KANZHUN LIMITED

Ladies and gentlemen, thank you for standing by and welcome to the Kunzhen Limited First Quarter 2022 Financial Results Conference Call. At this time, all participants are in listening mode. After the speaker's presentation, there will be a Q&A session. Today's conference is being recorded. At this time, I will 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 first quarter 2022 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 purposes 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.gpin.com. With that, I will now turn the call to Jonathan, our founder, chairman, and the CEO.

JONATHAN ZITTRAIN- Hello, everyone. Welcome to our first quarter 2022 earnings conference call. First of all, on behalf of the company, I would like to express our sincere gratitude to our users and investors for your ongoing trust and support. 2022年一季度,我们实现了不错的收入增长。 公司的GAAP收入为人民币11.4亿元, 同比增长44%。 In the first quarter of 2022, we achieved a solid performance. The company recorded GAAP revenue of RMB 1.14 billion with a year-on-year growth of 44%. 扣除股权激励费用的

Our adjusted net income, excluding share-based compensation expenses, reached RMB 120 million, with sustained profitability in the first quarter, when typically the highest level of expenses are booked throughout the year.

In the first quarter this year, without any new user registration, solely relying on the existing users,

Our average DAU increased by 8.2% year-over-year, with peak DAU reached 9.7 million, surpassing that for the same period of last year.

Our average MAU reached 25.23 million, with a year-on-year increase of 1.3%. To further talk about our users' activeness, the point is our DAU to MAU ratio continually encouraging growth trend. 还有一个观察比较重要,无论是求职者还是招聘者,在一季度, Another important observation is that for both job seekers and enterprise users in this quarter,

Their average achievements per MAU, which is the average number of times of mutual consent on contact information exchange with the counterparty, in the first quarter increased by more than 20% year over year.

In the past several earnings calls, we have several times promised to you that we will better serve our existing users.

In today's call, the 20% year-on-year growth in achievements per MAU is a solid proof of our unremitting commitment.

The improvements of the above-mentioned operating data, mainly coming from the increasing investment in technologies and products, cultivation of the in-depth user demand,

and concentration on serving the existing users.

借此机会,我也对于做出了价值,解决了问题的公司产品和技术团队深表感谢。 Taking this chance, I'm truly grateful to our product and R&D teams who have created value and solved problems. 在深耕不同类型的用户,提供更有针对性

我们也进展顺利,分两个方面说一下。 We made solid progress in developing more targeted and comprehensive services to diversified user groups. I will elaborate from two perspectives.

First of all, in terms of blue-collar, we are talking about the manufacturing industry. It is encouraging to see that Hilo project has been progressing well.

Hello Project is a campaign specifically undertaken to provide blue-collar workers in the manufacturing industry with credible job positions and a safe job-seeking experience, as well as to eventually establish an assessment and verification system in line with the blue-collar recruitment ecosystem.

从我们的进度看,能够完全接受BOSS制品平台对信息的真实性,

The number of blue-collar intermediary agencies and enterprises who have signed up in full to our platform's requirements on information authenticity and integrity increased exponentially since the beginning of this year.

The second group of users is the high-income white-collar and gold-collar users. Our headhunter consultant brand, Zhilebang,

established for more than one year, also made remarkable progress.

直列邦这个品牌我们做了将近两年时间, 借此机会也告诉大家这件事情的进展也到了可以说的时候。 This直列邦 brand we have been working on for almost two years, and we think it is time to tell you some progress. Let me share three numbers with you. For headhunter enterprises,

Thousands of them have accepted and agreed to our user protection rules and signed cooperation agreements with us.

第二个数字是猎头顾问。 活跃的猎头顾问人数每个月已达数万人之多。 The second number is headhunter consultants. There are tens of thousands of monthly active headhunters working on our platform. 第三个数字就是

The third number is the high-income white-collar and gold-collar users the above-mentioned headhunter consultants are serving. For job seekers of this kind, our platform provides services to more than millions of targeted users each month.

接下来我也分享一下最近大家非常关注的疫情对我们业务影响的一些情况。 Next, I would like to share some information about the pandemic's impact that everyone has been very concerned about. 3月下旬以来,疫情在中国多个主要城市出现扩散。

我们也看到出现了整体招聘需求下降的现象。 Since mid-March, the resurgence of COVID-19 across major cities, we have also witnessed a decline in the overall recruitment demands. 在几个疫情严重的城市及周边,活跃的招聘者和他们发布职位的数量都有较大的减少。 The number of active enterprise users and job postings plummeted in the cities and areas with severe outbreaks.

