Q4 2023 Kanzhun Ltd Earnings Call
Participants
Wenbei Wang; Head of IR; Kanzhun Limited
Peng Zhao; Founder, Chairman & CEO; Kanzhun Limited
Yu Zhang; CFO & Executive Director; Kanzhun Limited
Eddy Wang; Analyst; Morgan Stanley & Co LLC.
Timothy Zhao; Analyst; Goldman Sachs Group, Inc.
Yang Bai; Analyst; China International Capital Corporation Limited
Robin Zhu; Analyst; Sanford C. Bernstein & Co.
Presentation
Operator
Ladies and gentlemen, thank you for standing by, welcome to the Kanzhun Limited Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. (Operator Instructions) Today's conference is being recorded. At this time, I'd 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 Fourth Quarter and Full Year 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's 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.
In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.
Peng Zhao
(interpreted) Hello, everyone. Welcome to our Fourth Quarter and Full Year 2003 Earnings Conference Call. On behalf of the company and our employees, management team and Board of Directors, I would like to express our sincere gratitude to our (technical difficulty) and investors who trust and support us.
First, I would like to share our performance with you. In the first in the fourth quarter, the company achieved a calculated cash billings of RMB1.78 billion. I've seen 61% year-on-year and 9% quarter-on-quarter. Our GAAP revenue reached RMB1.58 billion, up 46% year-on-year and remained flattish with last quarter. Our adjusted net income, which excludes share-based compensation expenses, was [RMB630 million].
In the first quarter the average verified MAU on the bus digital app reached [41.2 million] representing a 33% year-over-year increase. In the fourth quarter, we noted an improving ratio between the demands from active enterprise users and the supplies from job seekers.
We also noted continued steady recovery of medium and large scale enterprises since the third quarter, all of which are contributing to our cash billings, GAAP revenues and profit levels in the fourth quarter to exceed our expectations.
Let's take a look for the full year of 2023. The company achieved a calculated cash sitting of RMB6.69 billion, up by 45% year-on-year. And the debt revenue of RMB5.95 billion, up by 32% year-on-year. Excluding share-based compensation expenses, the adjusted net income for the year reached RMB2.16 billion.
Furthermore, excluding other income such as wealth management income, adjusted operating income for 2023 was RMB1.64 billion, reflecting our remarkable 191% year-over-year increase. This resulted in a 27.5% adjusted operating margin, underscoring the company's robust [profitability] capability.
In 2023, we attracted more than 49 million newly added Wi-Fi users representing the largest annual growth user based since the company's inception. This year, the number of users we serve has increased by nearly half of 100 million, and we have been able to help them with our products, which we are quite deeply proud of.
As of December 31, 2023, the company has served a total of over 178 million individual users and 13.3 million enterprises. The average verified I made you on the bus tracking app was 42.27 million in 2023, representing a year-on-year increase of 47%. Approximately 1.5 billion mutual achievement between job seekers and recruiters have been accomplished on our platform throughout the year.
In 2023, the number of paid enterprise customers increased by 44% year-on-year to 5.2 million. Moreover, both the number of paid enterprise users and the paying ratio of active users continue to achieve record high.
As the company continues to expand our user coverage, both the user and revenue structure undergoes constant evolution, highlighted by the following key points. First, Internet industry. The span of newly added blue-collar users matched that of the white-collar users with revenue contribution of the whole year from blue-collar users exceeded 34%.
Second, revenue contribution from second and the lower tier cities exceeded 50%, a 5-percentage-point increase year-on-year. Third, revenue contribution from enterprises with less than 100 employees also increased by more than 5-percentage-points year-on-year.
All this changes further demonstrated that we are confident that our product can serve different users and also our service can cover different kind of users. This is many based on the down to earth research on actual detailed needs from different kind of users and our continuous efforts in technology investments.
In January this year, our company's proprietary big model, which we mandate a bit flatter than the model, which is believed to be the first large number to model designed specifically for the equipment industry has successfully completed its online registration for generative Artificial intelligence. Effect of this model has reached the industry-leading level on some public benchmarks and have gradually been applied in some recruiting and Job seeking scenarios.
For example, for those young entrepreneurs who have starting of their companies we provide them with rapid job postings function and for those young people on fresh graduate job seekers we provide them with revenue policy function et cetera.
The company's investment in AIGC meaning focus on two principles. First, we keep track of the cutting edge technology to avoid the generational gap in knowledge. Second, focus on industrial implementation and not make big investment blindly.
