Ladies and gentlemen, thank you for standing by and welcome to the Kanzhun Limited Fourth Quarter and Full Year 2022 Results - 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. Wen Bei Wang, Head of Investor Relations. Please go ahead, ma'am.

Wen Bei Wang - Head of Investor Relations

Thank you, Operator. Good evening and good morning everyone. Welcome to our fourth quarter and full year 2022 earnings conference call. Joining me today are, our Founder, Chairman and the CEO, Mr. Jonathan Peng Zhao; and our Director and the 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 risk, uncertainties and other factors may not under the company's control, which may cause actual results, performance, or achievements of the company should 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 except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For 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 reply 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 - Founder, Chairman and Chief Executive Officer

[Foreign Speech] Hello, everyone. Welcome to our fourth quarter and full year 2022 earnings conference call. The past year has been a tough one for all of us. I would like to express our sincere gratitude to our users and investors and our employees.

[Foreign Speech] First, I would like to share with you our performance for the fourth quarter and full year of 2022. Over the past quarter, we recorded calculated cash billings of RMB1.1 billion and GAAP revenue of RMB1.08 billion, which is virtually flat compared with the same period of last year. Flat is not quite an ideal outcome, primarily affected by accumulated effects of the COVID-19 outbreaks over the past quarter. The epidemic reported particularly one-third in last December, pose great challenges to our normal operations during the fourth quarter.

[Foreign Speech] In the fourth quarter, we achieved the two significant milestones. On December 22, the company successfully completed our dual primary listing on stock exchange of Hong Kong by way of introduction. Secondly, we became an official partner of FIFA as sponsors at the FIFA World Cup Qatar for 2022, although our sponsorship elevated our marketing expenses for the period, it brought us broad exposure from this renowned event both effectively enhanced and expanded influence of the company's brand. Despite this increase in spend, we were still able to achieve profitability in the fourth quarter. Our adjusted net income, which excludes share-based compensation expenses reached RMB59.5 million.

[Foreign Speech] For the full year of 2022, our GAAP values were RMB4.51 billion, our calculated cash billings, which RMB4.61 billion and our non-GAAP adjusted net income, excluding share-based compensation expenses, which RMB800 million.

[Foreign Speech] In terms of operations, the fourth quarter is the traditional up stood in the recruitment industry. Nevertheless, we maintain a solid growth momentum with our new users. Our MAUs for the fourth quarter reached 50.91 million at 26% year-over-year, which actually grow our MAUs and DAUs exposure remained stable.

[Foreign Speech] Now let me share some details on the user growth and the business recovery following the Spring Festival, which many of you may be interested in. Alongside work resumption, following the Spring Festival this year, we saw a resurgence in new users that drove an enquire of our cooperating metrics to reach new record highs. During the first two months of 2023, our newly verified users quickly exceeded approximately 9 million. The average MAUs on our app for the first two months of 2023, increased by more than 50% year-over-year, user's achievement reaches again the average DAUs to MAUs also hit a record high. And in February, our monthly active enterprise users grown to the highest level making our history is solid year-on-year growth.

Well, the total number of our users is growing rapidly. We are still able to deliver our enhanced user experience on our platform, which we would like to guarantee. The average number of both job seekers and enterprise users achievements, which is the average monthly number of tons of mutual consent upgrade for a full [Indecipherable] has continued to increase through February. To drive this growth, we are realizing new efficiencies within our platform developed network from our continuously improving algorithm abilities and the deep exploration and insight into our users' needs and preferences that is our forecast.

[Foreign Speech] In terms of our robust user growth, we would like to share some keywords till now in this quarter. The first keyword is blue collar. Among the new users, following the Spring Festival, blue collar users showed stronger adoption of our platform than white collar users in terms of both absolute numbers and their growth rate. The second keyword is lower tier cities. In terms of regions, the number of users from second and lower tier cities grew much faster than the number of users in first tier cities, which is a testament to our ability to expand our penetration effectively and continually in lower tier markets.