From the revenue perspective, Shanghai and Beijing are both important contributors to our revenues. From April to May, cash revenues in Shanghai dropped by more than 50% year over year.

Beijing was also significantly impacted since May. 这些对我们在二季度的业务是造成了一定压力的。 which has generated a certain amount of pressure on our business in the second quarter.

However, our operating data shows that the impact is relatively short-lived.

Overall, our observation is that the impact of pandemic can recover rapidly.

For example,

In the earlier cities which have been affected like Shenzhen, Xi'an, Changchun, and other cities, our revenue can return to almost the same level as those prior to the outbreak within two to four weeks once the situation were under control.

从6月初开始,上海的疫情影响减轻了。 两周之后,我们的业务数据恢复到疫情之前的80%。 Since the beginning of June,

the impact of the pandemic in Shanghai has been eased, and we have seen the operating data recover to 80% of the pre-pandemic level two weeks later.

And as of now, Beijing has also shown significant recovery, such as for the urban service industry, our operating data has shown a clear rebound. Everybody knows that the current employment situation is quite challenging. As one of the major recruitment platforms, we are proactively responding.

Our major actions can be demonstrated from the perspective of enterprise users and job seekers.

For enterprise users, we provided subsidies to cities and industries

which have been severely affected by the outbreak.

举个例子,三月以来,我们在七个城市 对于上万个职位进行了免费开放的政策。 For example, since March, we have opened over tens of thousands of job postings on our platform free of charge in seven cities. 对求职者,我们主要是针对应届毕业的大学生

For job seekers, especially the fresh graduates, we held a Spirit of Spring Recruitment Festival for six weeks.

Together with nearly 1,000 enterprises,

We have been providing tens of thousands of additional job openings for college students.

还有一件事说一下,三月份我们宣布了一项回购计划。 在这期间,在合理的价格上,我们进行了回购的操作。 这也代表了我们对公司长期发展的信心。 One more thing to add, we announced a repurchase program in March.

Since then, we have effected this program in a reasonable price range, which have been reflecting our confidence in the sustainable development of our business and our commitment to delivering long-term value for our shareholders.

我的介绍就到这里,接下来由我们的CFO Phil为大家介绍我们的财务情况,谢谢。 We said, 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. Before I begin, please note that all amounts are in RMB and all comparisons are on a year-over-year basis unless otherwise stated. Despite the continued suspension of new user registrations, our solid financial performance in this quarter once again demonstrated our model resilience and sustainability. In this quarter, our total revenues increased by 44% to RMB 1.14 billion, beating the high end of our guidance range. Our calculated cash billions reached RMB 1.29 billion in the quarter. Facing various macro uncertainties, we have been further focusing on providing better services to our users, which we believe will deliver increasing values in the long term. Continuing to benefit from sustainable growth of our user base, our paid enterprise customers for the 12 months ended March 31st, 2022 grew steadily to 4.1 million. Moving on to the cost side, total operating costs and expenses for the first quarter increased by 18%, one eight. year-over-year to RMB 1.15 billion. Excluding share-based compensation, total operating costs and expenses increased by 10% year-over-year to RMB 1.01 billion in the quarter. Our cost of revenues expanded by 66% to RMB 177 million this quarter. mainly driven by the increased headcounts, especially security-related staff, as we continue to improve our platform's security capabilities, as well as the higher server and bandwidth costs caused by the increased user traffic. Sales and marketing expenses, or RMB 522 million in the quarter, representing a year-over-year decrease of 16%. Again, against the high base last year, such decrease was mainly due to the reduced marketing activities during the new user registration suspension period. However, as the Spring Festival is the traditional peak season for the recruiting, We undertook a marketing campaign to sponsor the Beijing Winter Olympics and the Paralympic event, leading to higher brand-related sales and marketing expenses quarter over quarter. We believe this investment will help enhance our brand recognition and benefits us in the long run. Research and development expenses increased by 77% year-over-year to RMB 291 million in the quarter. And the general and administrative expenses increased by 91% to RMB 156 million. The increases were primarily due to the increase of personnel costs, reflecting our commitment to strengthen our core competitiveness in technology. Our net loss for this quarter was RMB 12 million, compared with net loss of RMB 176 million for the same period last year. Excluding share-based compensations, our adjusted net income for the quarter was RMB 121 million, compared with an adjusted net loss of RMB 128 million in the same period last year. representing an adjusted net margin of 11%. Normally, first quarter every year is a seasonality low for margin due to increased marketing and advertising activities around Spring Festival. We will see an improved margin in the coming quarters. Our net cash. generated from operating activities was RMB 294 million for the first quarter of 2022. As of March 31, 2022, our cash, cash equivalents, and short-term investments totaled RMB 12.4 billion. We believe these healthy cash reserves and sustainable operating cash flows will provide us with a solid foundation for the long-term growth and generate sustainable returns for our shareholders. And now, for our business outlook, as Jonathan has just mentioned, the resurgence of the COVID-19 in many cities since late March and the responding control measures have adversely affected business activities, resulting to declined recruitment needs. and impacted our business for the second quarter in short term. With regards to this, we expect our total revenues for the second quarter to be between RMB 1.09 billion and RMB 1.1 billion, representing a year-on-year decrease of approximately 6.7% to 5.8%. However, we believe the impact is temporary. As we have witnessed a rapid recovery in previously affected cities, we are optimistic and confident in our business development in the long run, which is underpinned by our effective and resilient business model, massive and stable user base, as well as continually improving user experience. That concludes our prepared remarks. Now we'd like to answer questions. Operator, please go ahead.

