Ladies and gentlemen, thank you for standing by and welcome to the Kanzhun Limited Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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 Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our second quarter 2024 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao; and our Director and CFO, Mr. Phil Yu Zhang. Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and does 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 definitions of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website.

Hello everyone. Thank you for joining our company's second quarter 2024 earnings conference call. I will 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% year on year. 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 verified MAU on the BOSS Zhipin app grew by 25% year on year to 54.6 million. From January to June this year, the company attracted around 28 million newly verified users. The total paid enterprise customers in the 12 months ended June 30, 2024, reached 5.9 million, representing 31% year-on-year growth. Our cash bookings in the second quarter still have decent year-on-year growth. However, it was weaker on a quarter-on-quarter basis, and a little bit lower 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 ratio. In this case, most enterprise users found it easier to hire. For example, a project team that used to take three months to fill all positions now only takes two months, reducing enterprise users' desire to spend more money on recruitment. We noticed that the growth trend of enterprise users is still good. There are two proofs. First, in the second quarter, the number of newly added enterprise users was higher than that of the same period last year. Second, the average monthly active user of 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 good growth of enterprise users in the second quarter. This is the good news for the company. 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 highest small and medium-sized enterprise activities and the largest number of enterprises. Second, there is a persistent shortage of labor supply, particularly among younger generations, which is unlikely to change in the near future. Third, our efficient service model is best suited to address the challenges presented by the first two factors. On the current situation, the company's management team believes we should do what is best suited for the moment. Today, I'll talk about three things. The first thing is to ensure the full-year profit target. During challenging times, confidence is crucial for everyone, including co-investors, co-employees, or potential investors and the prospective talent. In tough times, confidence is more valuable than growth. Ensuring profitability for the year will help to sustain confidence in the company, which can be achieved through further refinement of our management. The second thing is to invest more resources in new growth drivers. For example, in the blue-collar manufacturing industry, there may be some new dollars. To briefly review the blue-collar manufacturing industry, we had talked before. The background is the complex relationship between factories, workers, platforms, and agents. In addition to many historical issues, it has made it challenging for online platforms to serve the blue-collar manufacturing industry. The current situation is that after a tough game, the longstanding issue of bad or low-quality agents driving out good ones across online recruitment platforms is beginning to improve. This positive shift has already happened. Good agents who commit to job seekers with integrity, posting authentic job details and salary information, are now receiving better results. We have named these agents as platform-certified country select. The latest data shows our core select project generated over RMB40 million in revenue in the second quarter, which is much higher than that in the first quarter. This good sign makes me feel that our strategy and persistence over the years are paying off. The third thing is our overseas business. As we all know, economies are cyclical, and these economy cycles are often out of sync across different countries and regions. Large companies with a strong global presence can effectively utilize this regional big shift to support sustainable growth. In particular, fostering has pioneered our current model globally, which is very likely to provide value and gain space for survival and development in various regional markets through localization, hybridization, and evolution. While we're seeing promising progress in Europe and Asia, it's still too early to report results. Last but not least, it's important to address confidence again, particularly in terms of strengthening the returns for our shareholders who have constantly supported us since our IPO. For example, we'll continue to increase our share buyback efforts. We repurchased over US$88 million worth of shares in the past four months. All of this will help to reinforce the confidence of our shareholders and management. That concludes my part of the call. I'll now turn it over to our CFO, Phil, for the overview of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Now let me walk you through the details of our financial results for the second quarter of 2024. In this quarter, we delivered healthy and sustainable top-line and bottom-line growth. Calculated cash billings and 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 and 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 ending June 30, 2024, increased by 31% year on year to 5.9 million. The paying ratio was higher than last year but remained stable sequentially. We are happy to see that ARPPU, average revenue per paying user, 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 medium-sized accounts. More importantly, it was our effort to increase client usage by offering high-quality and targeted products and services. Moving on to the cost and expense side, excluding share-based compensations, adjusted operating costs and expenses increased by 20% year on year to RMB1.3 billion. This led to an 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 of last year, and hit an all-time high. Cost of revenues increased by 17% year on year to RMB317 million, representing a gross margin of 83.5%, continuing 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 commissions. 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 higher depreciation costs. 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 RMB719 million, increasing by 26% year on year. We expect that our share-based compensation expenses reached their peak level in this quarter and will gradually decline in the coming quarters. We are now reviewing the stock compensation scheme and studying some schemes which might even expedite the process. Net cash provided by 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 RMB14.3 billion. Notably, in the past four months, we have repurchased a total consideration of US$88 million, which demonstrates our commitment to shareholder returns and long-term confidence in our business. As for our business outlook, for the third quarter of 2024, we expect our total revenues to be between RMB1.9 billion and RMB1.92 billion, which represents a year-on-year increase of 18.2% to 19.5%. That concludes our prepared remarks, and now we would like to answer questions. Operator, please go ahead with the queues.

Our first question comes from Timothy Zhao with Goldman Sachs. Your line is open.

Thank you for taking my question. I have two questions here. The first is regarding your user growth and market share. How does the management team view the market share currently and in the adverse market environment? Are we considering further accelerating market share gain? And second, as we mentioned to ensure full year profit this year, could management share what your detailed measures are and what are your operational expense trends for the rest of this year? Thank you.