The third keyword is a small and medium-sized enterprise. The recruitment demand from SMEs are accelerated rapidly, which shows the faster recovery time of SMEs compared with large enterprises. The fourth keyword is our cash. We have witnessed a quick recovery of our cash collection and we set our cash collections to reach an all-time high in the first quarter of 2023, we have estimated over 45% growth sequentially and more than 25% growth year-over-year. The fifth and last keyword is the urban service industry. The urban service industry characterized by face-to-face contact has been a bright spot in the first quarter of this year. Since the Spring Festival, we have seen more than a 40% year-over-year increase in the total number of newly job postings.

[Foreign Speech] Some other sectors also showed positive growth trend. Sectors including retail, transportation and high-end manufacturing such as the new energy and automobile as well as the healthcare industry, all performed well. Real estate and education also showed encouraging signs of stabilization and recovery after the Spring Festival. The number of open positions in sales, marketing, procurement and other functions that is presenting improving business activities of enterprises have all continued to show week over week improvement in the first quarter. The recruitment activities of medium and large enterprises also gradually pick up after the Spring Festival. All of these trends show a sign of overall economic revival and give us confidence in our growth potential for this year.

[Foreign Speech] We remain committed to undertaking our social responsibility as a public company. In October 2022, the company was once again shortlisted for inclusion in the 2022 China's Top 500 Enterprises in Philanthropy List for the second consecutive year. The company and the China Disabled Persons' Federation Employment Service and Administration Centre jointly launched the Barrier-Free Job Search Assistance Service Plan for persons with disabilities to provide service to a cumulative 121,000 disabled jobseekers throughout 2022. We also recently co-organized the Annual Spring Recruitment Festival with the Ministry of Education 24365 Campus Recruitment Service, which is expected to offer hundreds of thousands of open positions for college students across more than 2,000 enterprises.

[Foreign Speech] And one more thing to share with you, today our Board of Directors approved a new share repurchase program to repurchase up to $150 million over the next 12 months to support our long-term share price stability.

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

Yu Zhang - Director and Chief Financial Officer

Thanks, Jonathan, and hello everyone. Now let me go through the details of our financial results of the fourth quarter and full year of 2022. Let me help you better understand our numbers.

Before I begin, please note that all comparisons are on a year-on-year basis unless otherwise stated. Our revenues and the calculated cash billings reached RMB1.08 billion and RMB1.1 billion respectively this quarter stayed at the same level with the fourth quarter of 2021, despite the COVID impacts.

For the full year of 2022, our revenues grew by 6% to RMB4.5 billion. Total paid enterprise customer number for 2022 was 3.6 million, down by 10% compared to 2021, mainly due to the decreases in small sized accounts affected by the user registration suspension in the first half of the year, as well as COVID outbreak in second quarter and fourth quarter, while the paying ratio and ARPU in each quarter stayed steadily at healthy level. Revenues and the numbers of key accounts and medium-sized accounts maintained good growth momentum and both achieved a record high in 2022.

Now let's turn to the cost side. Total operating costs and expenses were RMB1.4 billion in the quarter, up 70% year-on-year, mainly due to number one, increases in employee-related expenses, including share-based compensation related to Hong Kong IPO. And number two, 2022 World Cup sponsorship. For the full year of 2022, total operating costs and expenses decreased by 12% to RMB4.7 billion. Cost of revenues increased by 35% to RMB202 million in this quarter, primarily driven by the increases in employee-related expenses and server and bandwidth costs as our user base continues to expand and higher security requirements.

Gross margin, excluding share-based compensation expenses was 82.6% for the quarter down by 1 percentage point compared to last quarter, mainly because of the revenue growth in the quarter was impacted by the COVID situation, while the majority of the cost was still relatively fixed. For the full year of 2022, cost of revenues increased by 36% to RMB755 million, with an increase - with an 84.1% adjusted gross margin down by 3 percentage points compared to 2021 due to similar reasons. We are expecting a gradual sequential recovery of gross margins this year along with our revenue growth.