Next, when we briefly updated station for the spring following this brief actual, the company's various user metrics continue to hit historical high. We said peak gave you on the budgeting at approaching $17 million for example. From those data we also identified several characteristics which are not fully different from the same period last year, including the following [keywords].
First, recruiters. Since that [professional], the daily average number of newly posted job positions and active job positions have both reached historical highs compared with the same period in the previous year. The daily average number of active job positions increased by 20% year-on-year.
The second keyword is large enterprises. Since spring festivals, the average daily active position from enterprises with more than 10,000 employees increased by 24% compared with the same period of 2023.
The third key word is industry. The daily average number of newly added job positions and active job positions across all industries and from positive growth since this year's spring festival compared with the same period of 2023, among which the blue-collar industry has once again reached a new record high driven by the continuous expansion of [urban] service sector.
Additionally, the manufacturing and the supply chain logistics sector have shown accelerated year-on-year growth rate. Within the white-collar industry sectors such as consumer goods, medical equipment, automotive and advertising media are leading the growth.
The fourth keyword is business. There has been a noticeable shift in the types of job position compared with last year. The positions focusing on the development and growth of the enterprise business, such as sales guides, human resource services, finance and the related positions have experienced a clear rebound in grocery.
So we anticipate our quarter-on-quarter increase in both [cachibility] and debt revenue for the first quarter. I'm pleased to announce the company's Board of Directors approved a new share repurchase plan today, a filing to repurchase up to USD200 million of the company's shares over the next 12 months.
This marks our third share repurchase plan alongside the USD18 million special cash dividend issued in last November, demonstrating the management's commitment and the facility towards long-term shareholder returns.
That concluded my part of the call. I'll now turn it over to our CFO, Phil, for the review of our financial. Thank you.
Yu Zhang
Thanks, Jonathan. Hello, everyone, now let me walk through the details of our financial results of the fourth quarter and full year of 2023. We are pleased to deliver a strong set of results for the fourth quarter and the full year 2023.
For the fourth quarter, our calculated cash billings reached our historical high of RMB1.8 billion, grew by 61% year-over-year and notably 9% quarter-on-quarter beating our expectations. Revenues increased by 46% to RMB1.6 billion compared to the same period last year, and it stayed relatively stable sequentially due to the lower seasonality confirmed our observation of a gradual recovery, especially at medium and large size companies.
Revenue contribution from key accounts, and there are full. Also recovered sequentially in this quarter. For the full year of 2023, our calculated cash billings under revenues increased by 45% and 32%, respectively. Number of paid enterprise customers reached [5.2 million] in 2023, up by 44% year-over-year, marking another new higher level of paying ratio among active enterprise users and demonstrated our ample space and the flexibility in monetization.
Moving to the cost side, total operating costs and expenses decreased by 4% year-over-year to RMB1.4 billion in the fourth quarter and increased by 16% year-on-year to RMB5.4 billion in 2023. This year, we managed to achieve a robust user growth whilst you have seen margin expansion.
The annual adjusted operating margin improved upfront 12.5% in 2022 to our record level of 27.5% in 2023 up by 15-percentage-points. Cost of revenues increased by 36% year-over-year to RMB275 million in the fourth quarter, and 40% year-over-year RMB1.1 billion in 2023. This increase was primarily driven by increased silver and bandwidth costs and the payment processing costs in line with the growth of user engagement and the transactional drive volume.
Our sales and marketing expenses decreased by 36% year-over-year to RMB433 million in the fourth quarter. As we didn't have a similar marketing campaigns led 2020's FIFA World Cup sponsorship in the year and remained stable with last year at RMB2.0 billion for the full year of 2023.
Even excluding the Water Club sponsor fees, adjusted sales and marketing expenses as percentage of revenue went down by 7-percentage-points this year compared to 2022. When at that time, we could only have that user growth of half of the year. This proves the effectiveness of our marketing strategy, which emphasizes more towards branding campaign.
Our R&D expenses increased by 46% year-over-year to RMB430 million in the fourth quarter and 31% year-over-year to RMB1.5 billion in 2023. Excluding share-based compensation expenses, adjusted R&D expenses increased by 62% year-over-year to RMB316 million in the fourth quarter and the 25% yield year over year to RMB1.1 billion in 2023. This increase was mainly driven by our further investments in talent and AI technology development, which incur AI related to server and a cloud service fees.
