ZipRecruiter, Inc. (NYSE:ZIP) Q1 2023 Earnings Call Transcript

ZipRecruiter, Inc. (NYSE:ZIP) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the ZipRecruiter Incorporated First Quarter 2023 Earnings Conference Call. Today’s conference is being recorded. [Operator Instructions] Thank you. And I will now turn the conference over to Drew Haroldson, Investor Relations. You may begin.

Drew Haroldson: Thank you, operator, and good afternoon. Thank you for joining us in our earnings conference call, during which we will discuss ZipRecruiter’s performance for the quarter ended March 31, 2023, and guidance for the second quarter and full year 2023. Joining me on the call today are Ian Siegel, Co-Founder and CEO; David Travers, President; and Tim Yarbrough, CFO. Before we begin, please be reminded that forward-looking statements made today are subject to risks and uncertainties related to future events and/or the future financial performance of ZipRecruiter. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of the risk factors that could cause actual results to differ materially from any forward-looking statements can be found in ZipRecruiter’s quarterly report on Form 10-Q for the quarter ended March 31, 2023, which will be available on our investor website and the SEC’s website.

The forward-looking statements in this conference call are based on the current expectations as of today, and ZipRecruiter assumes no obligation to update or revise them, whether as a result of new developments or otherwise. In addition, during today’s call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not a substitute for or in isolation from GAAP results. Reconciliations of the non-GAAP metrics to the nearest GAAP metrics are included in ZipRecruiter’s shareholder letter in our Form 10-Q. And now I will turn the call over to Ian.

Ian Siegel: Thank you, Drew. Good afternoon to everyone joining us today. Q1 revenue of $183.7 million was down 19% year-over-year, but above the high end of the range of our guidance. Q1 ’23 adjusted EBITDA of $35.3 million and adjusted EBITDA margin of 19% exceeded the high point of our guidance. This strong profitability in the face of both deteriorating macro conditions and persistent interest rate increases is a testament to the flexibility of our business model and our ability to rapidly adjust expenses. In our last call, we highlighted the atypically slow start to the year, which informed our guidance for the rest of the year. January normally marks the beginning of the hiring season as employers kick off annual hiring plans and operate with refreshed recruiting budgets.

Q1 ’23 showed a sharp deviation from what those seasonal trends would have predicted. The softening observed at the outset of Q1 has only accelerated and we see demand for recruiting services continue to decline. This slowdown has been broad-based across both SMBs and enterprise as well as across the majority of industries. From conversations with our customers, we see employers paring back their hiring in response to the uncertain economic backdrop we now face. Because of these trends, which are unlike anything we’ve seen in our 13 years of doing business, we are not providing full year revenue guidance. However, while there is a wide range of possible top line outcomes, we remain focused on delivering against our guidance of $185 million of adjusted EBITDA at the midpoint.

One of our key strategic advantages of ZipRecruiter is our ability to rapidly respond to changing macro conditions. We’re doing what we’ve always done in a softening labor market: decreasing expenses to increase profitability. In spite of this deceleration, there are several long-term investments, which are now bearing fruit. Organic job seeker traffic was up 40% in Q1, 56% of these new job seekers received an invitation to apply for a job directly from an employer within seven days of joining our marketplace. It’s our profitable flexible operating model, along with our hard-earned 80% aided brand awareness on both sides of our marketplace that allow us to adapt to this cooling market, all while continuing to invest in improving our industry-leading matching technology and top-rated user experiences.

Now I’ll turn it over to Dave to talk through some of our progress against the three pillars of our marketplace strategy.

David Travers: Thank you, Ian. There is no doubt that headwinds in the macroeconomic environment are impacting our customers’ hiring plans. Regardless of the shape or duration of this current labor market cycle, we firmly believe that ZipRecruiter will play an increasingly large role in bringing job seekers and employers together. To that end, I’m excited to share with you some of the progress we’ve made to drive a generational shift in how technology enables job seekers and employers to come together using our industry-leading matching technology. We will start with our first strategic pillar, which is increasing the number of employers and the revenue per paid employer in our marketplace. Even though current macroeconomic headwinds have temporarily muted our progress in moving these KPIs sequentially, we’re confident that our investments in building great products for employers will bear fruit in the long term.

Our enterprise customers remain a top priority, driving us to focus on eliminating friction in the hiring process for these larger customers. In Q1 ’23, we introduced a new tool which simplifies the process of creating and activating new campaigns for enterprise customers. We estimate that campaign creation tasks previously requiring hours now take minutes. The new tool resulted in much faster creation of campaigns, simultaneously improving the customer experience and creating a faster time to revenue for ZipRecruiter. In addition to reducing friction in the hiring process, we also increased the certainty that enterprise employers will be able to spend their budgets. Our automated campaign optimization solution achieves campaign targets 34% more often than the previous manual processes.

Finally, employers often struggle with the laborious process of writing job descriptions. In Q1 ’23, we leveraged generative AI to launch over 1,000 new searchable job template pages. Not only does this even further reduce friction in the hiring process for employers, but job seekers also love these new pages. Now I’ll move to our second pillar: increasing the number of job seekers in our marketplace. It’s no surprise that more job seekers are looking for work. In fact, we saw a 40% increase in organic visits from job seekers in Q1. This current backdrop provides an opportunity for ZipRecruiter to be there for job seekers in their time of need and makes the work we’re doing to build the world’s most innovative job-seeking tools all the more important.

