KANZHUN LIMITED

ladies and gentlemen thank you for standing by and welcome to the canjun limited first quarter 2023 financial results conference call at this time all participants are in 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 miss 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 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 caution you not to place undue reliance on forward-looking statements and do not undertake any obligation to update this forward-looking information, expect as required by law. During today's call, management will also discuss certain non-debt financial measures for comparison purpose only. For a definition of non-debt financial measures and a reconciliation of debt to non-debt 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.tripping.com. With that, I will now turn the call to Jonathan, our founder, chairman, and CEO.

Hello, everyone. Welcome to our first quarter 2023 earnings conference call. On behalf of the company and our employees, I would like to express our sincere gratitude to our users and investors and our employees. In the first quarter, our overall feeling is that business has returned to a healthy path after the pandemic.

In general, this is the season when our business began to return to its healthy development trajectory as we step into the post-pandemic era.

In this quarter, the company has achieved a revenue of 12.8 billion yuan, a growth rate of 12% and a return rate of 18%. Calculating the cash receivables, 16.5 billion yuan increased by 28% in total, and 49% in total. At the same time, we showed good profit and loss performance, achieving a net profit of 32.7 million yuan. After deducting the interest rate, the net profit was adjusted to 2.45 billion yuan, which increased by 102% in total.

In the first quarter, we recorded revenue of RMB 1.28 billion, representing an increase of 12% and 18% year-on-year and sequentially. Our calculated cash billings reached RMB 1.65 billion, representing an increase of 28% and 49% year-on-year and quarter-on-quarter respectively. Along with the recovery of our revenue, we demonstrated our healthy profitability and achieved a net profit of RMB 32.7 million compared to a net loss in the same period of last year. Our adjusted net income, which excludes share-based compensation expenses, was RMB 245 million, increasing by 102% year-on-year.

After the Chinese Lunar New Year, the number of users increased rapidly. In the first quarter, the number of new users increased by 14.61 million. The average number of active users on the app is about 40 million, which is 58% of the total growth. The average number of active users on the app is 54% of the total growth, which is nearly 15 million. Among them, Lanling users and users from low-end cities are growing faster. Lanling's contribution ratio is over 40% among new users in the first quarter. Lanling users' total number of users has increased to 31%,

After Lunar New Year, our user base grew rapidly. In first quarter, we had 14.61 million newly verified users. The average monthly active users on both JPEG apps were approximately 14 million, up 58% year-on-year. The average daily active users increased by 54% year-on-year on this quarter, with DAU reaching nearly 15 million with peak DAU reaching nearly 15 million. Notably, blue-collar and lower tier CP users were the fastest growing cohort across our user base. In this quarter, blue-collar users contribute to more than 40% of the newly verified user growth, with accumulated verified blue-collar users accounting for 31% of our total users by end of this quarter.

Many people are very concerned about the recruitment needs of enterprises. In the first quarter, the number of recruiters in the number of active users has been increasing every month. And after the Spring Festival, it has been maintained at a high level. The performance of the service industry is outstanding. In addition, small and medium-sized enterprises recover faster than large enterprises. This also reflects our software and service.

In terms of recruitment demand from enterprise users, which many of you care about, since the first quarter to now, our monthly active enterprise user sales continuously reached record highs in comparative periods, while maintaining a consistently high level since the Spring Festival. Among all the industries we serve, the urban service industry was the most prominent performer, while the SMEs recovered faster than large enterprises. This is also a demonstration of our software and the modeling ability to serve different users from different industries, regions, and enterprise scales.

In terms of business, we are proud of the recovery of the demand for B-end. In the past 12 months, the statistics have shown that the number of paid users is rapidly increasing. It is expected that the number of paid users will continue to grow in the future. The service industry has become the second largest industry in the company's income contribution, with a strong growth of users. In this quarter, the overall net income ratio is more than 30%. From the scale and distribution of the business, companies below 100 people and cities below the second line

Commercial-wise, thanks to the general recovery of recruitment demand from our enterprise users, the number of our paid enterprise customers in the 12-month period ended March 31st, recovered rapidly, and this growth trend is expected to continue in the following quarters. Strong user growth has driven the urban service industry to become our second largest revenue contributor. leading to the results that revenue contribution from blue collar users accounted for over 30% of our total revenue in this quarter. In terms of enterprise scale and regional distribution, the revenue contribution of enterprises with less than 100 employees and those from second and lower tier cities also increased year on year.

is that in the current form of employment, we have to try to ease the imbalance between supply and demand, to ensure that single users, especially those who want to work, can have better income, and the practical experience will not be affected. By deepening the understanding and digging into the needs of users, as well as working hard to recommend algorithms, we have achieved certain results. After the Spring Festival, in February and March, our platform users achieved 1.6 billion pairs per month. This is 65% higher than last year. With 58% increase in monthly users, our customer revenue increased by 65%. Regardless of the number of people,

On the business operations side, one of our priorities in the quarter was to alleviate the imbalance between supply and demand under current employment market conditions. Specifically, we worked to ensure individuals, especially job seekers, could access more and better employment opportunities on our platform. with a continued high-quality user experience. Through deeper understanding and exploration of user demand, combined with continuous efforts to optimize our algorithms, we made some progress in this area. In February and March, following the Spring Festival, the number of successful constant reach, which means the successful resume exchange between job seekers and enterprise users, achieved On average, 160 million pairs, which is an increase by 65% year-on-year. To remind you that our monthly active users increased by 58% year-on-year, which means we have achieved record highs in terms of total number of resume exchanges and the number of resume exchanges per person. So I would like to take this opportunity to give special thanks to our engineers and the project managers who have made their special efforts.

For critical users, such as college students,

We continue to leverage our resources, trying our best to help them access to more suitable opportunities on our platform. This is an important work for our company this quarter and also the corporate culture that more than 55,000 employees of our company has been upholding.

Many investors and company friends are very concerned about the recent development of AI technology and the challenges and opportunities brought to the company.

We believe many investors and friends are concerned about the challenges and opportunities that the recent development of AI technology has brought to the company. There are only two things we can say as of today. First, the company attaches great importance to this technology development. Secondly, we are and will make a reasonable investment and commitment in this area to try to do something.

Overall, in the second quarter, so far, the entire platform has maintained a good growth pattern in terms of user growth and activity. In general, since the beginning of the second quarter

Our platform has continued to see solid growth trends in our user base and user engagement, both on the job seeker side and enterprise side. It's worth mentioning that the number of active enterprise users and active positions posted have both shown ongoing and steady increase, succeeding the levels we saw at the end of March. This is actually a quite good scenario. In terms of what we are seeing within different industries, the urban service industry and the travel and tourism industry have continued to perform well. The growth rate for sectors such as warehousing and logistics is a highlight recently, while recruitment demand in manufacturing industries have also demonstrated a promising recovering trend.

That's all for my part. Next, we will have our sample field to introduce our financial situation.

With that, I will turn the call over to our CFO Phil for review of our financials. Thanks.

