ZipRecruiter, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. ZipRecruiter operates an online two-sided marketplace connecting employers and job seekers. Revenue is generated primarily from employer subscriptions and performance-based services.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $227.3 million | $125.4 million | +81% |
| Subscription revenue | $174.8 million | $100.5 million | +74% |
| Performance-based revenue | $52.4 million | $24.9 million | +111% |
| Gross profit / gross margin | $205.7 million / 90% | $109.4 million / 87% | Margin +3 percentage points |
| Operating income | $14.2 million | $16.5 million | Down $2.2 million |
| Net income | $8.4 million | $13.4 million | Down $5.0 million |
| Diluted EPS | $0.07 | $0.10 | Down $0.03 |
| Adjusted EBITDA / margin | $37.2 million / 16% | $20.0 million / 16% | Adjusted EBITDA +86% |
| Cash from operating activities | $14.4 million | $22.2 million | Down $7.7 million |
Sales and marketing expense rose 117% to $137.6 million, including $60.6 million more marketing and advertising spending. Research and development expense increased 74% to $29.6 million, and general and administrative expense increased 94% to $24.2 million. Stock-based compensation rose to $20.5 million from $1.2 million, materially affecting the comparison. Interest expense increased to $6.3 million, primarily due to the new notes. The 2022 period also included a $0.5 million income tax benefit, versus $3.2 million tax expense in Q1 2021.
Liquidity, debt and capital allocation
- Cash was $745.4 million at March 31, 2022, versus $254.6 million at year-end 2021. The increase primarily reflected proceeds from the new debt issuance.
- In January 2022, the company issued $550 million of 5% senior unsecured notes due in 2030. Their carrying amount, net of issuance costs, was $540.9 million at quarter-end. Q1 interest expense on the notes was $6.1 million.
- The company had no borrowings under its $250 million revolving credit facility and reported $244.1 million available after letters of credit. It was in compliance with financial covenants.
- Operating cash flow was $14.4 million; investing cash outflow was $3.5 million. Financing cash inflow was $479.9 million, including the notes issuance and, in part, offset by $62.3 million of share repurchases and related share-tax settlement.
- The board authorized up to $100 million in repurchases. The company repurchased shares in the market and entered a $50 million accelerated share repurchase (ASR). After quarter-end, the ASR delivered an additional 0.4 million shares; total ASR purchases were 2.2 million shares at a $23.09 weighted-average price net of fees.
Changes, outlook and risks
- Management attributed revenue growth to a recovering economy, strong employer hiring demand, higher marketing investment, and increased customer participation. Quarterly Paid Employers were 150,233, up 31% year over year; revenue per Paid Employer was $1,513, versus $1,093.
- Management said it expects to continue investing aggressively in the marketplace. It expects sales and marketing, research and development, and cost of revenue to increase in absolute dollars; the filing provides no specific full-year revenue or earnings guidance.
- Management stated that cash, operating cash flows, and available credit should cover working capital needs for at least the next twelve months. It cautioned that 2022 cash from operations could be reduced if the tax requirement to amortize research and development costs is not deferred, modified, or repealed.
- Key risks include hiring-market and economic volatility, intense competition, customer renewal and spending levels, reliance on digital traffic channels and third-party infrastructure, cybersecurity and privacy, and the ability to sustain growth and profitability. COVID-19 effects remain uncertain.
- A former-employee class and representative action was agreed to be settled for an immaterial amount; a liability was recorded. Other indemnification exposure was not accrued because payment was not considered probable or reasonably estimable.
- The company reported effective disclosure controls as of March 31, 2022 and no material changes to internal control over financial reporting during the quarter. Its dual-class structure gives Class B shares 20 votes each; Class B holders held approximately 87.4% of voting power at quarter-end.
Investor verification priorities
- Assess whether revenue growth and employer demand can persist if the hiring market or economy weakens.
- Track marketing efficiency and the effect of rising operating expenses and stock-based compensation on GAAP profitability and share dilution.
- Review debt service, covenants, and liquidity after the $550 million notes issuance and ongoing repurchases.
- Confirm the final ASR settlement and remaining authorization, and evaluate the effect of repurchases on cash and share count.
- Monitor the cash-tax impact of required research and development cost amortization and any legislative changes.
- Evaluate the disclosed legal settlement, cybersecurity and privacy exposures, and governance implications of concentrated dual-class voting control.