We’ve been providing regular updates about improvements we make to Phil, our AI personal recruiter for job seekers. We’re excited about Phil because we put the human face on navigating the job search process, engages with job seekers during their onboarding and uses their real-time feedback to curate the job search experience. We’re continually expanding sales reach across our job seeker products. While Phil’s onboarding flow was previously launched to our mobile, web and desktop users, as of Q1 ’23 Phil is now also featured in both of our number one rated native apps. ZipRecruiter addresses the information asymmetry inherent in the hiring process by equipping job seekers with useful information and insights to help them on their journey. In Q1 ’23, we launched a new career advice hub containing hundreds of helpful articles with more on the way.

These articles help job seekers understand what employers are looking for and how to make their applications stand out. Job seekers love the new content, which is a contributor to the large increase in job seeker traffic in Q1. Salary remains one of the most important criteria for job seekers when looking for a job. In Q1 ’23, we rolled out estimated pay ranges for when we have high confidence in the prediction and the employer doesn’t provide the info. Over 60% of jobs in our marketplace now show pay rates, either provided directly by the employer or via the new ZipRecruiter estimate. These listings get more impressions, clicks and applies than those without any form of pay data. I’ll conclude with our progress around our third pillar: making our matching technology smarter over time.

Our algorithms get smarter as job seekers interact with Phil and different jobs in our marketplace. In Q1 ’23, we retrained our matching models for job seekers who are earlier in their journey and have less activity in our marketplace. This increased the percentage of new job seekers getting an invite to apply within their first seven days from 18% to 56%. Over 68% of these new job seekers received an e-mail within one day. Now I’ll turn it over to Tim to talk through the first quarter results and our guidance. Tim?

Tim Yarbrough: Thank you, Dave, and good afternoon, everyone. Our first quarter revenue of $183.7 million exceeded the high end of the guidance we provided in February. This represents a 19% decline year-over-year and is primarily reflective of continued and accelerating softening in the hiring market. Additionally, we faced particularly challenging comparisons against Q1 ’22 when we grew 81% year-over-year. Quarterly paid employers were 106,000, representing a 29% decrease versus Q1 ’22 and a 2% decrease versus Q4 ’22. This is primarily reflective of weakness among small- and medium-sized businesses, which make up the vast majority of our paid employers. Revenue per paid employer was $1,734, an increase of 15% year-over-year but a sequential decrease of 11%.

In prior years, enterprise-driven strength in Q4 has resulted in lower sequential growth in Q1. In Q1 ’23, this trend was exacerbated by reduced hiring demand from both enterprises and SMBs. However, we remain confident that the growth trends we’ve seen in all of our cohorts over the years will continue in the long term. GAAP net income was $5 million in the first quarter of 2023 compared to $8.4 million in Q1 of 2022. Q1 ’23 adjusted EBITDA was $35.3 million, equating to a margin of 19% compared to $37.2 million, a margin of 16% in Q1 ’22. The adjusted EBITDA margin expansion year-over-year primarily reflects lower sales and marketing expenses, which we reduced in response to the changing macroeconomic landscape, and partially offset by increases in research and development expenses.

Cash, cash equivalents and marketable securities was $519.1 million as of March 31, 2023, compared to $570.4 million as of December 31, 2022. The decrease quarter-over-quarter was primarily due to $60.2 million of share repurchases. Additionally, we announced that our Board of Directors has authorized a $100 million increase to the Company’s share repurchase program. This is in addition to the previous authorizations of $450 million in total. We note that this authorization is not a commitment. We will remain diligent allocators of capital as we continue generating free cash flow, while also recognizing the uncertain macroeconomic environment. Moving on to guidance. The atypical softness we noted during our last call has increased in recent weeks.

While Q1 ’23 revenue was down 19% year-over-year, revenue in April was down 27% year-over-year. This is reflective of a contraction in demand with both SMBs and enterprises continuing to reduce the number of jobs they post and the amount they spend for job advertising. If these trends, which inform our guidance, considerable macroeconomic uncertainty remains and changes, both positive and negative can continue to have an impact on our 2023 revenue. Our Q2 ’23 revenue guidance of $170 million at the midpoint represents a 29% decline year-over-year. Given the increasingly uncertain macroeconomic environment, we are not providing annual revenue guidance. We will continue to take advantage of opportunities to win the business with new employers and deepen our relationships with existing employers, but recognize that further macroeconomic fluctuations that are impacting our customers will have a direct impact on our top line performance.

Our adjusted EBITDA guidance of $38 million at the midpoint or 22% adjusted EBITDA margin for the quarter reflects our continued fully funded investments into new solutions for the labor market, while simultaneously moderating our sales and marketing investments during the slowdown. Finally, we reiterate our ability in the majority of scenarios we can reasonably foresee to generate 2023 adjusted EBITDA between 178 and $192 million. While there are a wide range of top line possibilities, the flexibility of our business model allows for many paths to this adjusted EBITDA range. As always, we will respond to our environment quickly, which means conserving capital and an increased focus on profitability during times of decreased demand from employers.

This further demonstrates the flexibility of our business model and our continued commitment to delivering value to shareholders over the long term across a broad range of economic environments. With that, we can now open the line for questions. Operator?

Q&A Session

Operator: [Operator Instructions] We will take our first question from Ralph Schackart with William Blair.

Operator: And we will take our next question from Mark Mahaney with Evercore.

Operator: We’ll take our next question from Doug Anmuth with JPMorgan.

Operator: [Operator Instructions] We will take our next question from Justin Patterson with KeyBanc.

Operator: We will take our final question from Eric Sheridan with Goldman Sachs.

Operator: And ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect.