ZipRecruiter, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2023. ZipRecruiter operates an online two-sided job marketplace, with substantially all revenue generated from employer fees. Comparisons below are against Q1 2022 unless noted.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $183.7 million | $227.3 million | Down 19% |
| Gross profit / margin | $163.1 million / 89% | $205.7 million / 90% | Margin down 1 percentage point |
| Operating income | $11.0 million | $14.2 million | Down 23% |
| Net income | $5.0 million | $8.4 million | Down 40% |
| Diluted EPS | $0.05 | $0.07 | Down $0.02 |
| Adjusted EBITDA and margin | $35.3 million / 19% | $37.2 million / 16% | EBITDA down 5%; margin up 3 points |
| Operating cash flow | $6.4 million | $14.4 million | Down $8.1 million |
Adjusted EBITDA is a non-GAAP measure. Net income margin was 3%, versus 4% in Q1 2022. Revenue comprised $143.1 million subscription revenue (down 18%) and $40.6 million performance-based revenue (down 22%).
Marketplace metrics and material changes
- Quarterly Paid Employers were 105,948, versus 150,233 a year earlier and 108,296 in Q4 2022.
- Revenue per Paid Employer was $1,734, up from $1,513 year over year but down from $1,944 in Q4 2022.
- Management attributed the year-over-year revenue and employer decline to hiring-market pressure and employer spending pullbacks amid high inflation and interest rates. It said improved products and value supported higher revenue per employer year over year.
- Sales and marketing expense fell 36% to $88.4 million, primarily reflecting $53.5 million less marketing and advertising spend. Research and development rose 29% to $38.3 million, primarily on higher personnel and software costs; general and administrative expense rose 5% to $25.5 million.
Liquidity, debt and capital allocation
- Cash, cash equivalents and marketable securities totaled $519.1 million at March 31, 2023, down from $570.4 million at December 31, 2022.
- Cash and cash equivalents were $214.5 million; marketable securities were $304.6 million. Management said available liquidity, operating cash flow and borrowing capacity should meet working-capital needs for at least 12 months.
- Long-term borrowings had a $541.8 million carrying value. The $550 million senior unsecured notes bear 5% interest and mature in January 2030. The company had no credit-facility borrowings; $244.9 million remained available under its $250 million facility, net of letters of credit. It reported covenant compliance.
- Financing activities used $57.2 million of cash, including $58.7 million for share repurchases. The company repurchased 3.9 million shares for approximately $60.2 million under its program; $50.5 million remained authorized at quarter-end. In May 2023, the board authorized an additional $100 million.
- Stockholders’ equity moved from $28.6 million at year-end to a $3.9 million deficit, primarily reflecting repurchases and related equity activity. Stock-based compensation was $21.6 million for the quarter.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in the filing. Management expects to continue investing in the marketplace; it expects research and development and cost of revenue to increase in absolute dollars, and sales and marketing to remain its largest operating-expense category. Actual results may differ, and Q1 results are not necessarily indicative of full-year performance.
- Management identifies macroeconomic conditions, employer hiring and spending, competition, customer renewals and upgrades, seasonal fluctuations, and the effectiveness of marketplace technology and AI as important business risks. It also highlights cybersecurity, privacy and regulatory exposure, including evolving AI and employment-related rules.
- Operating cash flow was affected by working-capital outflows, including lower accrued expenses and accrued interest. Investing cash flow of $38.0 million mainly reflected marketable-security maturities and purchases.
- The company recorded $3.6 million of income-tax expense, a 42% effective rate, versus a $0.5 million tax benefit in Q1 2022; management cited reduced tax deductions related to stock-based compensation among the drivers.
- A 1% federal excise tax on net stock repurchases resulted in a $0.5 million accrued liability. A previously agreed, immaterial employee lawsuit settlement remained subject to court approval; the filing does not quantify the settlement.
- Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Paid Employer counts and employer spending recover, and how subscription and performance-based revenue trends develop.
- Whether lower marketing spend can be sustained while supporting customer acquisition, and whether increased R&D spending translates into marketplace growth.
- Cash generation, investment liquidity and interest-rate exposure, alongside the $550 million notes and credit-facility covenants.
- The pace and price of further repurchases, the May 2023 authorization increase, and the effect of repurchases on liquidity and share count.
- Potential changes in legal, privacy, AI, tax and macroeconomic conditions; the employee-settlement approval status; and the timing of cash-tax effects from required R&D cost amortization.