Our G&A expenses decreased by 9% year-over-year to RMB225 million in the first quarter and increased by 13% year-over-year to RMB812 million in 2023. Excluding share-based compensation expenses, adjusted G&A expenses decreased by 32% year-over-year to RMB122 million in the fourth quarter and 8% year-over-year to RMB482 million in 2023, mainly due to decreased professional service fees.
Our net income was RMB331 million in the fourth quarter and RMB1.1 billion in 2023 full year. Adjusted net income increased from RMB59 million in the first quarter of 2022 to RMB629 million, an increase of -- from RMB799 million in 2022 full year to RMB2.2 billion for full year 2023, representing a significantly year-over-year increase.
Adjusted net margin for the full year of 2023 had reached a record high of 36.2%, up by 18.5-percentage-points. Net cash provided by operating activities was RMB927 million for the fourth quarter and [RMB3.0 billion] for the full year 2023.
As of December 31, 2023, our cash and cash equivalents, time deposits and short term investments totaled RMB12.9 billion and long-term investments in fixed rate notes and wealth management products or RMB2.3 billion. With our commitment to share our success with shareholders and is supported by our robust cash reserves, we paid a cash dividend of RMB563 million in December 2023. Additionally, our Board has repurchase program over the next 12 months and upsize the program to USD200 million, demonstrating our strong commitment to shareholder returns.
And now for our business outlook, we have seen encouraging trend of recovery equipment that demand post the Chinese New Year, and we are confident to deliver better than expected results for the current quarter.
In the first quarter of 2024, we expect our calculated cash billings to increase sequentially by at least 12% [one two] and revenues to be between RMB1.64 billion and RMB1.67 billion with a year-over-year increase of 28.3% to 30.7%.
With that -- that concludes our prepared remarks, and now we would like to answer your questions. Operator, please go ahead with the questions.
Question and Answer Session
Operator
Thank you. We will now begin the question and answer session. (Operator Instructions)
Eddy Wang, Morgan Stanley.
Eddy Wang
(spoken in foreign language)
Thank you for taking my question. My first question is about the recruitment demand situation of the Chinese New Year. Can you give us more details in terms of the different industries, by different enterprise sizes on this supply demand situation compare with last year? And my second question, yes, so what's your forecast or expectation for the revenue growth of the company for this year? Thank you.
Peng Zhao
(interpreted) Thank you for your question. Regarding the first question, we are not suitable to comment on the entire market, but we as a platform, we have our own data and what as one of the players we would like to share with you all in our observation, first is about the enterprise side, which we have witnessed year-over-year growth from the enterprise side, higher compared to the job seeker side which result in the ratio between jobseekers and enterprise users continued to improve.
I have been leading this industry for quite a long time and any detailed industries, the ratio between enterprise users and jobseekers the Insperity balance have been quite significant to me. Since this prefactor this year, my observation is that the ratio between enterprise users and jobseekers, it has been balancing -- rebalancing towards relatively normal situation.
Regarding whether the enterprises have restored the confidence for the market and for the future, the data we just mentioned is that both newly posted drops and online active jobs have reached a new record, new high and very significant year-on-year growth.
And to share with you some detailed trend on particular sectors, for example, for manufacturing workers, logistics, other service related blue-collar sectors have recovered quite well after the [spring festival].
Another angle is that for those cities along the sea, which is more external related economic, it shows better unit growth after the [Spring Festival]. So which implies the manufacturing related to export have been performing quite well, respectively.
Another observation we shared, we discussed on our last call is that the small and micro companies recovered a much better after this spring festival last year. However, this year, the larger companies, they have postponed a recovery trend, However, this year, as we just said, enterprises with more than 10,000 company -- employees goes much better compared to those medium-sized enterprises. And this situation has been starting since August last year and continued after the Spring Festival, which show that continuity of the white collar recovery.
Regarding your second question for our outlook for this year, I would start which would mean for the performance for last year. So since the beginning of tonight's industry, what we -- which means that we have seen improvement increased earnings from Q1 to Q4, number to driver this year for the consecutive five quarters.
And that observation has been proved by our quarter-on-quarter, it's a sequential growth data, and we hope that trend can continue within this year. And for the first quarter this year, as Phil just discussed, we are expecting our calculated cash billings of at least 12% of quarter-over-quarter perhaps compared to the fourth quarter.
And given my experience and observations for the operation, I'm pretty sure that in the second quarter, we will continue to have sequential growth. And that concludes my answer to your question. Thank you.
Operator
Timothy Zhao, Goldman Sachs.