Sales and marketing expenses increased by 83% year-on-year to RMB682 million in the quarter, which was primarily due to the marketing campaign of 2022 FIFA World Cup. For the full year of 2022, our sales and marketing expenses were RMB2.1 - RMB2 billion, up 3% year-on-year. Excluding the World Cup sponsorship expenses, we saw a 46% year-on-year decline in branding and customer acquisition costs in 2022, demonstrating our improved marketing efficiency as a result of stronger brand recognition and user satisfaction.

For 2023, we will maintain this effective marketing strategy, while expecting user growth continues to be robust. Our marketing expenses will be monitored and under our good control. Our R&D expenses in this quarter increased by 48% year-on-year to RMB294 million, mainly due to the increase of employee-related expenses. For the full year of 2022, R&D expenses were RMB1.18 billion, up by 44% year-on-year for the same reason.

G&A expenses in this quarter increased by 108% year-on-year to RMB248 million, primarily due to increases in employee-related expenses and professional service fees related to our dual primary listing in Hong Kong. Excluding share-based compensation and Hong Kong listing related fees, our adjusted G&A expenses in this quarter was RMB123 million, up by 50% year-on-year. And for the full year of 2022, G&A expenses decreased by 64% primarily due to the one-off share-based compensation expenses of RMB1.5 billion recognized in 2021 related to our U.S. IPO.

Our simple calculation shows that if we exclude the share-based compensation and World Cup sponsorship and the professional service fees related to our Hong Kong listing, our adjusted operating margin was 20% for this quarter and 19% for the full year of 2022.

Net loss in this quarter was RMB185 million, excluding share-based compensation, our adjusted net income for this quarter was RMB59 million. In 2022, we generated positive annual net income of RMB107 million and adjusted net income of RMB799 million. Our net cash generated from operating activities was RMB156 million for this quarter and RMB1 billion for the full year. As of December 31, 2022, our cash, cash equivalents and short-term investments reached to RMB13.2 billion.

And now for our business outlook, for the first quarter of 2023, we expect our total revenues to be between RMB1.25 billion and RMB1.27 billion, a year-on-year increase of 9.8% to 11.6%. As Jonathan just mentioned, our calculated cash billings in this quarter is expected to increase by over 45% quarter-over-quarter and more than 25% year-over-year, which gives us a good start for the year. With our robust user growth and improving signs for the recovery of economy witnessed so far, we are optimistic for the whole year outlook and feel confident to strive for an accelerating business growth.

With that concludes my prepared remarks. Now we would like to answer questions. Operator, please go ahead.

Question & Answers

Operator

Thank you. [Operator Instructions] Thank you. We'll now take our first question. Please standby. And your first question is from the line of Wei Xiong from UBS. Please go ahead.

Wei Xiong - UBS - Analyst

[Foreign Speech] Thank you management for taking my questions. My first question is about, could management share more color on the recovery trends post Chinese New Year? For example, how do you see the ratio between business user growth versus the jobseeker user growth? And if we look at the recruiting budget recovery, how do we compare the difference between the K customers versus the SME customers? And second, also want to ask your thoughts on the competitive landscape in 2023, if we think about whether the competitors will raise or step up their investment in a reopen environment? And how do we balance the revenue growth versus the margin target for the whole year 2023? Thank you.

Peng Zhao - Founder, Chairman and Chief Executive Officer

[Foreign Speech] Thank you for your question. Regarding your concerns about the situation after the Spring Festival, as I just discussed, we recorded historical highs for both our MAUs and DAUs, which have a very significant - significant growth in the first quarter. And in terms of enterprise users, our active enterprise number has hit a historical high, which means not only encouraging, but also a good recognition. And for the ratio of enterprise customers to jobseekers, which still stay like one to nine or one to 10, but the trend is improving.