Thank you for your question. For the first one regarding competition, the current competitive landscape is relatively stable. We have relatively good competitive advantages. Many third-party data and our own data have proven that. For example, we just mentioned our mobile active users achieved a historical high in the second quarter. User activities, such as daily active users and monthly active users, still remain at a very high level. All of these data prove that as a leading online recruitment platform, our competitive landscape is really stable and continues on a good trend. In terms of guaranteeing the full-year profit target, we believe it is critical for our core employees and management to have this target. This is part of our competence and it further testifies that this firm is very stable and strong. Our full-year user growth target is RMB40 million to RMB45 million. In the first half of this year, we have already achieved RMB28 million, so only RMB12 million to RMB17 million is left for us to grow. It should be relatively easy to achieve, so we can control our overall spending on marketing to properly achieve our profit target. Under current circumstances, we want to better use our resources and shift the priority of those project initiatives with lower success rates to postpone resource usage and prioritize reducing overall costs. This can be achieved through internal management, and we believe there is a very high level of certainty in terms of our data. I think Phil can provide more details.

Regarding our bottom line and major cost and expense items, I'll quickly mention our thoughts. As Jonathan just mentioned, we would like to try our best to secure our operating profit. Our target for the full year of non-GAAP operating profit is set at RMB2.3 billion, which is roughly up 40% year over year, on top of last year's adjusted non-GAAP operating profit. In terms of our gross margin, we expect our gross margin in the third quarter and following quarters to stay flat or slightly improve due to higher economies of scale. Our marketing expenses, as Jonathan mentioned, will be controlled at a relatively low level. Our selling expenses and G&A expenses will be moderate and in a reasonable range. In terms of R&D expenses, we will probably shift our focus from AI-related infrastructure investments to other areas. Altogether, we expect our operating margin to increase in the second half compared to last year.

As for market share, many investors are concerned about this. After experiencing the past few years, we notice that currently, every dollar we spend results in more job seekers and fewer enterprise users. The CPU ratio is currently a challenge for platforms based on the supply and demand balance of both sides. From this perspective, to keep the balanced civil ratio, we actually don't need to spend money too aggressively. In addition to increasing market share on the enterprise user side, the overall paying desire of enterprises is not very strong. The best and most effective way to enlarge our enterprise market share would be to initiate a price war. Currently, it is not a good time to pursue that strategy, and I don't plan to seek more shares by lowering our prices, as I don't think this is meaningful to do at this time.

Thank you. Our next question comes from Eddy Wang with Morgan Stanley. Your line is open.

Thank you, management, for taking my question. We understand that the macro situation in the second quarter has been relatively weak, so I want to hear your view: have you witnessed any improvement in recruitment demand in August compared to June and July? And how's the performance of different industries and enterprises with different skill needs? Secondly, if the macro continues to be relatively weak, will we have any changes in business strategy to counter the macro impact?

First, we cannot speak to the macro situation, but we can share our observations from our website and app. In the second quarter, the overall willingness to pay from recruiters was lowering. However, blue-collar growth continues to outpace white-collar growth. Regarding blue-collar recruitment demand, it peaked historically during the spring festival recruitment season but has since fallen back relatively faster in the second quarter. Even with this pullback, we still see a very good year-over-year growth in terms of blue-collar revenue in the second quarter. Among the sub-sectors, the factory industry continues to outperform other industries, followed by logistics. Recruiters' enterprise user growth is better and faster in the second, third, and fourth-tier cities compared to first-tier cities. Larger enterprises with over 10,000 employees are exhibiting the best growth rates. About August, we see a better overall supply and demand situation in the blue-collar sector than in the second quarter. The enterprise-to-job seeker ratio continues to improve, and the daily active enterprise user numbers are going up weekly. As for strategies to counter macro headwinds, we are concentrating our resources on businesses that we see faster growth potential and are increasing investments in the blue-collar manufacturing industry.

Our next question comes from Robin Zhu with Bernstein. Your line is open.

I have two questions. First, would management elaborate on recent developments in the company regarding the WD acquisition? If management could provide more details about overseas investments and AI developments? Secondly, given the weakness in the company's shares recently, could management share thoughts on future buybacks and whether the company will consider instituting a regular dividend? Thank you.

Thank you for your question. Regarding the acquisition of WD technology, it reflects our recognition and respect for their team and history, as they have been able to excel in their area since 2015. Acquiring the majority stake in WD technology is not just an expansion into that area, but a means to enhance our capabilities in ways that are challenging to develop internally. Jason and his team are recognized industry experts and are currently working with us on three fronts. First, they are leading the development of independent capabilities. Second, they are assisting the company in overall environment improvement and the monetization under our project. Third, under current circumstances, Jason is currently leading the operational team of WD technology and part of our R&D team, combining our traffic advantages with their industry expertise to launch new products or services. For overseas business, our Hong Kong initiatives have made some progress. We have launched MEP services and are assessing user reactions on our platform, which may take 2 to 3 months to evaluate. Regarding revenue from our Hong Kong business, it may take more than 2 to 3 years to see decent levels. In Asia and Europe, we are also evaluating the situation, but I am satisfied with our local team and confident in our direction. Regarding generative AI, we are conducting a tail light project for our researchers to remain informed about advancements in the field. However, we are not planning to invest heavily as we cannot afford such ventures. On the application level, we're applying generative AI insights to internal use. As for shareholder returns, we have long committed to providing them and consider it essential for maintaining robust confidence among our core shareholders. We have a $200 million share buyback program, and in the last four months, we have already bought back $88 million worth of shares. We will continue to pursue this strategy. About potential dividend plans, research is still underway.

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

Thank you. You may now disconnect. Good day.