Timothy Zhao
(spoken in foreign language)
Thank you for taking my questions and congrats on the very strong results. I have two questions here. First, we noticed that some of our competitors have increased marketing spending are post the Chinese New Year commitment to share our growth strategy for this year's user growth and marketing campaigns. Have you observed any incremental change in the competitive landscape?
And second question is your outlook regarding this year's operating expenses as well as a profitability margin? Thank you.
Peng Zhao
Thank you for your question. Regarding the competitive landscape, yes, we have noticed that the newly published those third party data. And we are quite aware of our own data which we -- the conclusion is that we don't notice any fundamental changes regarding the competitiveness landscapes.
And for some of our peers who increased their investment in marketing after spring festival this year, because some of them are not public companies, we cannot have their there. But I have been leading this industry for a long time. So I know that because there are some signs of improvement from the revenue side than people are waiting or more willing to invest in the marketing to spend more, which I believe is a reasonable estimation and also contract as a code by our own data.
So this is actually a positive sign for me because not only us but whole industry are recovering or moving up. So we are not only that within the [warming water] and for our user growth target, we are still touching for at least of 40 million newly verified users this year.
On the cost side, as you said, our peers have increased their investment on marketing. So I will not discuss too much on the detail, but I can guarantee you that we will still spend money with new players. I don't have the feeling to increase a lot of our marketing expenses, so it's not actually necessary. So we will spend reasonably in that range. At the same time, we will maintain our strong competitive edge in terms of user penetration, in terms of market share, and the whole our leading position, and that's the answer to your first question.
Yu Zhang
So regarding the user of acquisition, definitely there will be expenses. So simply speaking, we will have to keep our user growth at it a quick or fast pace, but meanwhile, we will have to keep selling marketing as a percentage of revenue at the most flat or in better scenario would be slightly lower than 2023.
So this selling marketing percentage of revenue. So regarding the gross margin trend, in the short term due to seasonality, Q4 is low quarter. So gross margin was affected slightly. So Q1, the gross margin to be flat. And this is mainly because of the high online revenue contribution, which involves higher payment processing fees in short term. But for the full year of 2024, we would like to see gross margin improvement mainly due to the leverage from a personnel cost backed up by a quick revenue growth.
So basically, simply speaking, gross margins are to be further improving in 2024. As I just mentioned, setting on marketing expenses, so rest of other items like R&D and G&A, we won't expect to increase these expenses aggressively.
So operating margin on bottom line to continue seeing our trends. So basically, we would like to keep our most of the costs or expenses lines sell in the self-disciplined manner. So therefore we can leverage, proven by our faster business of revenue growth for the full year.
Wenbei Wang
And that concludes our answer to the question. Operator, let's proceed to the next question.
Operator
Thank you.
Yang Bai, CICC.
Yang Bai
(spoken in foreign language)
My first question is what's your company strategy of commercialization this year? And what are the expected trends in the payment ratio and Apple?
And my second question is what Serco progress of the Company, the blue-collar business and what has the future planning and direction for the blue-collar sector? Thank you.
Yu Zhang
I'll answer the first question regarding the monetization or commercialization for our business. So we just reported that for the latest quarter, there was 5.2 million, trading 12 months paid enterprise customers. So this was a historical high.
Regarding our commercialization, there were two components. One is the paying ratio, another is [Arco]. So we expect that the pain in terms of the paid enterprise customers in 2024. So we would like to continue to see the growth of the paid enterprise customers sequentially and in terms there [pool], the blended [RPU] in the last quarter looked at drop a little bit. This is mainly because of the contribution from small, medium-sized enterprises there around the contribution, is a bigger because of the fast growth from SME companies and the blended a factor makes a blended [RPU] drop a little bit.
But when you look at small medium-sized accounts and the key accounts and separately, you would like to see both of them, there are poor increase in the last quarter. So there are per all increase, respectively. And in terms of the paying ratio compared with 2022, 2023, the overall [pay] ratio increased by 3-percentage-points.
At this moment, the paying ratio for the platform is still at a low level. So we believe there would be still room to grow. So it will take up several years to gradually increase the paying ratio for us. And in short term, the paid enterprise customers growth mainly comes from the user growth and as we just mentioned, our margin strategy, so basically in this year, we will still continue to our acquire users and at a very quicker or faster pace.
So basically that will contribute to us with some new users, new business users, new enterprise paid enterprise customers. And for the longer term, we expect the paying ratio to continue to grow. And the recovery from large enterprises as Jonathan just mentioned, with that definitely will increase there objective.
So paying ratio increase on our pool increase, those our two parts have good potentials will support our long-term growth with our commercialization.
