ZipRecruiter, Inc. (NYSE:ZIP) Q1 2024 Earnings Call Transcript

ZipRecruiter, Inc. (NYSE:ZIP) Q1 2024 Earnings Call Transcript May 11, 2024

ZipRecruiter, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the ZipRecruiter, Inc. Q1 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Drew Haroldson with Investor Relations. Please 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 performance for the quarter ended March 31, 2024, and guidance for the second quarter 2024. 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 relating to future events and or the future financial performance of ZipRecruiters. Actual results could differ materially from those anticipated in these forward-looking statements. A discussion of some of these 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, 2024, which is 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 as 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 and in our Form 10-Q. And now, I will turn the call over to Ian.

Ian Siegel: Thank you and good afternoon to everyone joining us today. Q1 2024 revenue of $122 million was down 33% year-over-year, though it exceeded the midpoint of our guidance range. We generated $2 million in operating cash flow and $21 million in adjusted EBITDA, equating to an adjusted EBITDA margin of 17%. Though results were above expectations discussed in our last earnings call, the labor market industry backdrop has remained challenging through the first few months of 2024. Hiring levels continue to be subdued and the number of people quitting their jobs also remains low as the Big Stay persisted into Q1. However, there are also positive signs emerging as we begin the year. Q1 2024 is the first quarter with a sequential increase in quarterly paid employers since 2022 and is a potential indicator of stabilization in the hiring market.

While not yet a return to normal seasonality, where revenue ramps from Q1 to Q2, we see this as an early sign that the labor market downturn is potentially reaching a trough. Our balance sheet remains robust with over $510 million on hand, we are well positioned to weather this industry-wide downturn and enter an eventual recovery from a position of strength. Therefore, we continue to lean into investments in product, technology and marketing that we expect to drive a significant long term ROI. While we remain prepared for a wide range of scenarios as 2024 plays out, we are poised to increase investment as opportunities arise and alternatively are always prepared to show further cost discipline if conditions deteriorate. We have strong conviction that technology will fundamentally change how employers and job seekers connect to one another, and ZipRecruiter will be at the forefront of that change.

Why are we so confident in our long-term outlook? There are several strategic advantages that — us well positioned for long term growth. We have built an enduring brand as demonstrated by the 65% year-over-year organic job seeker traffic growth in Q1 of 2024, our matching technology is persistently getting better by utilizing the high volume of proprietary data points we gather from interactions between job seekers and employers in our marketplace. Phil, our AI-driven career advisor who introduced many job seekers to what it’s like to have an ally in the job search process, continues to expand his presence throughout the ZipRecruiter experience. And finally, our 150 plus integrations with applicant tracking systems are nearly a decade in the making, making it easier for large enterprises to activate our solution.

While there are many reasons we believe ZipRecruiter will win, what will drive market share gains over time are advancements in product and technology, which are the center of our investments today. There is no doubt that the post-COVID, labor market backdrop has made the past few quarters challenging on the topline for us and throughout the recruitment industry. But we remain dedicated to and incredibly energized by our mission of actively connecting people to their next great opportunity. With that, I will now turn the call over to Dave to review progress on our growth strategies. Dave?

David Travers: Thank you, Ian, and good Afternoon. As Ian mentioned, we are leaning into product and technology investments to capture the massive opportunity to transform how employers and job seekers come together. I will detail the continued progress we are making against our three strategic pillars to improve outcomes for employers and job seekers. Our first strategic pillar is increasing the number of employers and the revenue per paid employer in our marketplace. Growing revenue from enterprise employers is a massive opportunity for ZipRecruiter. Our ongoing effort to introduce new ATS integrations and improve upon existing ones is an investment years in the making and a key strategy to growing enterprise revenue over time.

These ATS integrations create value across our marketplace, with job seekers and our ATS partners benefiting from a smoother application experience and employers receiving a higher volume of applications. In Q1, we completed one of our newest ATS integrations with iCIMS. With this integration, employers will be able to seamlessly tap into ZipRecruiter’s marketplace and unleash our matching technology to drive talented applicants to their job openings. Job seekers can use ZipApply, our frictionless application process to apply to jobs in the iCIMS ATS without ever leaving the ZipRecruiter marketplace. Click-to-apply conversion increases by more than 4 times when customers move from external apply to ZipApply. Our automated campaign optimization solution, launched in 2023, continues to get better at improving employers efficacy in hitting their desired campaign targets.

