Participants

Wenbei Wang; Head of Investor Relations; Kanzhun Ltd

Peng Zhao; Executive Chairman of the Board, Chief Executive Officer; Kanzhun Ltd

Yu Zhang; Chief Financial Officer, Executive Director; Kanzhun Ltd

Timothy Zhao; Analyst; Goldman Sachs

Eddy Wang; Analyst; Morgan Stanley

Robin Zhu; Analyst; Bernstein

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited second-quarter 2024 financial results conference call. (Operator Instructions)
Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am.

Wenbei Wang

Thank you, operator. Good evening and good morning, everyone. Welcome to our second-quarter 2024 and 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. We each have based on management's current expectations and observations that involve known and unknown 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 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 ir.ziphin.com.
With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

Peng Zhao

(spoken in foreign language)
(interpreted) Hello, everyone. Thank you for joining our company's second quarter 2024 any earnings conference call
(spoken in foreign language)
I'll start with our financial numbers in the second quarter, the company achieved calculated cash billings of RMB1.95 billion, up 20% year on year.
Our GAAP revenue reached RMB1.92 billion up 29% Y-on-Y, we recorded a net profit of RMB420 million. Meanwhile, our adjusted net income, which excludes share-based compensation expenses, rose to RMB720 million, up 26% year on year.
In the second quarter. The average to verify and make you on the bus tracking app grew by 25% year on year to RMB54.6 million from January to June. This year, the company attracted around 28 million newly added verified users. Total paid enterprise customers in the 12 months ended June 30, 2024, we reached RMB5.9 million, representing 31% year-on-year growth.
(spoken in foreign language)
Our cash billings in the second quarter still have a decent year-on-year growth, however, weaker on a quarter-on-quarter basis and on an annual basis than our expectation.
This was mainly due to weaker demand from the recruitment side. In the latter half of the second quarter, there were relatively fewer enterprise users and more job seekers in the market, which is what we refer to as a high CB ration.
So in this case, most enterprise users found it easier to hire. For example, a project team that took three months to fill all the positions in the past now only takes two months reducing enterprise users desire to spend more money on equipment.
(spoken in foreign language)
We noticed that the growth trend of enterprise index is still good that to put first, in the second quarter, the number of newly added enterprise units was higher than that of the same period last year.
Second, the average monthly active user of enterprises, enterprise users increased by 17% year-on-year. Investors who have long been following us know that user growth is the core growth driver for our revenue growth. We still have a good growth of enterprise users in the second quarter. This is a good news for the company.
(spoken in foreign language)
We believe the second quarter performance is a temporary situation. Long-term structural growth opportunities remain strong. Our confidence is grounded in three factors. First, the Chinese market is a huge economy with the higher the small and medium size, enterprise activity and the larger number of enterprises. Second, there is a persistent shortage of labor supply, particularly among younger generation, which is unlikely to change in the near future.
Third, our efficient service model is best suited to address the challenges presented by first two factors.
(spoken in foreign language)
On the current situation, the company's management to believe we should do what is best suited for the moment.
Today, I will talk about three things.
(spoken in foreign language)
The first thing is to ensure the four year profit target during challenging times. Confidence is crucial for everyone, no matter calling mentors core employees for potential investors and the prospective tenants in tough times confidence is more valuable than gold, ensuring profitability for the year.
We hope to sustain confidence in the company, which can be achieved through further refinement of our management.
(spoken in foreign language)
The second thing is to invest more resources on new growth driver. For example, in the blue-collar manufacturing industry there may be some new dollars.
(spoken in foreign language)
To briefly review the blue-collar manufacturing industry we have talked before background is the Comcast relationship between factories, workers platforms and agents. In addition, to many historical issues have made it challenging for online platforms to serve the blue-collar manufacturing industry.
(spoken in foreign language)
The history is three years ago, we started by purifying the job seeking and implementing environment through what we call the coach project hybrid. During the intention of this initiative has to first is to protect the overall per subsequent process of the company.
Second was to help blue-collar agents and organization make money recently.
(spoken in foreign language)
The current situation is after a tough game. The long-standing issue of bad, all low quality agents driving out good wins across online recruitment platform is beginning to improve. This positive shift has already happened. Good guy who commit to treating jobseekers with integrity, posting authentic top details and salary information. And now we're seeing better results. We have men distrust 40 agents at platform 35 Code Connect.
(spoken in foreign language)
The latest data release our project generated over own the RMB40 million in the second quarter, which is much higher than that in the first quarter. Still good signs make me feel that our strategy and the persistence in the past.
(spoken in foreign language)
The third thing is our overseas business as we all know, economy as cyclical and this economy cycles are often out of sync across different countries and regions.
Large companies with a strong global presence can effectively utilize this regional mix shift to support sustainable growth in particular, but the team has pioneered our current model globally. This model is very likely to provide value and gain space for survival and the development in various regional markets through localization, hybridization and evolution.
While we are seeing promising progress in Europe and Asia, it's still too early to report out results.
(spoken in foreign language)
Kanzhun is important to address confidence again, particularly in terms of training, strengthening returns for our shareholders. We'll have content today supported us since our IPO. For example, we will continue to increase our share buyback efforts we have bought over USD88 million purchased in the past four months.
This all will help to reinforce the rateable confidence of our shareholders and management.
(spoken in foreign language)
That concludes my part of the call and I will turn over the call to our CFO, Phil for the overview of our financial. Thank you.

Yu Zhang

Thanks, Peng Zhao, and hello, everyone. And now let me walk you through the details of our financial results of the second-quarter of 2024. In this quarter, we delivered a healthy and sustainable top line and bottom line growth. Calculated cash billings from the revenues grew by 20% and 29% year on year respectively, mainly driven by the growth of our enterprise users.
Average monthly active enterprise users in the quarter grew by 17% year on year. We continued to penetrate into different categories of users, especially in blue-collar sectors, small, medium-sized enterprises and users from lower-tier cities.
As a result, revenue contributions from those sectors continue to increase paid enterprise customers in the 12 months ended June 30, 2024, increased by 31% year on year to 5.9 million. The paying ratio was higher than last year, but sequentially kept stable We are happy to see that ARPPU average paying per paying user of paid users increased around 3% year on year and 3% sequentially, reaching the highest level in the past four quarters.
Part of the reason was that revenue from key accounts outgrew small and middle sized accounts, but more importantly was our effort to increase client usage by offering high quality and targeted product and services.
Moving to the cost and expenses side, excluding share-based compensations of adjusted operating cost and expenses increased by 20% year on year to RMB1.3 billion, and that led to adjusted operating profit of RMB660 million in the quarter, up 52% year on year.
Adjusted operating margin reached 34.4%, up by 5.3-percentage-points compared to the same quarter last year and a hit an all-time high cost of revenues increased by 17% year on year to RMB317 million in this quarter, representing a gross margin of 83.5% continued its upward trend.
Sales and marketing expenses increased by 16% year on year to RMB545 million in this quarter. This increase was mainly driven by our enhanced investment in customer acquisition as well as higher sales conditions.
R&D expenses increased by 21% year on year to RMB444 million in this quarter. Excluding share-based compensation expenses, adjusted R&D expenses increased by 28% year on year to RMB334 million. This increase was primarily driven by our earlier investments in AI infrastructure, which generated a higher depreciation cost.
Our G&A expenses increased by 29% year on year to RMB261 million in this quarter. Adjusted G&A expenses increased by 21% year on year to RMB153 million, mainly due to increased employee related expenses.
Our net income was RMB417 million in this quarter, up 35% year on year. And our adjusted net income in this quarter reached to RMB719 million and increased by 26% year on year. We expect that our share based compensation expenses reached the peak level in this quarter and it will gradually decline in the coming quarters.
We are now resuming stock compensation scheme and studying some schemes which might even accelerate the process net cash provided by the operating activities grew by 14% year on year to RMB869 million for this quarter.
As of June 30, 2024, our cash and cash equivalents short-term time deposits and short-term investments totaled as RMB14.3 billion. Notably in the past four months, we have repurchased a total consideration of USD88 million, which demonstrated our commitment to shareholders, return and long-term confidence of our business.
And now for our business outlook. For the third quarter of 2024, we expect our total revenues to be between RMB1.9 billion and the RMB1.92 billion year on year increase of 18.2% to 19.5%.
That concludes our prepared remarks, and I would like to answer questions. Operator, please go ahead with the queue.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Timothy Zhao, Goldman Sachs.

Timothy Zhao

(spoken in foreign language)
Thank you management for taking my questions. I have two questions here. The first is regarding your unit growth and market share. How does management team our view the market share currently and the adverse macro environment currently are we considering to further accelerate the market share? And second, as we mentioned to you?
Sure, the full year profit this year. Could management share? What is your detailed measured and what is your OpEx, including the SPC trend for the rest of this year? Thank you.