Peng Zhao
I will briefly talk about the blue-collar business. So our blue-collar business has been experiencing continued a healthy growth. So data point to prove to the product, which is our revenue grew by 32% year-on-year. However, the revenue contribution from blue collar goes up by [66-percentage-points] from 28% to 34%, which is a very powerful demonstration of the good performance of our blue collar business.
And there are four detailed sectors within blue collars, which are urban service manufacturing constructions and warehousing and logistics. Every subsectors -- numbers of users have used less than white collar power combined together they are quite a considerable amount. So we need to better serve them.
Withing Urban service sector, we have been doing well. We have a good recognition and reputation. So we also make money from there. Within manufacturing, we are still on a very high exploration, which actually -- it has been going for a while. We talked about there are four pairs within manufacturing improvement business which are the factories, which is employee -- employers, the workers, the agents, offline agents, which who have been paid there for a long time.
And the last one is the platform. So for the game is that considerably longer term or within those four parties among two or three of them, there have been contradictory situation. So actually is a zero-sum game until we have been -- have shortened board exploring for quite a long time and we made some progress and also the industry situation for manufacturing in the past two or three years, it has been quite different from previous periods. So we will continue to work on that area. So that's my update on our progress on blue collar business.
And that does conclude our question for all four. And Operator, let's move to the next question.
Operator
Robin Zhu, Bernstein.
Robin Zhu
(spoken in foreign language)
So two questions, please. One, it's good to see management raise the buyback in the coming year. So can you could share some thoughts on capital return policy going forward and the monthly pace of buybacks, given there's almost $2 billion of cash on the balance sheet and will the company commit to a systematic capital return program going forward as revenue and cash flows grow.
Second, I came to hear management talk about future product development and specific ways the company can leverage AI to capture more value and profit and the recruiting process also loves an update on overseas expansion if management has any sort of concrete plans? Thank you.
Peng Zhao
Thank you for your question. So regarding the cash allocation, so it is actually to make fast arrangement, optimize the allocation of company's capital and continuing to increase shareholder return is the duty for any public company, any management public company, and CEO, of any public company, our pursuit, and our duty.
And we have roughly as I said $15 billion cash on hand. So for me, the priority to use this cash, there are priorities. The top priority will always be -- we will use our money for future development for user growth to expand our advanced model to more user groups, to more industries, [air works] in the country (inaudible) to initiate our business.
And the second priority is to provide shareholder returns. We are currently exploring a possibility following our initial special cash dividend last year to pay cash dividends continuously in the future.
In the last ones from share repurchase perspective, so we are just approved that this [$200 million], our new repurchase program. So we -- that's what we have been doing and we will continue to do. So we want to push like this share buyback program to guarantee our shareholder, their shareholding percentage. And we will in the future, we will coordinate between all these several methods or several ways to provide the best returns to our shareholders.
And from the AI investment, our policy like we just discussed. First is to keep up with the latest leading technology and teams to avoid any knowledge gap, generational gap comparative with the first [team]. And secondly, we will continue to pursue the industrial implementation and launch two primary investments to compete with chips, compared with spending of our electricity powers, which is not works well. We will spend our money cleverly.
Regarding the opportunity and AI have brought about for our company and for our industry, I would like to share with you a while my understanding, which is something if development cannot go proceed without artificial intelligence, AI, then we need to invest that. So if something can function quite well, even without AI, then we should be quite cautious on the investments. Does that distinguish between whether we should spending more on the industrial perspective.
And about the overseas business, which not many of them actually concerned, our product policies are also quite clear. First is we will go already to make money. second, so we want to make money from wealthy people. Third, the procurement and uptick in business is quite serious in regarding the power and protection of jobseekers.
So we have a quite high requirement for the local neighbors law. And fourth, so based on those requirements and considerations we will invest in the top five or six GDP countries or areas, whereas the [steel] environment are quite clear and mature and though enterprises used to pay for services in our other traditional business model can be good money.
So that quite clear, we don't go to mature market Asian players, [good] loss and wealthy people, but that's our status for the oversea business.
And for your reference, and that wraps us our answers for those questions. And due to the time constraint, that will be the last question. So operator?
Operator
Thank you. At this time, I will turn the conference back to one pay for any additional or closing remarks.
Wenbei Wang
Okay, thank you once again for joining us today. If you have any further questions, please contact our team directly, and thank you.
Operator
That does conclude today's conference call. Thank you for participating. You may now disconnect your line.
Wenbei Wang
Thank you.
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.
