ZipRecruiter, Inc. — Q3 2021 Form 10-Q
Business and period: ZipRecruiter operates an online two-sided marketplace connecting employers and job seekers, with employer-paid subscription and performance-based services. This unaudited report covers the three and nine months ended September 30, 2021; comparisons are to the same 2020 periods unless otherwise noted. The company completed a direct listing on the NYSE on May 26, 2021.
Financial highlights
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $212.7 million | $102.9 million | $521.0 million | $303.8 million |
| Gross margin | 90% | 87% | 89% | 87% |
| Operating income (loss) | $18.0 million | $23.1 million | $(33.9) million | $34.0 million |
| Net income (loss) | $22.1 million | $23.1 million | $(17.4) million | $33.3 million |
| Adjusted EBITDA | $42.5 million | $26.7 million | $60.7 million | $45.9 million |
| Adjusted EBITDA margin | 20% | 26% | 12% | 15% |
| Basic EPS | $0.19 | $0.21 | $(0.19) | $0.29 |
Revenue mix: Q3 subscription revenue was $172.5 million and performance-based revenue was $40.1 million. For the nine months, the respective amounts were $424.3 million and $96.7 million.
Cash flow and liquidity: Nine-month operating cash flow was $89.8 million, investing cash outflow $11.2 million, and financing cash inflow $11.7 million; cash increased $90.3 million to $204.9 million. At September 30, current assets were $263.8 million and current liabilities $132.8 million. The company had no borrowings outstanding under its $250 million revolving facility and reported $244.2 million of available capacity, net of letters of credit.
Changes and notable items
- Revenue grew 107% in Q3 and 71% over nine months. Management attributed growth to increased employer hiring demand, improving economic conditions, sales and marketing efforts, and higher customer spending.
- Quarterly Paid Employers reached 169,535, roughly flat sequentially and up 89% year over year. Revenue per Paid Employer was $1,254, up 16% sequentially; management cited the prior quarter’s influx of employers contributing revenue for only part of that quarter.
- Q3 net income was slightly lower year over year despite substantially higher revenue; operating expenses rose sharply, led by sales and marketing. Q3 sales and marketing expense was $112.2 million, up 169%, including a $57.2 million increase in marketing and advertising.
- Nine-month GAAP results included $87.6 million of stock-based compensation, versus $4.6 million in 2020, and $34.0 million of direct-listing-related general and administrative costs. The listing also led to conversion of preferred stock and $25.6 million of related-party convertible notes into common shares; no such notes remained outstanding at quarter-end.
- Q3 general and administrative expense included a $6.8 million non-income tax charge and $3.8 million of stock-based compensation related to modification of awards for the former COO. The company also agreed to settle an employee lawsuit for an immaterial amount.
- The company reported an income tax benefit of $4.5 million for Q3 and $17.1 million for nine months. The nine-month effective tax rate was 50%, reflecting, among other items, tax benefits tied to equity awards and other tax adjustments.
Outlook, risks and contingencies
- No quantitative revenue or earnings guidance is provided. Management expects to continue investing in marketplace growth, sales and marketing, research and development, and public-company infrastructure, and expects sales and marketing and research and development expenses to rise in absolute dollars. It expects marketing expense to decline as a percentage of revenue over time.
- Management believes cash, operating cash flow, and available borrowing capacity will meet working-capital needs for at least the next 12 months. The credit facility matures April 30, 2026, is secured by substantially all company assets, and includes financial and other covenants.
- Management cited robust employer demand and economic recovery, while warning that COVID-19 effects and the employment market remain uncertain. Key risks include competition, economic and hiring volatility, seasonality (historically including fourth-quarter deceleration), customer renewals and spending, platform reliability, cybersecurity and privacy, and retaining key personnel.
- The company reported disclosure controls and procedures were effective at the reasonable-assurance level and no material changes in internal control over financial reporting during the quarter.
- Class B shares carry 20 votes per share versus one vote per Class A share, concentrating voting control among existing holders. The company does not intend to pay dividends in the foreseeable future.
Investor verification points
- Assess the sustainability of unusually rapid revenue growth and employer demand, including the sequential stability of Paid Employers and the 16% sequential rise in revenue per Paid Employer.
- Separate recurring operating performance from significant stock-based compensation, direct-listing costs, executive award modifications, and the non-income tax charge; review their potential future effects.
- Review cash conversion and working-capital movements, especially growth in accounts receivable and accrued expenses, and monitor gross margin and Adjusted EBITDA margin as growth investments continue.
- Verify credit-facility availability, covenant compliance, collateral and restrictions, as well as the company’s ability to sustain liquidity if hiring demand weakens.
- Consider dilution and governance implications of equity awards, equity plans, the dual-class voting structure, and the CEO performance award.