Thank you. To ask a question at this time, please press star, then 1 on your touchtone telephone. To put yourself in the queue, please press the pound key. Please stand by while we compile the Q&A roster. Our first question from Eddie Wang with Morgan Stanley. Your line is open.

All right. Thank you, President Zhao, Yu Ge, and Wenbei for accepting my question. I have two questions here. The first one is about the Hilo Project, which President Zhao mentioned earlier. I want to ask that in the past, in fact, for so many years, we all know that the online conversion rate of the manufacturing industry in Lanling is actually quite low. But there are also different Internet companies, including online recruitment platforms and some recruitment professional platforms, who want to do this. Recently, there may be other, including many platforms, who are doing this. So I would like to ask, what do you think is the main reason for the low rate of online conversion in the past few years? Because you mentioned earlier that our real position, certification of review, etc. This is a very important pain point in the industry. That is, if this problem is not solved, it is actually difficult for other companies, even if there is traffic, to do this business. Or this is, including other professional platforms, this platform wants to do They are also very active customers. There is indeed a lot of growth on the C-end users. But on the other hand, if we look at the growth of the user's income, I think this is a reflection of the growth of a B-end user or pay. That is to say, this increase is obviously much slower than us. What I want to know is that we have given almost a year. Why are other platforms in the case of C-end customers, the B-end still cannot make a better income growth? Thank you, management, for taking my question. My first question is about the manufacturing blue collar recruitment. you have launched the Hilo plan for quite a long time. So we also noticed that other platforms, even including some of the live streaming platforms, they also initiated a new business of the blue-collar recruitment. So I just want to hear your thoughts on what's the real pinpoint in the blue-collar online recruitment sector. It's because of not a lot of platforms there They are trying to do the difficult process to verify the real positions, postings, as well as the verify of the enterprise or there's any other pinpoint to stop this blue collar, the online recruitment, online penetration to be sustainable, to be low in the past few years. The second question is about the competition. I think we have been suspended for new user registration for almost one year. At the same time, I think a lot of peers, they have been able to spend a lot of sales and marketing to acquire new job seekers. But at the same time, we witnessed that their revenue growth actually is sustainable lower than Boss Japan. So just want to know, did they have almost one year to collect more of the enterprise users. But it seems that the results so far is not so good. What's the differentiation so far can tell the difference between Boss Japan and the other online platform, and how they are not able to increase many enterprise users? During the one year, we are not able to increase new users. Thank you.

Thank you for your question. The first question is about the blue-collar manufacturing industry. In fact, I want to give two words and a number to this question. The first word is very complicated. The second word is very strong. If I don't talk about the rest of the numbers, I can't explain what it means. There are four numbers. The first person is the intermediary organization. The second person is the factory. The third person is the platform. Thank you for your question. For your first question about the blue-collar manufacturing industry, I would like to explain it by two words and one number.

