Good day and thank you for standing by. Welcome to the ZipRecruiter Q2 2021 Earnings Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Tim Yarbrough, Chief Business Officer. Please go ahead..

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 June 30, 2021 and guidance for the third quarter and full year for 2021. Joining me on the call today are Ian Siegel, Co-Founder and CEO; and David Travers 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 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 public registration statement on Form S-1 filed with the US Securities and Exchange Commission on April 30, 2021 and in our quarterly reports on Form 10-Q for the three and six months ended June 30, 2021.

Both of these are 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 public S-1 filing and in our Form 10-Q.

And now I will turn the call over to Ian..

Thank you, Tim and good afternoon to everyone joining us today. We hope you're all staying safe and healthy. The second quarter of 2021 was an exceptional one for the US economy. GDP growth exceeded 6%. The COVID-19 vaccine rolled out en masse and US employers rushed to staff up.

According to July's jobs report, released on August 6 2021, we've now recovered almost 75% of the jobs lost during the pandemic. American businesses are ready to hire again.

We responded to the increased demand from employers by scaling up our sales and marketing efforts resulting in nearly 170,000 quarterly paid employers participating in our marketplace, an all-time high. Revenue of $183 million this quarter was also the highest in ZipRecruiter's history.

I'm proud of the execution by all of our teams and their commitment to our mission of actively connecting people to their next great opportunity. While employers are eager to hire, job-seeking activity still remains lower than in pre-pandemic periods. That said, over the past quarter, we've seen job seeker volume increasing.

We're excited to help these job seekers find work aided by their own personal recruiter Phil, our popular AI-powered box. In the second quarter of 2021, we will fill throughout the product, providing job seekers an even more personalized and consistent experience.

Phil directs the job seekers' attention to jobs that are a great fit and provides helpful tips to take the guesswork and mystery out of the job search experience. We also introduced many improvements to our job matching algorithms, which have driven up the number of applications submitted by job seekers.

Amidst a competitive labor market, we were thrilled to have spent the quarter adding many amazing new members to our own team. Specifically, we grew headcount in the second quarter by 140, which is a record high for our company. We now have over 1000 ZipRecruiter employees. Our secret in a challenging environment is not so secret.

We use ZipRecruiter to find great hires. These hires include key additions from across all of our teams including technology, product management and sales. As strong as the second quarter results were I truly believe we are just getting started.

Now I'll turn it over to our Chief Financial Officer, David Travers to talk through the second quarter results as well as third quarter guidance and our increased revenue and adjusted EBITDA expectations for the full 2021 year.

Dave?.

Thank you, Ian and good afternoon, everyone. As Ian mentioned, our second quarter revenue of $183 million represented a record quarter, exceeding the midpoint of our guidance range by $23 million. This represents a 109% growth year-over-year, and 46% growth over the first quarter of 2020.

The growth in the second quarter was driven by stronger-than-expected demand from employers and our execution across sales and marketing activities. The main driver of our revenue growth was the substantial increase in quarterly paid employees.

At almost 170,000 this represented an improvement of 120% year-over-year an another all-time high for ZipRecruiter. GAAP net loss was $53 million in the second quarter of 2021, compared to net income of $21 million in the prior year.

Adjusted EBITDA loss was $2 million, with a negative 1% margin compared to $26 million in adjusted EBITDA, or a 29% margin in the prior year. Last year in the second quarter of 2020 in response to the pandemic, we substantially reduced our operating expenses. Since then we have grown expenses as we scaled sales and marketing.

We were encouraged by the efficiency of our increased sales and marketing spend in Q2 of 2021, and have confidence in our ability to attract employers and job seekers to our marketplace.

In the second quarter of 2021, we incurred $64 million in stock-based compensation expense, $42 million of which related to the modification and expense of employee RSUs to allow for vesting in the direct listing, which impacted net loss.

Similarly, in the second quarter of 2021, we incurred $32 million in general and administrative expenses related to the direct listing completed during the quarter, which impacted both net loss and adjusted EBITDA loss.