In terms of the size of enterprises, we have witnessed that the small SMEs is more flexible and their recovery speed is faster. And of course, if the situation is bad, we can also say it does follow them also much faster. And for the large enterprises, their recovery is later than the SMEs, but it is still during the recovery process. I would like further to add that this is not all about capability, it's because the large enterprises, they are more prudent when making their decisions. I have the same experience in 2008 and 2009. In that situation, the SMEs also recovered much faster.

[Foreign Speech] And for your second question about the competition, currently the overall competitive landscape has not changed, as you have correctly predicted that along with the recovery of the Chinese economy, our peers, they - they are planning to spending more to - to acquire new users this year and we have already feel that kind of pressure in this quarter. But in terms of what we're planning to do and whether it will impact our profits, our strategy is that we will not follow. We will do things according to our own pace and strategies. Based on our high user retention and [Indecipherable] are reasonable growth strategy. We are still hoping to acquire to - to reach the new user growth target of 40 million to 45 million this year. I have - I'm quite confident that we can achieve that target without overspending and it won't affect our margin.

Wei Xiong - UBS - Analyst

[Foreign Speech] Thank you, management.

Peng Zhao - Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. We'll now take our next question. Please standby. And the next question is from the line of Eddy Wang from Morgan Stanley. Please go ahead.

Eddy Wang - Morgan Stanley - Analyst

[Foreign Speech] Thank you for taking my question. I have three questions. First is about the - the unemployment rate in the February and January actually has been quite high, especially for the youth unemployment rates. So do you expect that there - I think in terms of the labor supply side, there is a more of the - the university or college - college graduates, but for the demand side, actually the blue collar jobs actually have quite a high demand. So this mismatch will impact on the overall the landscape of the recruitment in China and how faster can - we'll trying to leverage on this mismatch and adjust our strategy in this year?

The second question is, we heard that there is no longer the labor shortage after the Chinese New Year when more and more the labor actually coming back to the - to the Tier 1 or Tier 2 cities. Not sure if this is what we also witnessed on the ground as well? The third question is a little bit long-term about the ChatGPT. People are talking about that, in the longer term, it's a little bit, you know, the lower or a little bit mid to low, the job of the white collar could be replaced by the ChatGPT in the longer term. So what's your thought on this? Thank you.

Peng Zhao - Founder, Chairman and Chief Executive Officer

[Foreign Speech] Thank you for your question. Regarding your first question, there are two types of blue collar users on our platform. The first one is the urban service. And within the urban service industry, we have - we have witnessed both the fast growth in user as well as job postings. So there is no issue about lack of job postings. It is fine for this sector. And in terms of manufacturing, after the Chinese New Year Festival until this week, which is seven to eight weeks after the Spring Festival. In the first, we did saw that the job postings growth has been much lower compared to the job seeker growth. But the situation has been improving recently.

There is a quite interesting observations, there is a key metrics we look at on our platform, which is the achievement, which means the mutual consent achieved between job seekers and enterprise users on our platform. So within the manufacturing industry, what we have observed that compared to last year, the average achievement per person has slightly decreased but not huge, but the efforts for job seeker to achieve some level of achievement has been much greater. This is the first time I have been talking about this metric publicly.

So the result is that the overall achievement result has decreased a little bit. But the efforts when job seekers need to put is much bigger. So they felt - the feelings of the severity of the - of job seeking is much greater compared to the result that they have to get. So about the mismatching questions you asked, which is quite professional that a lot of job seekers cannot find a job and less job offerings, which under this situation is quite difficult for our platform. But in the past what we have seen that especially within the blue collar's manufacturing, urban service, logistics subsectors, there is quite a lot of flexibility for the job seekers. So both in terms of their skills and ages and the job they're working. So we have seen the adaption of the job seekers to switching between different kinds of industries to satisfy their need for job seeking.