In Q1, it was 17% more effective at achieving campaign targets than the prior quarter and nearly 40% more effective compared to the prior year period. We believe that increasing the efficiency by which we achieve customer targets will lead to growth in enterprise revenue over time. I will now move to our second pillar, increasing the number of job seekers in our marketplace. We continue to see strong organic job seeker activity driven by multiyear brand investments. In Q1, organic visitors from job seekers grew 30% sequentially and over 65% year-over-year. Strong organic job seeker activity is a primary reason why we have been able to significantly reduce marketing expenses as we balance our two sided marketplace during this period of subdued hiring activity.

Additionally, downloads for our industry-leading mobile app for iOS and Android grew 23% year-over-year, and engagement has remained strong as job clicks from our mobile apps increased 19% year-over-year. Additionally, in Q1, we streamlined the user experience for job seekers who prefer to hear about jobs via text messaging, which resulted in nearly 7 times more opt ins than the prior process flow. As our matching technology continues to improve, we send job seekers a text faster about a fresh relevant job when our technology is confident in the potential match, rather than waiting to only send a text when job seekers are invited to apply to a job by an employer. As a result, applications driven by text messaging grew over 3 times in Q1 compared to the prior quarter.

I will conclude with our third pillar, making our matching technology smarter over time. In Q1, we rolled out an algorithm improvement for some job postings to drive more job seekers toward jobs with fewer applicants. These are great jobs for job seekers because there’s less competition from other applicants to get the job. This also benefits employers by optimizing application volume for their jobs. These algorithmic improvements are the result of long-term technology investments and these investments are bearing fruit. For example, these jobs saw a year-over-year increase of 19% in applications per job in Q1. Now, I will turn it over to Tim to talk through the financial results and our guidance. Tim?

Tim Yarbrough: Thank you, Dave, and good afternoon, everyone. Our first quarter revenue of $122 million represents a 33% decline year-over-year, primarily due to continued softness in hiring demand. Quarterly paid employers were 72,000, representing a 32% decrease versus Q1 2023, but a 1% increase sequentially. Notably, Q1 2024 is the first quarter with a sequential increase in quarterly paid employers since 2022, which is a potential sign of stabilization in the hiring market. Net loss was $7 million in Q1 2024, compared to net income of $5 million in Q1 2023 and $6 million in Q4 2023. Q1 2024 adjusted EBITDA was $21 million, equating to a margin of 17%, compared to $35 million, a margin of 19% in the prior year period and $42 million with a margin of 31% in Q4 2023.

Net income and adjusted EBITDA decreases both year-over-year and quarter-for-quarter are primarily related to revenue declines. Cash, cash equivalents and marketable securities was $513 million as of March 31, 2024, compared to $520 million as of December 31, 2023. Moving on to guidance, our Q2 2024 revenue guidance of $117 million at the midpoint represents a 31% decline year-over-year and a 4% decline quarter-over-quarter. Our adjusted EBITDA guidance for Q2 2024 is $15 million at the midpoint or a 13% adjusted EBITDA margin. While this is not a return to normal seasonality, where revenue would ramp from Q1 to Q2, the midpoint of our revenue guidance would represent the lowest sequential decline we have seen since 2022. Our adjusted EBITDA guidance reflects a modest increase in operating expenses as we continue to hire top talent to invest in product and technology.

Assuming continued signs of stabilization of the hiring market referenced above, we believe it remains prudent to continue long-term product, technology and marketing investments in our marketplace, yielding low- to mid-teens adjusted EBITDA margins in 2024. We are constantly assessing the state of the labor market, letting data lead our decision making. We are poised to increase investment as opportunities arise and alternatively are prepared to show further cost discipline if conditions deteriorate. ZipRecruiter is well positioned to take advantage of an eventual labor market recovery and emerge from this challenging period for the industry from a position of strength. With that, we can now open the line for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] And your first question comes from the line of Trevor Young with Barclays. Please go ahead.

Trevor Young: Great. Thanks. First one, can you just talk about the cadence of growth throughout the quarter? I think you would normally be expecting momentum to kind of build each month throughout the quarter and into 2Q. I don’t think we saw that last year, given some of the softness at that point, but I am just wondering kind of in light of that implied sequential decline in revs, is that same softness playing out this year as well?