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results for the first quarter of 2023. We are pleased to deliver a solid quarter results with strong revenue growth as well as healthy profitability and a strong operating cash flow. Driven by the robust user growth and rebound of the recruitment demand post-Spring Festival, we have witnessed a reacceleration of both revenue and calculated cash filling growth. Our revenues reached RMB 1.28 billion, up 12% year-over-year, and our calculated cash billions reached RMB 1.65 billion, representing a year-over-year increase of 28%. Quarterly number of paid enterprise customers alone reached to historical high level mainly due to increase in number of active enterprise customers and improve the paying ratio. As a result, our number of paid enterprise customers in the past 12 months also recover and expect to continue to increase in the coming quarters. Revenue contribution from small size accounts increased as equipment demand from SME grew better. Moving to the cost side, total operating costs and expenses in this quarter were RMB 1.37 billion, up 20% year-over-year, excluding share-based compensation. Adjusted operating costs and expenses in this quarter increased by 15% to RMB 1.16 billion. Considering other operating income Our adjusted operating margin for this quarter is 10.6%. Cost of revenues in this quarter was RMB 247 million, up 39% year-over-year, mainly driven by increases in server and bandwidth costs due to higher user traffic and payment processing costs, which is related to the higher growth of cash collections from our online self-serve facilities. Excluding share-based compensation expenses, our adjusted sales and marketing expenses were RMB 568 million, up 15% year-over-year. This increase was primarily due to higher marketing expenses compared to last year, as we have strong user and traffic growth this quarter. However, we have observed that overall customer acquisition efficiency has improved compared to the same period of 2021 due to our enhanced branding recognition. This encouraging trend will help us continue to achieve sound profitability while maintaining good user growth momentum. Related expenses also increased as a result of higher cash revenue growth. Our R&D expenses in this quarter increased by 15% year over year. to RMB $333 million, and the T&A expenses in this quarter increased by 6% year-over-year to RMB $165 million. Notably, benefiting from our strategy and efforts to improve operating efficiency, our adjusted RMB expenses and adjusted T&A expenses kept relatively stable with the same period of 2022. Net income in this quarter was RMB 33 million as compared to net loss of RMB 12 million in the same quarter, 2022. And our adjusted net income for this quarter increased by 102% year-over-year to RMB 245 million, representing an adjusted net margin of 19%. Net cash provided by operating activities was RMB 544 billion for this quarter. As of March 31, 2023, our cash, cash equivalents, and short-term investments increased to RMB 13.5 billion. The robust operating cash flows and cash reserves enable us to be more flexible on capital allocation and future development strategies. And now for our business outlook for the second quarter of 2023, we expect our total revenues to be between RMB 1.43 billion and RMB 1.46 billion, with an year-over-year increase of 28.6% to 31.3%. That concludes our prepared remarks. Now we would like to answer questions. Operator, please go ahead.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Eddie Wang from Morgan Stanley. Please go ahead. Your line is open.

Hey, Mr. Zhao. Thank you for accepting my question. I have two questions here. The first is, although we see that the overall unemployment rate level in April has stabilized, the level of the youth unemployment rate has reached a new high. At the end of the second quarter and the third quarter, there will be new graduates who will graduate. I would like to ask, do you think this will become a long-term structural problem, with a relatively high unemployment rate in the past few years? What kind of impact will this have on us from a business point of view? A follow-up question is, as Mr. Zhao mentioned before, the active number of jobs in April and May, Thank you for taking my question. I have two questions. The first one is that if you look at the youth unemployment rate has been reached record high in April, and we will see another batch of the graduates in the coming two quarters. So do you think the high unemployment of the youth could be a long-term structural issue, and how it will impact our business in the longer term? And the second question is that you mentioned in April and May, we do witness that the job posting and active enterprise users, the level has been higher than we witnessed in March. However, if you consider the overall economy recovery actually is slightly lower than we expected. At the same time, we do see the youth employment rate has been high. Do you think this recruitment demand recovery is sustainable into the second half of this year? Thank you.

Okay, I'll answer the conclusion first. I personally think that there are a lot of job seekers this year, and there are relatively few job offers. One of them is the 16- to 24-year-old unemployment rate. Can it become a long-term structural problem? I don't think so. I think this is a problem that is being resolved. From our observation, there are two interesting observations to share with you. One is that throughout this year, In February, March, April, and May, if we look at it from a historical point of view, we can see that the proportion of people who are willing to take office and those who are not is relatively severe. However, after the Spring Festival on January 21st,

Thank you for your question. And I would like to give my conclusion to your first question first. Regarding the current situation that with more job seekers compared to relatively less recruitment demand, which led to a high unemployment rate of the younger people aged between 16 to 24. Will that turn into a long-term structural question? My answer is that no. And I believe the situation has been improving. There are two interesting observations I'd like to share with you. First one is that in February, March, April, and May, on the year-on-year and the historical view, The ratio between job seekers and recruiters is relatively at a very unpleasant level. But after January 21st, after the Spring Festival, about 17 to 18 weeks, we have seen that the situation has been improving on a weekly basis.

Another interesting number is that this year's students and actively offered olive oil to small and medium-sized enterprises. Compared to last year, this data has risen by more than 10%. This is a phenomenon that has never been seen in history. This makes me feel that people always try to adapt to the environment, and thus find opportunities for their own survival and development.