[Foreign Speech] And regarding your last question on ChatGPT, which is a quite interesting question. It is still too early to comment for the actual application of this technology on platform. But there's not too much to say. But we have been highly focused on this technology and the challenge and opportunity it might create. So recently, we noticed that the team has already applied this technology to some scenario for example - for example to generate a resume or personal advantage - advantages and etc. So our team have been seriously following and - and thinking on this. So whether this - this will impose a challenge for some of the white collar jobs, which is a very valid concern, similar to the manufacturing industry like moving a - moving element within the warehouse, the robots have replaced some of the physical works of the blue collar workers. So the new - new technology, some of the white collar jobs might be also replaced by - by some of the AI. So that's a potential trend.

[Foreign Speech] I hope that we can - in the not fast future from - from now we're able to tell our users, our investors that what kind of value we can create for our users based on the AIGC technology. And I hope that they would be fast and I'm quite confident.

Eddy Wang - Morgan Stanley - Analyst

[Foreign Speech] Thank you.

Operator

Thank you. We'll now take our next question. Please standby. This is from the line of Timothy Zhao from Goldman Sachs. Please go ahead.

Timothy Zhao - Goldman Sachs - Analyst

[Foreign Speech] Thank you management for taking my question and congrats on the solid result and the strong outlook for the first quarter. I have two questions. First is about technology innovation, including the recent AIGC GPT technologies, and considering the R&D expenses account for around 20% of the revenue in 2022. How should we think about in which areas that we are planning to invest in 2023 in terms of R&D investments? And what do we think about the impact from these technologies on the online recruitment model and on improving the efficiency of human capital allocation? And secondly, as we understand the marketing campaign around the FIFA World Cup has finished, could management share anything that you have observed about the marketing outcome and what is your pace on marketing and branding that we are thinking for this year? Thank you.

Peng Zhao - Founder, Chairman and Chief Executive Officer

[Foreign Speech] About your first question regarding our R&D investment this year, as always, we will continue to enhance the technology investment this year, but we haven't taken too much into the consideration of all those potential AIGC application scenarios and model - modeling, training and etc. We are actively looking at that, but haven't done that for our annual budgeting. So in our normal plan, the major expense will be for better and even more expensive engineers and computer scientists. And also we will increase our input in hardware, which we have been - we have - we will pay more notice into this. But as I just said, we haven't considered too much about all those AIGC and - and related technologies.

[Foreign Speech] But I'm confident and to say that we have enough capability and - and ambitious to - to invest - further invest into this technology as a - as a large company. And we are absolutely capable and we'll do that.

[Foreign Speech] And about your second question regarding our big event of the sponsorship of FIFA World Cup, I can say that the result, the outcome is - in accordance of our expectations. So we - the very robust user growth in the first two months of this year, we have witnessed is quite efficient within the digital marketing, which results in very cheap customer acquisition cost per person. This is not because the market has offered a lower price or more we have find out some new technology for marketing, but mainly because the - the very high exposure of our marketing campaign during the last - last one month, last year has been quite successful. So our brand recognition has been improved. And this effect to reduce our digital marketing spend will continue to benefit us during this year.

Yu Zhang - Director and Chief Financial Officer

So I would like to add a little bit to this marketing expense question. So I think that's first of all, in terms of the user growth, 2023 would be - we consider this would be a good year of user growth. And you know that we use branding as performance based traffic acquisition, advertisement as an approach to acquire new users. And nowadays we put more resources towards the branding over the performance. So the branding percentage branding related expenses, their percentage continues to rise within our overall marketing expenses. And this trend will continue. And we think that looking ahead for 2023 there - there is no other big branding events ahead. So overall, our - like growth user growth strategy or user growth target for 2023 won't affect our overall margin. And I also need to mention that our margin is more, you know, linear or more related to our top line growth. So we expect that if the revenue can grow higher and faster, then we would like to see further margin expansion for 2023. So far we think that we are holding positive views toward this trend. So we believe that margin should be improving for 2023.

Timothy Zhao - Goldman Sachs - Analyst

Thank you. That's very helpful.

Operator

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

Wen Bei Wang - Head of Investor Relations

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

Operator

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Q4 2022

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