Tim Yarbrough: Yeah, Trevor. This is Tim. Thanks for the question. So, yeah, last quarter we talked about signs of labor market stabilization and what we saw throughout the course of Q1 largely reflected that. So our guidance right now sequentially is roughly flat down just a tiny bit, but it’s reflective of that kind of ongoing signs of stabilization that we saw in Q1 continuing through this quarter as well. So we are encouraged by those signs.

Trevor Young: Okay. And kind of relatedly, QPEs firming up first time quarter-on-quarter in more than a year that’s obviously pretty encouraging. Is that kind of a good level to model off of for the rest of the year or is it still just a fairly uncertain outlook from here on the QPEs front?

Tim Yarbrough: Yeah. I would say, it could play out in a couple of different ways. So the lift that we saw modestly Q4 to Q1 was, again pretty encouraging and that’s largely driven by SMBs coming back and you see kind of the opposite effect on revenue per paid employer with that ticking down a little bit and that’s more of a seasonal trend. So for the rest of the year, it really does depend on to the extent that this flattening that we have been seeing continues out to the extent that it does, then I would expect that number to remain fairly flat throughout the course of the year.

David Travers: Hey, Trevor. This is Dave. Just to add on to that. You are exactly right that the flatness of a quarterly paid employer number is a really encouraging sign. And what we have seen — as we have discussed in the past, what we have seen when there’s a change in the macro environment, usually small businesses respond faster than large enterprises and that quarterly paid employer number is really driven by small businesses. So we remain prepared for a wide range of scenarios, as we have said, but if that continues to be the case, that we see signs of flattening, that SMB driven quarterly paid employee number is a good barometer for this.

Trevor Young: Okay. Great. Thanks both. Hopefully that positive momentum continues.

Operator: Your next question comes from the line of Ralph Schackart with William Blair. Please go ahead.

Ralph Schackart: Good afternoon. Thanks for taking the question. Maybe just a bolt-on to the prior question, just curious what the trend line has been, I guess, post-Q1, if you observed any sort of change in pattern or if it’s sort of consistent with what you observed in Q1? That’s the first question. I have a follow up.

Ian Siegel: Yeah. I think the pattern is largely consistent with what we saw in Q1. So definitely not a return to the seasonality that we would normally expect where Q2 would be sequentially higher than Q1 so we haven’t seen that. So our guidance being down very modestly is basically showing that same signs of stabilization.

Ralph Schackart: Great. Maybe just to follow up, I know it’s really early and tough to know whether you are dropping right now or if you see any further downturns, but just curious, is this a little bit more broad based or is it vertical specific, but just any color you could provide on some of the stabilization trends that you are seeing in the paid employer number? Thank you.

David Travers: Sure. Ralph, this is Dave. So, yeah, we — what we see is that, there’s definitely strength in government and education, which we see largely as a catch-up from being industries that struggle to keep pace with wage increases during the post-COVID boom period, but what the year-over-year trends we see broadly based are encouraging as we see signs of flattening, clearly not looking across the broad scope of it, calling a bottom, but also seeing very encouraging signs.

Ralph Schackart: Great. Maybe if I could just ask one more, Dave. Just curious — just in terms of technology vertical, what you have observed within technology? Thank you.

David Travers: Yeah. Technology continues to be one of the hardest hit areas of job posting and hiring activity when we look on a year-over-year basis, continues to be extremely impacted and is sort of an outlier on the negative end to the same extent that or in a similar way that government and education are on the positive end of the spectrum.

Ralph Schackart: Okay. That’s helpful. Thank you.

David Travers: Yeah.

Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Please go ahead.

Doug Anmuth: Thanks so much for taking the questions. Guys, if you play out the scenario that things have troughed and maybe start to turn a bit here, can you just talk more about how that informs your investment approach and what are some of the immediate steps you take as you lean back in more? And then, maybe just also on the product side, can you provide an update on just how your AI matching technology is evolving and improving, and perhaps, what kind of lift you are seeing through different versions of the product? Thanks.

Ian Siegel: Hey. This is Ian and I will take this question. I think one of the advantages that we have at ZipRecruiter is that we have been doing sales and marketing for such an extended period of time that we have sensitive instruments for measuring whichever way the appetite for recruiting services is going. And what you will see from us is that we will aggressively invest into any sort of return to normal or the end of the trough and the beginning of a climb. That said, and as excited as we are about the metrics that we are seeing right now, it is not a certainty and it is definitely too early to call. So, this could go either way and I think the great thing about the position we are in is we are well prepared for either scenario.