Another interesting thing is that the graduates this year, they're active, reach out to the small and medium-sized enterprise, but that ratio has raised about over 10% compared to last year. This is a scenario I have never seen historically, which my personal feeling is that people have tried their best to adjust to the environment and to strive for their development opportunities.

As for the impact on the company, the main pressure I've felt over the past year has been that there are indeed a lot of job seekers, and the number of job offers is low. This has brought a lot of pressure to our recommendation system and customer service system. Even if the process is not good, And in terms of the impact to the company,

This year, today, the pressure I have feeling the most is that the situation of more job seekers compared to less job demand, job supply, which have played great pressure to our recommendation system and our customer service system. If we cannot deal with it correctly, that will impact our MPS, especially on the job seeker side. We have been working quite hard on this, and if you look at the, from the perspective of the average achievement, average resumes or average job resume changes each month per person, we have done pretty well up to now.

And then your second question is about the demand in four or five months. Compared to April and May, we see that every week, the number of new recruits increases by about 7%. At the same time, if there is a new recruiter who is active, compared to April and May, the activity of each recruiter is also increasing by 6%. So I am happy to see this data. You are asking whether there is a continuity of improvement. We see that the current answer is certain. It is a process of continuous improvement.

And about your second question of the recent demand recovery in April and May, we have observed that compared to February and March, weekly newly posted jobs have been increased by 7% on a week basis. And another number is that for each job opening, The enterprise users, the recruiters behind that, the situation of the recruiters actually looking for the people compared to February and March in April and 5, that situation also increased by 6%. This is an encouraging number and I'm glad to look at that. Whether this is sustainable, my answer is pretty sure. The situation is improving and quite sustainable.

Thank you, Mr. Zhao and Mr. Yu. Thank you. Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Wei Zhong from UBS. Please go ahead.

Your line is open.

Mr. Zhao, Mr. Yu, good evening. Thank you for accepting my question. I also have two questions to ask. The first question is about our business users. If we look at large and medium-sized enterprises separately, can you please introduce the recovery of the two sides in recent months? For example, in terms of the activity rate of business users, the pay rate, and the recruitment cycle, what is the trend in the past few months? Compared to the past few years, are there any changes that are worth noting? The second question is about the recruitment of blue-collar employees. Thank you, management, for taking my question. Firstly, regarding the enterprise users, could management comment on recovery trends for your KA users and SME users separately, for example, in terms of the user engagement, paying ratio, recruiting cycle, et cetera. What has been trending in the past few months, and are there any noticeable changes compared to a few years ago? And secondly, just want to follow up on the blue collar recruiting business. Could management share more progress in that regard, as well as your strategic focus for the year? And given we have made very good progress In the services sector, if we want to see bigger breakthrough in the manufacturing sector, what actions do we plan to take this year? Thank you.

The recovery of large and small enterprises this year is quite interesting. In January and February, the recovery of small enterprises was very fast. The recovery of large enterprises was relatively slow. In April and February, the situation is different. In April, let's look at a small company. Let's look at a company with less than 99 employees. Its Japanese position is 1% higher than that of April and February. But for companies with more than 10,000 employees, its Japanese position is 7% higher than that of April and February. For the comparison between large companies and SMEs, one interesting point is that we have seen different situations.

January and February, we have observed that the SMEs have been recovered very rapidly, while the large companies is more slowly. But in April and May, the situation is different. One data to look at is for the enterprises with less than 100 persons, the daily active job posting increased by 1% in April and May compared to January and February. However, for the enterprises with people more than 10,000, the daily active job increased by 7% in April and May, which they showed a trend with faster recovery.

Another number is a number that we see ourselves. It may be helpful to you. In April and May, we saw that companies were in a position that was more responsible for marketing, purchasing, and sales, for revenue, development, and growth. In April and May, the recovery was better than in February and March. I think hiring this kind of position

And another data which we often look at internally, which is in April and May, among the different job categories within enterprise, the jobs related to marketing and has been increased faster, which means people These jobs are related to the company's development to help them either spending more or earning more money, which means they have better confidence at this stage.

