ZipRecruiter, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The filing is unaudited. ZipRecruiter operates an online job marketplace, generating substantially all revenue from employers through subscription and performance-based services. The company completed a direct listing on the NYSE on May 26, 2021.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $183.0 million | $87.7 million | $308.3 million | $200.9 million |
| Gross profit / margin | $161.4 million / 88% | $75.8 million / 86% | $270.8 million / 88% | $174.6 million / 87% |
| Operating income (loss) | $(68.3) million | $21.6 million | $(51.9) million | $10.9 million |
| Net income (loss) | $(52.8) million | $21.3 million | $(39.4) million | $10.2 million |
| Adjusted EBITDA | $(1.7) million | $25.6 million | $18.3 million | $19.2 million |
| Adjusted EBITDA margin | (1)% | 29% | 6% | 10% |
| Operating cash flow | Not provided for the quarter | $37.7 million | $9.9 million |
Q2 revenue increased 109% year over year; six-month revenue increased 53%. Q2 subscription revenue was $151.3 million and performance-based revenue was $31.7 million. For the six months, those streams were $251.8 million and $56.5 million, respectively. Q2 basic and diluted loss per share were both $0.55; six-month loss per share was $0.47.
Q2 operating expenses totaled $229.7 million, including sales and marketing of $114.2 million, research and development of $37.9 million, and general and administrative expense of $77.6 million. Gross margin improved to 88% from 86% in Q2 2020. For the six months, gross margin was 88%, versus 87% in 2020.
At June 30, 2021, cash was $153.3 million and total assets were $290.7 million. Current liabilities were $116.7 million. The company had no borrowings outstanding under its $250 million revolving facility and reported $243.7 million of available capacity after letters of credit. Total liabilities were $141.8 million; preferred stock and related-party convertible notes had converted in connection with the direct listing. Operating cash flow was positive despite the six-month GAAP net loss, with stock-based compensation a major noncash adjustment.
Material changes and unusual items
- Quarterly Paid Employers rose to 169,191, up 48% from Q1 2021 and 120% from Q2 2020, according to management. Revenue per Paid Employer was $1,081, down 1% sequentially; management attributed the decline to many new employers contributing revenue for only part of the quarter.
- Sales and marketing expense rose 307% year over year in Q2, primarily due to $64.7 million of additional marketing and advertising spend, higher stock compensation, and increased headcount.
- Stock-based compensation was $64.4 million in Q2 and $65.6 million for the six months, compared with $1.3 million and $3.3 million, respectively, in 2020. The increase largely reflected the April waiver of a liquidity-event vesting condition on outstanding RSUs.
- Q2 G&A included $31.9 million of one-time direct-listing-related costs, including the CEO’s $10 million listing bonus; six-month direct-listing costs were $34.0 million. The direct listing also resulted in conversion of preferred stock into 24.2 million Class B shares and conversion of related-party notes and interest into 3.1 million Class B shares.
- The April 2021 credit agreement replaced the prior revolving facility and matures in April 2026. It is secured by substantially all company assets and includes financial and other covenants.
Outlook, commentary, and risks
Management said it plans to continue investing aggressively in the marketplace. It expects sales and marketing, research and development, and public-company-related G&A expenses to increase in absolute dollars. The filing provides no quantified revenue or earnings guidance. Management expects the historical cohort trend of growing Revenue per Paid Employer to continue, while acknowledging quarter-to-quarter volatility, and believes cash, operating cash flow, and available borrowing capacity will cover working-capital needs for at least 12 months.
Management linked the strong first-half demand to the labor-market and economic recovery and increased sales and marketing investment, while warning that COVID-19’s effects and the recovery remain uncertain. Principal risks include economic and hiring-market volatility, intense competition, employer renewals and spending, the ability to manage growth and marketing efficiency, marketplace reliability and cybersecurity, privacy regulation, reliance on third-party infrastructure and partners, and seasonal and quarterly fluctuations. A former-employee class and representative action remains pending; the company said a loss was reasonably possible but the amount or range was not estimable. The dual-class structure gives Class B shares 20 votes per share versus one vote for Class A, concentrating voting control.
Important facts for investors to verify
- Whether the exceptional growth in employers and revenue persists as the labor market and COVID-19 conditions change, and whether new employers renew or increase spending.
- How much of future reported expense and earnings volatility reflects recurring investment versus RSU compensation and direct-listing-related costs.
- Whether marketing spending produces sustainable customer growth and whether Revenue per Paid Employer and Adjusted EBITDA recover or improve.
- Available liquidity, compliance with the secured credit facility’s covenants, and any future borrowing or capital-raising needs.
- Developments in the pending employee litigation, cybersecurity and privacy matters, and other contingencies; the filing does not quantify a potential loss for the disclosed lawsuit.
- The voting-control implications of the Class B shares and the dilution effects of outstanding equity awards and future share-plan activity.