Business context and reporting period
ZipRecruiter, Inc. operates an online two-sided job marketplace, charging employers for subscription services and performance-based job advertising while job seekers use the platform free. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods.
Key financial results
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $239.9 million | $183.0 million | $467.2 million | $308.3 million |
| Gross margin | 91% | 88% | 91% | 88% |
| Operating income (loss) | $25.1 million | ($68.3 million) | $39.3 million | ($51.9 million) |
| Net income (loss) | $13.1 million | ($52.8 million) | $21.5 million | ($39.4 million) |
| Diluted EPS | $0.11 | ($0.55) | $0.17 | ($0.47) |
| Adjusted EBITDA and margin | $45.4 million; 19% | ($1.7 million); (1)% | $82.6 million; 18% | $18.3 million; 6% |
Q2 revenue grew 31% year over year; first-half revenue grew 52%. Subscription revenue was $187.3 million in Q2 and $362.2 million in the first half; performance-based revenue was $52.6 million and $105.0 million, respectively. Revenue growth reflected higher revenue per paid employer and increased performance-based campaign activity.
Cash flow, debt, and liquidity
First-half operating cash flow was $55.1 million, versus $37.7 million in 2021. Investing cash outflow was $4.3 million, compared with $8.2 million; financing cash inflow was $394.5 million, compared with $9.3 million. Cash increased by $445.3 million to $699.9 million, largely reflecting the January issuance of $550.0 million of senior notes and partially offset by share repurchases.
At June 30, cash was $699.9 million. Long-term borrowings were $541.1 million net of issuance costs, representing $550.0 million principal of 5% senior unsecured notes due January 2030. The notes’ estimated fair value was $462.0 million. The company had no borrowings under its $250.0 million secured revolving credit facility; $244.5 million was available after letters of credit. It reported compliance with credit facility covenants. Management believes cash, operating cash flow, and available borrowing capacity will cover requirements for at least 12 months.
Material changes versus the prior period
- Profitability turned positive, with Q2 net income of $13.1 million versus a $52.8 million loss and first-half net income of $21.5 million versus a $39.4 million loss.
- Gross margin rose to 91% from 88%. Sales and marketing expense increased 20% in Q2 and 54% in the first half, reflecting increased advertising and personnel costs.
- General and administrative expense fell substantially year over year, partly because 2021 included Direct Listing costs and a $10.0 million CEO bonus, as well as higher stock-based compensation. Q2 2021 also included $31.9 million of one-time Direct Listing-related G&A costs, versus none in Q2 2022.
- Interest expense rose to $7.5 million in Q2 and $13.8 million in the first half, primarily due to the new senior notes.
- Quarterly paid employers were 156,537 in Q2 2022, up from 150,233 in Q1 2022 but below the year-earlier Q2 level of 169,191. Revenue per paid employer was $1,533, up from $1,513 in Q1.
Outlook, commentary, and risks
No quantitative revenue or earnings guidance is provided in the supplied filing text. Management plans to continue investing in the marketplace, sales and marketing, and research and development, and expects these expenses to increase in absolute dollars. It reported strong employer demand during most of Q2 but said employers pulled back on job postings in the final weeks of June amid supply-chain disruption, inflation, and rising interest rates. Management cited uncertainty around the economy, hiring trends, and the ongoing effects of COVID-19.
The company disclosed a $250.0 million share repurchase authorization. During the first half, it repurchased shares for $145.2 million; approximately $104.8 million remained available at June 30, after the June accelerated repurchase agreement’s final settlement. In August, the company reported that 2.9 million shares were purchased under that agreement at a volume-weighted average price of $16.99 per share, net of fees.
Management noted that 2022 tax rules requiring research and development costs to be amortized over five years could reduce 2022 operating cash flow if not deferred, modified, or repealed; the impact was not quantified. A previously disclosed employee class and representative action was settled for an immaterial amount, subject to court approval, which the company expected by early 2023. The company also highlighted competition, macroeconomic and hiring volatility, customer renewals and spending, platform reliability and cybersecurity, privacy regulation, debt covenants, and the effects of its dual-class voting structure as material risks. Class B shares carried 20 votes each and represented approximately 87.9% of voting power at June 30.
Important facts for investors to verify
- Whether employer pullbacks late in June continued and affected paid employers, revenue per paid employer, or revenue in subsequent quarters.
- How much of reported profitability and Adjusted EBITDA reflects sustainable operations versus changes in stock-based compensation and prior-year Direct Listing costs; Adjusted EBITDA is a non-GAAP measure.
- Cash generation and the cash-flow impact of the tax treatment of research and development costs, alongside debt service on the $550.0 million notes.
- Completion and share count of the June accelerated repurchase agreement, and subsequent use of the remaining repurchase authorization.
- Status and final resolution of the employee litigation settlement, and compliance with debt covenants and applicable privacy and security requirements.