ZipRecruiter, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Figures are unaudited and in U.S. dollars; financial statement amounts below are in millions except per-share data. ZipRecruiter operates an online marketplace connecting employers and job seekers, with substantially all revenue generated from employer fees.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $227.0 | $212.7 | $694.2 | $521.0 |
| Gross profit / margin | $205.1 / 90% | $190.4 / 90% | $629.0 / 91% | $461.2 / 89% |
| Operating income (loss) | $29.5 | $18.0 | $68.8 | $(33.9) |
| Net income (loss) | $20.6 | $22.1 | $42.1 | $(17.4) |
| Diluted EPS | $0.17 | $0.17 | $0.34 | $(0.19) |
| Adjusted EBITDA / margin | $51.7 / 23% | $42.5 / 20% | $134.3 / 19% | $60.7 / 12% |
Q3 subscription revenue was $175.1 million, up 2% year over year; performance-based revenue was $51.8 million, up 29%. For the nine-month period, subscription revenue rose 27% and performance-based revenue rose 62%. Adjusted EBITDA is a non-GAAP measure.
- Cash flow: Nine-month operating cash flow was $84.3 million, compared with $89.8 million. Investing cash outflow was $195.3 million, including $186.7 million of security purchases, $6.3 million of capitalized software costs and $2.2 million of property and equipment purchases. Financing cash inflow was $339.3 million, principally reflecting $550 million of note proceeds, partly offset by share repurchases and other financing outlays.
- Liquidity: At September 30, cash and cash equivalents were $483.0 million and marketable securities were $186.7 million, totaling $669.7 million. The company reported $244.5 million of unused credit-facility capacity, net of letters of credit, and no borrowings under that facility.
- Debt: The company issued $550 million of 5% senior unsecured notes due 2030 in January 2022. Their September 30 carrying value, net of issuance costs, was $541.3 million; estimated fair value was $442.8 million. Q3 interest expense was $7.4 million, primarily related to the notes.
- Other balance-sheet items: Total assets were $818.4 million and stockholders’ equity was $133.3 million at September 30, 2022. The company recorded $146,000 of after-tax unrealized losses on available-for-sale debt securities in other comprehensive loss.
Changes and operating trends
- Q3 revenue increased 7% year over year, while net income decreased about 7%. Operating income improved, but the new notes added significant interest expense.
- Nine-month revenue increased 33%; the prior-year period included a $33.9 million operating loss and $34.0 million of one-time direct-listing costs in G&A. The company reported nine-month net income in 2022 versus a net loss in 2021.
- Quarterly Paid Employers were 135,703 in Q3, down from 169,535 in Q3 2021 and 156,537 in Q2 2022. Revenue per Paid Employer was $1,673, up from $1,254 in Q3 2021 and $1,533 in Q2 2022. Management said hiring activity softened from late June and continued to weaken amid supply-chain challenges, inflation and rising interest rates, while employers’ willingness to pay and demand for matching solutions remained strong.
- Q3 sales and marketing expense was nearly flat year over year as lower advertising spend offset higher personnel costs. Nine-month sales and marketing expense rose 33%, reflecting increased advertising and headcount. R&D expense increased 22% in Q3, primarily due to personnel costs.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management said it plans to continue investing in the marketplace, technology, sales and marketing, and expects cash, securities, operating cash flow and available credit to meet working-capital needs for at least the next 12 months.
- Management cautioned that hiring demand was softening and that economic conditions remain uncertain. Key risks include competition, economic and labor-market volatility, employer renewals and spending, technology or service interruptions, cybersecurity and privacy issues, and the effects of COVID-19 and inflation.
- The board increased the share-repurchase authorization to $250 million during 2022. The company repurchased 10.7 million shares for $200.1 million in the first nine months, leaving approximately $49.9 million available at September 30. In November, after quarter-end, the board authorized a further $200 million increase, bringing the total authorization to $450 million.
- The company established a $12.0 million valuation allowance against California R&D credit deferred tax assets during Q3. It also disclosed an employment-related class and representative action settlement for an immaterial amount, subject to court approval; approval was anticipated by early 2023.
- ZipRecruiter stated it was in compliance with credit-facility financial covenants. Its debt agreements include covenants and default provisions. Management also noted that 2022 cash taxes could be affected by the requirement to amortize R&D expenditures for tax purposes if the relevant law is not changed retroactively.
Important facts for investors to verify
- Whether the decline in Paid Employers persists and how it affects revenue, subscription renewals and performance-based demand.
- How the $550 million notes’ interest cost and debt covenants affect earnings, liquidity and capital allocation.
- The cash and securities actually available for operations after repurchases, and the implications of the expanded $450 million repurchase authorization.
- Whether the California tax valuation allowance, R&D tax amortization rules or pending settlement produce further material effects.
- Management’s non-GAAP Adjusted EBITDA reconciliation and the sustainability of reported profitability as investment and stock-based compensation continue.