. I have two questions here. I will speak in Chinese first, and then I will translate my question myself. The first one may be related to the entire guidance of the third quarter. As Mr. Zhao said before, it is expected that the entire registration of new users will be stopped until the end of September. But we actually see that the growth of the entire Outlook is very strong. As Mr. Zhao mentioned before, it is more focused on the old users. In this, I actually want to ask, is this focus mainly reflected in the improvement of these old users, for example, the up of paid users, or the improvement of the operating ratio of our entire group of users? Can you share this with us? Another additional question is that if we wait until the fourth quarter and our new users can re-register, will some of the methods in this more special period lead to the fourth quarter even being retained in the future? Or is it possible that we may have a major improvement in the third quarter? This is a short-term measure. This is the first question. And the second question, I would like to ask Mr. Zhao. Many people are worried about the education industry. Some companies may not be able to grow as fast as they used to. The Internet industry has also been affected due to supervision. We should consider more negative aspects. But I would like to ask you to look at it from a bigger perspective. the employees of these companies have to find a new job. This is beneficial for our industry and our platform. For example, let's not look at the short term. Let's look at the long term. There are some high-speed growth companies whose employees have to find a new job. In the long term, will there be any benefits for the entire industry? These are the two questions. Then I will briefly translate it. Thank you for taking my question. I actually have two questions. First is regarding the third quarter guidance. Also, as Jonathan mentioned, this guidance is already affecting the suspension of the new user registration until the end of the third quarter. But actually, in my view, the guidance is still quite strong. So Jonathan mentioned that if you have all focused on the existing users' services and the user experience. So basically, I just want to ask, will this reflect in the app of the existing users or will it reflect the paying ratio improvement of the overall enterprise users? That's the number one question. And the number two question is that, uh given the uh uh you know more stringent regulatory environment for the uh you know the internet or all these fast-growing industries like education so we uh uh we will see you know more and more you know the uh staffs or employees from this industry actually is looking for the new jobs so in the short term i mean uh maybe it has some you know headwinds in terms of the uh you know uh you know a higher demand of this uh you know fast growing companies but uh How do you think, in the longer term, this situation will benefit the overall, you know, the online recruitment industry? Thank you.
spk10: So, Eddie, I would like to add a little bit of color to the R pool of the second quarter. So, second quarter, our enterprises, like R pool on R platform was relatively stable. So it's the revenue growth of our business mainly driven by the number of enterprises' users' growth, not our pool. So this is the situation of second quarter. So Jonathan can comment your next two questions.
spk02: To add on, our sales team and customer service team or a three-week forecast. Regarding the education and training industry, many employees have resigned, especially those who have graduated from school. We have noticed this. In fact, from the end of June, our old users and existing users in the education and training industry began to gradually show the characteristics of being active on a daily basis and working. I would like to talk about this in two parts. The first part is the general position, such as the technical position, such as the Internet product position, such as the personnel position, such as the human resources position, such as the administrative position, such as the operation position. Their positions are a little related to the industry, but after all, they are very general. So such students will actually integrate into this field. Find a job among more applicants. There is also a group of people who are actually education and training companies, especially teachers and assistants who study science and technology. They are relatively more professional positions. Such students also have weaknesses. Such students actually start to consider choosing two paths. The first is to continue to recruit institutions such as schools for science and technology education to seek a position. There are many people who will change their positions. I noticed that in the past two years, due to the rapid expansion of the position, and the large number of new recruits, there are a lot of junior recruits who have been here for a year or two. I noticed that they are actually more flexible when it comes to looking for a new job, because they are not particularly mature. So in my opinion, their survival status is quite good. In general, what I see is that there are a lot of job seekers here. We have a wave of such job seekers among our stock users. In fact, they have been integrated into a whole group of job seekers to find their own future. Therefore, I think due to the lack of training in education, Some of the company's employee sizes are actually not as large as our entire employee size. So I can't see it being able to have an obvious impact on the entire industry, even in our field. I can't see it. What I see is a state of melting and integration. But among our existing users, this part of the education and training field of the employee is indeed active. In the past, OK.