The two words are comprehensive or complicated and firm, and the one number is four, which I need to give you this number to further elaborate. So the four means there are four parties. The first one is agency, the second one is factory, the third one is platform, and the fourth one is workers. For a long time, the four parties have been making this game very, very complicated.

You should know there is a very famous Chinese novel, Three Bodies.

which they have presented a very difficult math question. Where three planets, they are spinning around each other, it's quite difficult to sort out. And we are facing a problem of four bodies, which is even more difficult.

So to solve this question, I probably know how to solve it. It used to be difficult. First, we found out among these four people who is the most important person.

I have thought for a long time on how to solve this problem, and I know how to do that. So the important thing is to find out who is the most important party in the four groups, and it is the workers. And we need to do everything around workers.

For Internet platforms to stand together with workers, which is very naturally, and is what we have been saying to put our users at first. 随着新增年轻劳动力的不足,工厂难招人的局面已经存在好几年,并将继续存在。

所以越来越多的工厂也会把工人摆在非常重要的位置。 With the lack of newly increased young employees, it will be more and more difficult for the factory to recruit workers, and in the future they will place the workers as the most important thing. 当平台和工厂都围绕工人,跟工人站在一起的时候,中介组织是没有其他选择的。 When both platforms and factories choose to stand together with workers, there is no other way left for the intermediaries.

As I have just introduced,

All those intermediaries who have agreed to our rules and requirements and fully signed up with our platform have been growing exponentially since earlier this year.

By finding the keyword of workers, I believe this problem can be solved in the short term. This is about the first question. The second question.

That's the answer for your first question. And for your second question.

Actually, I see the word user growth. We have always insisted that user retention is the real user growth. Spending money to buy new users is a way to achieve user growth, but it's definitely not all.

You mentioned the word about user growth. I have long been believed that the retention, user retention, is the key for growth. You can pay money to acquire new users, but it's not everything. 所以关心到竞争格局的话,我的观察是竞争格局暂时没有变化。 So regarding the competitive landscape, my observation is nothing has been changed. 我就回答这么多。 And that's my answer.

谢谢。 Our next question comes from Timothy Zhao with Goldman Sachs. Your line is open.

The first is that we see that the second quarter is under the influence of the epidemic and the pandemic. I would like to ask about the return rate of our companies on the platform, including the trend of ARPU and what changes we had in the previous few quarters. We especially consider that we have more than 80% of small and medium-sized enterprises on the platform. What should we pay attention to in terms of the return rate and the trend of ARPU under the current pandemic-influenced areas and the current pandemic-influenced environment? Thank you very much for taking my question. I have two quick questions. First one is concerning the impact of COVID resurgence and also the weaker macro in the second quarter. What is the latest trend in terms of the pain ratio and ARPU on the platform, and how does that compare to the previous quarters? Especially considering that we have over 80% small and medium enterprise users on the platform, what is their trend in terms of pain ratio and ARPU, especially for those under the impact of the COVID resurgence? And secondly, it's about the new Bayonets, especially as we introduced the Bayonets related to the high-income white-collar and gold-collar users, including the Gillibrand brand. Could measurement share any outlook for this part of the Bayonets, and what is our differentiation versus competitors, and what kind of the revenue or margin outlook that we should have for this part of the Bayonets?

Thank you. Okay. Thank you. I'd like to answer the first question. So overall, during the pandemic and weak macro conditions, we continue to see healthy operating metrics. And regarding the overall paying ratio and our pool, those numbers also maintain at a stable situation as a whole. I think the The pandemic and macro impact mainly reflected at total number of active enterprises users. We see some declining trend during the pandemic stage. So compared with the large enterprises, smaller enterprises, they see stronger impact during the pandemic. But we think overall the total number of small enterprises, small and medium sized enterprises are huge and they are quite resilient in the economy. So we expect that overall the SME, they will see recover backed by the better macro conditions in upcoming probably like weeks or months. And we have already witnessed such kind of signs, early signs. And in terms of their margin, sorry, their like paying ratio on our pool, like the large enterprises, their paying ratio on our pool are also in a stable situation. So their impact mainly due to the number, total number of active, like smaller number of active enterprises from small, medium-sized segment. So that's the situation. 你的第二个问题还是关心我们在精灵领域的发展。

After two years of development, we are currently increasing our efforts. To put it simply, through the project of DirectBank, we have been able to develop a large number of platforms, such as a leader consultant, a leader company, and a leader talent. Currently, we have more than 3,000 signed leader companies,

And for your second question regarding the development of our gold collar business, during past two years of development, we have been now increasing our efforts in this area. So through this Julia Bomb brand, we have established a very good and healthy ecosystem for the headhunter enterprises, the headhunter consultant, and Gold Collar users. So currently, we have over 3,000 contracted headhunter enterprises, tens of thousands of active headhunters, and more than 1 million active high-end users.