In general, there are millions of companies and tens of millions of applicants every month. And I think we see on the platform that everyone is working hard to figure out how to solve their own problems. Generally speaking, there are millions of enterprises and tens of millions of job seekers on our platform each month.

that they have been working very hard to try to solve their own problems. And we are also trying our best to help them with that. So the general solution is that April and May is better than February and March for other companies and SMEs.

This is your first question. The second question is about blue collars. Actually, I want to say this from a perspective that we have more confidence in the city service industry. We are more confident that we have created a good value. It is also through several years of hard work. This year, when the city service industry quickly recovered from the epidemic, we worked hard to get some evidence. About your question on blue colors. So the first thing is on the urban service industry, which we have a high competence of this and we have demonstrated a strong value.

after years of efforts. And after the COVID, with the fast recovery for urban service industry, all of our previous efforts have some concrete evidence numbers. So we just discussed that either users and revenue contributions from urban service industry and the blue collar have increased rapidly.

In addition, if you look at Lanling, there are manufacturing, architecture, logistics, and delivery. In fact, I think we are working hard to create greater value for these industries. I dare not say that we have created greater value when we are more confident in the urban service industry.

And other major subsectors for blue-collar includes manufacturing, construction, logistics, and warehousing, et cetera. So we have also been doing our job to create more values for all those industries. We are not as confident as those urban service sector, but we are on our way and we are on the right direction. That's my view for this.

There are

Hundreds of millions of manufacturing workers, 40 to 50 million of construction workers, and maybe 20 to 30 million of logistics warehousing job seekers. So for all these sectors, they have their own industry know-how. We have been actively and progressively to explore all those solutions to these industries. to try to provide more value to them while achieve our own business development.

Thank you management.

Thank you. Once again, to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. Please stand by. Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open.

First of all, I would like to share more with the corporate management. In the first quarter, including the second quarter, we have seen a trend of changes in the company's pay rate and ARPU. Especially, we just talked about small enterprises. The overall recovery situation is actually better. I would like to ask if we have any new products or new payment strategies to improve the company's pay rate, especially for small and medium-sized enterprises and the payment transformation of the new users of this part of the enterprise. Thank you management for taking my question. I have two questions here. One is regarding the enterprise paying ratio and ARPU trend. Could measurement share any new products or new strategies in improving the overall enterprise paying ratio, especially related to the small size and medium size customers as well as the new customers the company has acquired? And secondly, regarding the sales marketing, we understand the first quarter is typically the peak quarter in terms of sales marketing spending. just wondering if Medrin could provide some updates on the company's health marketing plan for the rest of this year and what is our margin forecast for this year. Thank you.

Okay, Kinty, so I'd like to answer those two questions. So regarding our paying ratio, for the quarter. So, generally speaking, our paying ratio improved a little bit in the quarter compared with last year. And in terms of the ARPU, ARPU kept stable in the quarter. I think the overall pain ratio improvement is mainly because of the healthy growth of job seekers and business customers in urban services and a few other logistic and tourism sectors. So the competition is between the business customers that let the platform naturally increase a little bit about our paying ratio. Rest of other sectors maintain quite stable paying ratio in the quarter. in terms of the new business customers and Business customers from lower tier cities. They are the key contributor to this growth So this is the first question the second question regarding our selling marketing expenses and our overall expenses You're right that the first quarter in terms of the seasonality normally It's a high order because there is usually industry-wide branding campaign happened after the Spring Festival. So in our situation, we did a little bit of brand advertisement in the first quarter. But looking ahead, there's no other big marketing event in the rest of the year. So this is a branding advertisement. In terms of our traffic acquisition cost, which is related to our user growth, Supported by our well-established brand and recognition, I think this area is shown with a very high efficiency in the first quarter. And we believe that this high efficiency will further continue in following quarters. So that means in terms of the branding and in terms of the traffic acquisition marketing, so the overall setting marketing will be, you know, will detect in a disciplined situation. So our overall marketing spending will hope to generate further leverage in the year. And other cost items like R&D, like G&A will follow the suit in a similar trend. So our overall operating margin for 2023 compared with last year will be up in our thoughts. So that's pretty much our directional thoughts regarding our operating margin. So that's my answer to the second question.

Thank you. Thank you.

Due to time constraint, 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 or reach us directly. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.