spk01: Firstly, I will make supplement to Phil's comments on your first question. And currently, our whole sales team and our customer sales team are focusing on our existing users. We are continuing to improve our renewal and repurchase rate. And this does not just help our current state. This will help us . But currently we can be more focused on this matter and from a group level so we can make this strengthening our service capabilities. And regarding your second question for the educational industry, we do have noticed a lot of employees leave their companies. And we have seen in our existing users that the job seekers from the educational industry has been more and more active to looking for jobs. And there are two kinds of job seekers in this industry. First one is this standard jobs like technology, products, human resource, and operations, which has some relation to the industry, but not so much. So they are more common for every industry, so they are much easier to find a new job. And the second type is for the K-12 teachers and coaches. And for them, there are two ways. First one, they can go to the institutions who are still opening for teachers, like the school or the college. And the second one is they can change their job career direction. We have noticed, because these companies in the educational industry, they have been recruiting heavily recently years. So there are a lot of junior workers, like fresh graduates or newly graduated for one to two years. in recent years. So they are more flexible in job seeking. So my observation is that they can emerge quite well and still living well. So the situation on our platform is there are a certain number of job seekers, but they are emerging into the overall job seeker group quite well and looking for a future. And as the overall educational sector accounted for a quite small number of our overall user base. So we didn't observe any very obvious impact to our overall industry. So it's just a melting and emerging situation. But they are doing increasing their activities. That's my answer to your second question.
spk08: Thank you, Mr. Zhao. Thank you. Thank you.
spk03: Your next question comes from Piyush Mubai of Goldman Sachs. Please ask your question.
spk06: Thank you, Jonathan, Phil, Wenbei. If I can just go through the business as it's been performing, your guidance of $1.2 billion for the third quarter is strong despite the CAC review. I wonder if you could take us through the drivers that you're observing and what the risk-reward around that number is. Can it slow down from here? if COVID was to pick up or any other event were to happen? Or would it accelerate as you go through potentially a slowdown in the economy based on what you've observed through the early part of 2020? My second question is on your deferred revenue, which is 276 in terms of the change. It points to a slowdown. The first slowdown we were observing after three quarters of an acceleration in the number. Could you just help us understand what's going on there? And the third question centers around how well you've managed costs in the second quarter. And I wanted, given the outlook for the third quarter, would you be running a sales and marketing expense line that's as tightly managed as you were running it in the second quarter so that the focus remains on what is necessary in the quarter thereafter from a cash perspective? Thank you.
spk10: Okay, thank you for your question. I should answer your second question first. So regarding the... Sorry, what's your second question?
spk06: It's on the deferred. Sorry, the second one is on... So the deferred revenue, yes.
spk10: Sorry, the deferred revenue, the changes of deferred revenue was mainly a seasonality issue. So... Normally our second quarter in terms of the the cash revenue cash collected from you know business is low so so the You know lower conversion rate or you know lower percentage as the you know gap revenue to the Calculated cash billion that ratio basically is you know, related to the seasonality. So we are still seeing healthy, at least for the second quarter, we are still seeing healthy cash revenue growth. And we didn't see any, like, slowdown with our cash revenue, you know, changes. So this is the second question. So your first question regarding for the overall guidance, So I think, you know, it's now, it's already by the end of August. And we believe that we have a certain level of visibility of, you know, August, the whole month. And we have already completed July. So basically we only have one month ahead of our growth. And so basically we have a certain level of confidence of our business growth. in third quarter no matter what happens in the third month of this quarter. So this is our rationale to do the forecast. And we think that we try to be conservative with our numbers, but all of the numbers are still based on some like our probably like extrapolated judgment for the September. So this is our initial thought and it's subjected to change. So we hope that you can understand in normal situation what we can get for the third quarter so we can give you some kind of sense to the numbers that we can have in third quarter. It's better than we don't mention anything about our third quarter under the cybersecurity review by the regulator. So this is our intention, so I share it with you. And the third question regarding third quarter cost expenses, we think that because we are not allowed to grow our users and our enterprise customers, so our top line, our you know, in some extent got impacted. But we would like to, as Johnson just mentioned, we would like to, you know, enhance our service to existing enterprise customers, existing job seekers. And by serving them well, and we can, you know, try our best to have, I think, the best that we can have with the revenue. So this is the revenue. And regarding for the expenses, definitely we would like to have very stringent measures for our various cost items. And so for the largest cost item is marketing and traffic related item. And because we are not allowed to you know, grow our users. So we reduced our user, you know, acquisition related marketing activities. So that will balance the, you know, because we cannot, you know, generate, might not generate enough revenue, but we spend less in third quarter. So generally speaking, we think that We hope that we can control the third quarter margin and we can, you know, deliver a solid third quarter result. Let's see.
spk06: Thank you, and congratulations again. Thank you.
spk03: Your next question comes from Wei Shang of UBS. Please ask your question.
spk05: Hey, Mr. Zhao, Mr. Zhang, Mr. Wenbei, good evening. Also, congratulations on your very strong performance in the first quarter. Thank you to the management for accepting my question. I also want to ask the management two questions. The first one is about the personal information protection law that we recently officially announced. Will it have any impact on our operation? For example, do we need to make some adjustments about the breadth and type of our user information collection? If necessary, will the accuracy and user experience of our recommended algorithm be affected? Thank you management for taking my questions. First question, I want to ask about the potential impact on personal data protection law. Would that potentially impact our operation or is there any adjustment that we need to make that could impact the effectiveness of our matching and recommendation algorithm? And secondly, just want to follow up on the latest progress in the blue collar segment recruitment business. If there's any operating data or financial data that management can share, it would be very helpful. And if we look at the second half of this year and the next year, what are your strategies and some of the operational goals that you could share? Thank you.
spk02: We have noticed that the Personal Information Protection Act is not an empty law. In fact, it is based on the original Internet Security Act, Digital Security Act, etc., including some of the rules and regulations of the department, further improving, perfecting and narrowing the principles and rules that should be followed for the protection of public personal information. It is a law with a source. And in the process of this source, Over the years, we have been strictly following our understanding of the law, and constantly adjusting the boundaries of this app to do things. This point needs to be mentioned. In addition, before the release, there was actually a petition. During this period, our company has learned from the legal department to the security department for a relatively intensive period of time. From the perspective of product operation, data security, and so on, once and for all, so that it can be reconfigured. This is the second thing I want to say. Another thing is that I think those who care and understand our business should know that this software, from the first day it was created, protects users' privacy on a relatively high standard. For example, one of our applicants and one of our recruiters Only if there is a direct communication between the two parties, and if the two parties agree on the same thing, then there will be a letter of recommendation. This is something that we have been insisting on for more than seven years. For us, the most important thing is to send a letter of recommendation. So we have made a protection. According to your question at the beginning, the implementation of the Personal Information Protection Act on the border between collecting user privacy, user data, and using user data. Will the recommendation be affected? We actually did a lot of research on this. The first is that we must collect and use it according to the law. The second is that we don't think this will affect our recommendation work. Because the most sensitive data and privacy of users are usually not used in our recruitment and recruitment process, especially in the recruitment section. So there is no fundamental impact. In the end, we are still actively studying and studying these laws. We think it is better to protect the privacy of the recruiter and the privacy of the user Okay, I will take your first question regarding the personal information protection law.
spk01: And this is actually not a new regulation. And our understanding that this is constructed based on the network security law and the data security law. So this law has its origins. And along the process, we have been strictly following the progress of the law's rules, and we have been adjusting our boundaries of our app according to our understanding. And before this personal information protection law came out, we also noticed that there are drafts for comments and combining it with our work. We sorted out our personal information processes from various perspectives, such as products, operations, and data security, and continued to update once and once again to improving our system and procedures to be more in compliance with this law. And the next one is about, we want to highlight that our app has been attach very great importance to the privacy protection since day one. For example, during our communication between job seekers and enterprises, so the switching of resume or contact information has to be happened after the counterparty clicked yes, and then they can share the information. We have been insisting on this one for many, many years. And on this Impact on our recommendation algorithms, we have done a lot of work and studies on that. But since we are collecting user data according to the law, we don't think this will have too much impact on our recommendation results because the most sensitive data are not used in the algorithms and have no fundamental impact to our business. So we have been doing our studies and doing our standings and continuing to improving the use of privacy protection. And we do believe these regulations, more strict regulations, are a good thing to the overall industry and the user protection. And we will do our best to be in compliance with the regulations. That's all for my question. Also, for my first question.
spk09: So regarding the blue collar business.
spk10: So in the quarter we are seeing faster user growth from both blue collar and the white collar segments. And blue collar segment continues to outgrow our white collar business. So among all sub-sectors related to blue collar, urban service sector grew nicely with verified enterprise users up by more than 120% year over year. So we see good momentum, good progress with our blue collar business. And in the second half, we think that we will continue to focus on building foundations of our blue collar recruitment service. we will further optimize our products and service, improve blue-collar job seekers' user experience. Because of blue-collar job seekers, they have different user preference, so we are providing more user-friendly products to them, like simplified mini-resume templates and algorithms we are also making blue-collar related customization. In terms of the recommendation, we provide them with business areas related recommendation. And also, to protect blue-collar job seekers, we would like to implement stricter platform rules to restrict false information and illegal recruitment activities on both GPMs. In second quarter, as Jonathan just talked, we enhanced our own platform security and verification team. So that will all above measures. We think that we will make sure blue collar people, they can have a satisfied user experience. And that will also increase their user stickiness and increase their platform loyalty. And in terms of the blue-collar business, the revenue contribution on our platform continues to grow. So in second quarter, the revenue from blue-collar business accounts for roughly like mid-20s of our total revenue. So this is still in an uptrend. So we would like to see in future growing revenues percentage from blue-collar contribution to our business.
spk05: 感谢管理层。Thank you, management.