We can say that as of today, BOSS-GPIN has established a user ecosystem surrounding gold-collar users and headhunter consultants. Looking back to our own ecosystem development process, we truly believe that with higher efficiency and higher value proposition to our users, we should have a better chance to explore a proper monetization model. Thank you.

Thank you.

Our next question comes from Wei Zhang with UBS. Your line is open.

Thank you. First of all, it's about the impact of the pandemic and the pandemic on our business. I'd like to ask the management team if they can help to clarify how much the pandemic pressure that we've observed in the second quarter has had an impact on our income. So based on the recovery trend of the pandemic, because we talked about the speed of recovery earlier, how should we think about the situation of business growth in the second half of the year? Thank you management for taking my questions. First, I want to follow up on the macro impact on our business? Could management maybe help to quantify the macro pressure we've seen on the second quarter revenue outlook? And also, given the current macro trends, how should we think about the business growth in the second half of the year? And second, just to revisit the topic of competition from a different angle, we've talked about other online recruitment platforms may have stepped up their marketing spend over the past year. So how could this affect our marketing or user acquisition strategy going forward, any implication that might have on our margins? Thank you.

Okay, so I'd like to answer the first question, and Jonathan will reply you for the second part. So basically, regarding our impact strategy, financial impact from the pandemic. We think that the pandemic and the weak macro, as I just mentioned, have some material impact into our business. It's reflected as most of the businesses, during the pandemic and during the weak macro conditions, they reduced their business activities. and they reduced their recruiting as well. So we did some analysis and the number shows that pandemic and weak macro totally had around like 10% to 15% to our overall revenue in the second quarter of this year. So this is pretty much the overall impact in the second quarter. And we think that given we have seen some early signs of a recovering in early June, we think that day by day we have witnessed some improving situations. So we think that the upcoming Third quarter, things could improve. So we think that will support our business recover as well. So Jonathan can give us some color regarding the, you know, the industry like view towards the overall recruiting market's demand.

Okay, then I'll say three numbers, the numbers I see. Okay, I will say three numbers. First one is for the first two weeks of June,

Our DAU increased by 10% month over month, which we have been in this rapid recovery.

And the second number is 100. In July, for those enterprises have less than 100 persons,

we have seen that their recovery speed is much faster than the rest of enterprises.

And the third number is for the first half of June compared to the later half of March.

where is the traditional peak season, the urban service industry, within the urban service industry, the newly posted jobs is 104% compared to the later half of March. 所以我们在以上这三个数中看到的是,我们的客户,包括我们非常大的中小客户,有强大的韧性和非常快速的付出能力。 From those three numbers, we believe that our customers, including big enterprises and SMEs, they are quite resilient and have a very strong power to recovery.

I will add two field answers with these three numbers.

And also regarding the question related to the margin, so as just mentioned in the prepared remark that First quarter, due to seasonality reasons, it was with lower margin. In upcoming quarters, we would like to see improved situation. But having said that, because of second quarter is already seeing some impact from the COVID pandemic, so the margin improving, there will be improving, but might not be as high as third quarter last year and fourth quarter last year. Overall, for the margin of 2022, we think that we should be able to maintain our previously view regarding the yearly margin, so pretty much as close to 20% to our total revenue for the whole year. So we still believe this is the situation. And I think for comparison reason, I probably need to update one number, which I gave during last earnings call. So that is the failed registration like a total number of failed registrations. So by the end of May 31st, the total number of failed registration was 46 million, four six.

And that's our answer to your question. Thank you, Xiangwei.

Very clear. 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 questions or remarks.

Thank you once again for joining us today. If you have any further questions, please contact our IRT directly or TPG Investor Relations. Thank you.

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