Peng Zhao

(spoken in foreign language)
Okay. Thank you for your question. First one regarding competition, the current competitive landscape is relatively stable or will ever say we have relatively good competitive advantages and there are many third party data now on sure on the development.
For example, we just mentioned our MAU and DAU achieved historical high in the second quarter and the user activities for them for the DAU to MAU ratio still remain at a high level.
It is the same case for the user you think you can. So all of those data may prove that as a leading on a common platform of every prospective, our comparative landscape is relatively stable and continuing good trend.
Tony, over to you and I move to Algeria and Agilent initial cash to consider the clear goal of management in Canada to launch after the deal. So that will be up to them. And we are sure the changes, essentially movement attributable to strategic bolt-ons, talent. So they are identical to the front page.
(spoken in foreign language)
And in terms of guarantees on full year profit target. So we believe it's very critical for our core employees for our management to have this target. This is part of our confidence in the customer file that this firm is very stable and strong.
So a strategic perspective to first ways, our full year user group target is RMB40 million to RMB45 million. And in the first six months, the first half of this year, we have already achieved RMB28 million.
So there are only RMB12 million to RMB17 million left for us to grow. You should be ready to be and easy to achieve. So we can control our overall spending on marketing to a property achieve our profit target.
Second, under current circumstances, we want to better use our resources and to move the priority of those project picks with lower success rate and higher target and to postpone a resource usage and prioritize the importance of reducing the overall cost.
And this can be achieved through internal management and research. We believe this will square a high level of proficiency in terms of detailed data, I think Phil can help give you some more color.

Yu Zhang

So regarding our bottom line and the major cause of the expenses item, I'll quickly mention our thoughts. As Jonathan just mentioned, we would like to trial our best to secure our operating our profit target to our target for full year of non-GAAP operating profit is set as RMB2.3 billion, which is roughly up 40% year over year on top of last year's adjusted non-GAAP adjusted operating profit.
So in terms of our gross margin, our gross margin will in Q3 or following quarters, will we'll stay flat or slightly improved due to higher economy of scale and our marketing expenses, as Jonathan mentioned, we will be controlled and at a relatively low level, our selling expenses and the G&A expenses, those core expenses items will all be moderate and in a reasonable situation.
And in terms of the R&D expenses because of where probably will shift our priority from some like AI related infrastructure investments into other things. So from third quarter or from second half. This part, the expenses will decrease. So altogether, our operating margin will increase second half and versus the full year operating margins versus last year. We'll also be better.

Peng Zhao

(spoken in foreign language)
And for the market share and investors have asked a lot about in early April after experiencing the years passed, we notice that on the current situation, every dollar we spend there will be more jobseekers and less enterprise use. So the CV ratio is a country is a challenge for the performance qualities based on the supply demand balance of both sides.
So from this perspective, to keep a balanced CV ratio, we actually we don't need to I've spent money to aggressively invest my view to share. In addition to increased demand for our market share on enterprise user side, you know, currently the overall paint desire of the enterprise are not that strong.
So the best and most effective way to enlarge our enterprise market share is to start a price war in the country. It is time to do that, but I'm not a penny too take even more share by lowering our price. I don't think this is a meaningful thing to do at current situation, and that's my policy to share.
And thank you, let's move on to the next question.

Operator

Eddy Wang, Morgan Stanley.

Eddy Wang

(spoken in foreign language)
Thank you, management, for taking my question. We understand that the macro situation, since you know, second quarter has been gradual weak. So just want to hear your view that have you witnessed the improving improvement in the recruitment demands in August versus June and July? And how is the performance of different industries and the different, you know, the enterprise, have different skills.
And the second question, yes, if the macro continues to be relatively weak, will we have any change in the business strategy? Two offsets of the backwards. Thank you.

Peng Zhao

(spoken in foreign language)
So first, we cannot talk about the macro, but we can share this our own situation, which we observe from our website and app first place in the second quarter, overall willingness to pay from the recruiters it of lowering. And secondly, the blue-collar growth is still better than white collar, but that one is still and also about aligning require too much.
(spoken in foreign language)
Further looking to blue-collar sector automations, can we can share with you.
The first observation is that the overall blue-collar recruitment demand reached a peak historical high in the prefectural recruitment season back just for background can be a factor in the second quarter.
(spoken in foreign language)

Eddy Wang

Jonathan, you relatively factual pullback in second quarter. We still see very good year-over-year growth in terms of blue collar, our revenue in the second quarter and among the detailed subsectors There is one highlight, which is the factoring industry continue to outperform all other industries after that is the logistics sector.

Peng Zhao

And there are also other two of the solutions are worth sharing.
First, compared to the first two cities. The outlook includes our enterprise user growth is better and faster in the second third and fourth tier cities.
And the second one is there is a continued trend for which we have already discussed in the last quarter results that the larger size of the enterprise growth go better, for example, a big enterprise with over 10,000 employees, the companies with the fastest order to the fast track growth rate.
(spoken in foreign language)
And about Grand Mesa situation in August. And we'll continue to talk about the blue-collar. So blue-collar overall supply and demand situation in corporate expense in the second quarter and the enterprise should jobseeker ratio continued to see improvement and we have done daily active enterprise user number continue to go up week by week, and our manufacturing industries are still backed up among others.