spk03: Your next question comes from Colin Liu of China Renaissance. Please ask your question.
spk07: The first question is, as Mr. Yu mentioned, the city blue-collar industry is growing very fast. I would like to ask, in the direction of the blue-collar industry in the traditional sense or the construction industry, what strategies do we have in the second half of this year to make the market bigger? The second question is, in the process of making the blue-collar market, 我们需要和更多的伙伴来进行合作。 那在这个和伙伴合作的策略上, 我们有没有一些更新? I'll translate for myself. So as you mentioned that there is a very burgeoning growth from blue-collar business market. And I just want to, particularly in the urban blue-collar segment, but apart from that, there's still a very large portion of the market well, what we call traditional blue-collar workers from manufacturing or from construction industries. I wonder, going into the second half and the rest of this year, do we have any strategic updates on that part? How can we accelerate growth, particularly towards that part of the business? And the second question from me is, while we deepen our penetration across blue-collar market, it's sort of inevitable that the company is going to Worked with a number of partners, and it was just strategy of choosing or working with different kinds of partners.
spk10: Thank you Okay, thank you for your question, so I would like to briefly answer your question and Jonathan will give you a more color about the you know our strategy or or our cooperation with agencies for the for the blue collar business so regarding a You just mentioned the manufacturing-related blue collar and also maybe construction-related blue collar. I think they are part of the blue collar market. But we see that the urban service sector is the largest and the fattest growing segment among all of the blue collar segments on our platform. We think that because there is a structural trend letting more people coming to urban area finding a job so our app because of our you know model is very friendly to job seekers and employers we can serve such kind of groups of people very well so we see that our you know urban service sector blue collar people are our near-term focus and We also believe that manufacturing, like logistic related, and also like construction related, real estate related, the blue colors, they are also very important, but they are not imminent our focus. We can serve them, but we think that the largest proportion of growth might still come from the urban service area. Regarding the cooperation pattern between the urban service blue collar and the manufacturing related collar, blue collar are a little bit different because of most of the urban service enterprises users, they come to platform to hire job seekers directly. But for manufacturing enterprises, they tend to use agencies to hire blue-collar people from online platforms. So that's why we need to cooperate with third-party agencies. We cannot do it by only ourselves. So Jonathan can comment a little bit with our cooperation with the agencies.
spk02: There is a term called more partners. I understand that more partners may mainly refer to the talent intermediary organization in the field of manufacturing. We have also noticed that there is a reality here, that is, in the huge Chinese manufacturing industry, to hire people and organize employees to go to work for companies, there have been a huge number of intermediary organizations for a long time. Then we After seeing this, we found that more and more people like ordinary workers and workers came to the platform. Then the intermediary organization also came to the platform more and more, and shared talents with enterprises. We noticed that in the process of this matter, we faced a new challenge, which is how we should deal with the intermediary organization. We believe we have already found an answer, which is from the game of four people, the enterprise of the user, The player, the intermediary organization, and the boss can be simplified into a three-person game. How do we simplify it? The boss has to stand firmly at the player's point of view. The boss has to represent the player's interests and discuss a good game rule with the intermediary organization to maintain the player's experience and feelings. In this way, the game will be relatively simplified. After finding the game rule, the rest is how to implement it. We are doing a lot of work with the intermediary organizations, especially some of the bigger, longer-term talent intermediaries in the industrial field, to discuss how to protect the experience of the client, so that the client ecosystem can continue to protect the platform, so that these intermediary organizations can gain talent. We need a little time, but our company has a relatively optimistic attitude towards this.
spk01: And to answer your questions, you just mentioned the word partner. I'm thinking because when you are mentioning partner, you are referring to those talent agencies in the manufacturing area. The fact is that in the massive, huge manufacturing industry in China, there are a lot of agencies that are recruiting people for the enterprises. But when there are more workers, ordinary workers come to our platform, we are observing that those agencies come to our platform to find the talents together for the enterprises. And that arises the challenge on how to cooperate with those agencies. And to find an answer, we find a way so we can show this game from four people. which is job seekers, enterprises, agencies, and platform to 3%. That means we will stand together firmly with the job seekers. So we will find a way to negotiate with those agencies to find a more clear game rules. So we have done a lot of work to standardize this industry, to protect our users, to protect our ecosystem in an achieved manner. So we are doing a lot of work on this. We will need some time, but our whole team are quite positive on this, so we can find an effective way to cooperate and to tap further into this manufacturing industry. That's my answer to your question.
spk07: Thank you.
spk03: Okay, 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.
spk01: Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or the TBT Investor Relations. Thank you.
spk02: Thank you. Thank you.
spk03: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.
Disclaimer

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Q2BZ 2021

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