Eddy Wang

(spoken in foreign language)
And the second question about what kind of cost while amortization strategy, we can use two to against the macro headwinds.
First, there are things we are currently doing. First is to concentrate our resources through the business and department. You tweak up because of it faster, although a lot longer outlook, we keep limiters, which should, for example, on the blue collar manufacturing, that should be from final point project to construct and to generate revenues. We are currently enhancing our investment and the input on this area.

Peng Zhao

(spoken in foreign language)
It's essentially a function and I cannot be so very certain to say that the current select project, we also have very big revenue from our cooperation with blue collar manufacturing industry in the third and fourth quarter of this year, back with limited disease.
First real chance actually chance for the online recruitment platform to go into the blue-collar manufacturing industry and make some real money.
And that's my answer to your question.

Operator

Robin Zhu, Bernstein.

Robin Zhu

(spoken in foreign language)
So two questions. One would management elaborate on recent developments in the company with regards to the WTE acquisition? I'm wondering if management could give us more color on overseas and investments in AI and second, given the weakness in the company's shares in recent times and Could management share some thoughts on go-forward buybacks and whether the company will consider instituting a regular dividend. Thank you.

Peng Zhao

(spoken in foreign language)
Thank you for your question. The first one on capability technology. I have mentioned that in our conference. And because of that, Kanzhun, does the COEs are very respect with peers of ours.
And are there any attachment in clinical team which are now in there? Should they be able to become the number one in their own area. So to protect the majority of the shareholders, a stake of WTE technology is out of the recognition in respect of Kanzhun, a single his team's work in this area and the macro data, our expansion into China, is it more likely to add ourselves?
We have some capabilities we have, which is difficult for me to develop by ourselves.

Robin Zhu

(spoken in foreign language)

Peng Zhao

[Peter] and his team, we fully recognize his knowledge and the industry actually has fully definitely hit their knowledge and know-how in them and the model in the manufacturing industry and currently are working with us for three forks. First of all, day fully independently to lead the development of WTE technology?
(spoken in foreign language)
And the second thing is to help the company to push for the overall environment improvement under the contract project and the monetization of commercial project commercial plan under the count select product.
(spoken in foreign language)
And the third one, which, I'm not to discuss more details publicly at this moment, you said Kanzhun is currently leading the operation or team of WTE technology and part of our R&D team together combines the advantages of our traffic and there experience and know-how in the industry to combine together too. We have published a new product or service which we currently we are rather looking forward to that, but maybe in the next quarter.
(spoken in foreign language)
And our first and foremost, our wholesale initiatives. We have made some progress and have initially to publish that and repeat service to certain quarters in Hong Kong. And as you see how the users might act behave on our platform. This may take two to three months, and we will decide whether we can direct and development of this business.
And in terms of the revenue, which could be a decent run from Home business. I see a little bit early, maybe take me more than the next two to three years and in the Asia and Europe area, and we have some developed countries.
We have one take quite a long time to work, and I can't state I would -- I can say that I'm satisfied with the local team, we have recruited and we are confident.
(spoken in foreign language)
And the third way regarding the communities AI, I have shared some of our ourselves before and maybe some as much here so that two points. First, in a scientific perspective, we are executing our termite project, which is for our research guys, our test guys to understand to know what the Mode development of the technology in this in this area is and what they are doing. But we are not planning to invest more resources, but actually we cannot afford to do that to actually do that. So we know what they're doing and kept up with the most advanced technology.
On the application level. So our strategy is still there. It comes to us and not happening before the Emerge of generative AI technology. So we give priority to that. So under that strategy, we have some good application in the industry level. We are we are using it internally.
(spoken in foreign language)
And about the shareholder returns, we have long been insist on providing and the shareholder return to our shareholders, which I believe is basic for the company, and we always attach great importance to that.
So which is because the app is a very true problem, were true or a crucial point for the core shareholders and employees to maintain our strong confidence. So it's very essential and important to us to do a good shareholder return project.
So we have a USD200 million share buyback program pending last four months, we have already USD 88 million.
(spoken in foreign language)
And about the dividends, like I said that for potential dividend we are still studying that on those and that's my answer to your question. And given the time constraint, I think that's the last question on the call. Operator.

Operator

Thank you.
Due to time constraints, that concludes today's question-and-answer session. At this time, I will turn the conference back to Wenbei for any additional or closing remarks.

Wenbei Wang

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

Operator

Thank you. You may now disconnect. Good day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.