Even with the investments discussed earlier and one-time expenses for our direct listing, we ended the quarter with over $153 million in cash, an increase of $18 million from the first quarter of 2021. Additionally, we secured a $250 million line of credit, none of which was drawn as of the quarter end.

After closing out an extraordinary quarter, we're pleased to increase our guidance for the third quarter, and the full year of 2021. Following the largest increase in quarterly revenue in ZipRecruiter's history, we expect $185 million of revenue in Q3 of 2021 at the midpoint, which translates to 80% year-over-year growth.

We're pleased to increase our midpoint guidance for the full year to $658 million, up from the $590 million share last quarter. This increased 2021 revenue guidance equates to 57% growth over 2020 at the midpoint. We believe the second quarter of 2021 was a truly unique time for our country and our company.

Our third quarter guidance and full year expectations reflect our belief in a gradual return to a more traditional macroeconomic pattern by the end of the year, as well as a seasonal softening of job activity in the fourth quarter.

While we did not see this trend last year due to the nation's economic recovery through the second half of the year, this is a seasonal trend, we have consistently seen prior to the pandemic. Our full year midpoint guidance for adjusted EBITDA of $34 million, equates to an adjusted EBITDA margin of 5%.

This increased guidance reflects stronger revenue outlook, offset by increased investment in sales and marketing activity in response to the stronger labor market environment we're currently seeing. This is above our pre-COVID adjusted EBITDA margin of 2% back in 2019, despite our investments to achieve substantially higher growth rate this year.

The second quarter of 2021 was exceptional by many measures. We began our life as a public company delivered record revenue and served an all-time high number of employers. As encouraging as these results are we remain focused on what is yet to come.

We look forward to partnering with shareholders, who share our enthusiasm to actively connect people to their next great opportunity. With that, we can now open the line for questions.

Operator?.

[Operator Instructions] Your first question comes from the line of Doug Anmuth from JPMorgan. Your line is open..

Hey. It's Bryan Smilek on for Doug. Just considering job seeker activity has lagged the broader recovery of job openings, can you provide further color on how it manages this equilibrium? And then can you provide further color on timing and key levers normalization of these trends? Thanks..

Yeah. Let me take the first look at it. Thanks for that question.

I -- so that when you enter a competitive job market like you see today where you see voracious employer demand for talent, but job seekers lagging in terms of their participation, what we really try to focus on is the value our matching algorithms can bring, because on our service as soon as an employer posts a job, they're presented a list of potential candidates that they can then invite to apply.

And it's by doing that outreach that they can give themselves a really unique advantage in this otherwise intensely competitive environment. First and foremost, they can see exactly what talent is out there that matches their opportunity.

And second, they can make their job stand out by reaching out to that job seeker rather than requiring that job seeker to discover that this job exists. And that has been really a key to our success up to this point and it's particularly acute during this COVID period..

Yeah. And then to add on to that in terms of how we see that equilibrium returning over the coming quarters, we really believe that we have seen the early stages of job seekers coming back to the marketplace and some encouraging trends. And, obviously, the shape of the pandemic and the related labor market dislocations is uncertain.

But our operating assumption is we will slowly return to a more normal whatever that means going forward normal equilibrium like we saw pre-pandemic and like we've seen in other recoveries we've studied as the coming quarters come along. But, obviously, we don't have a crystal ball to tell you exactly what shape that's going to take..

Perfect. Thanks for taking my question..

Your next question comes from the line of Ralph Schackart from William Blair. Your line is open..

Definitely. A couple of questions if I could. First, just in terms of 2021, in terms of the operational drivers, obviously, paid employers are seeing some pretty explosive growth. But how should we think about the interplay between employer growth in the back half of the year in revenue per paying employer growth is the first question.

And then second, I understand that as if you're adding a bunch of new employers, it puts a little downward pressure on the revenue per employer metric. But how long does that take to base out before that returns back to growth? And then I have a follow-up. Thanks..

Great. Thanks Ralph. Yeah. So in terms of the shape of paid employees, again our operating assumption is some return to normalcy over the next couple of quarters. And, obviously, we're incredibly pleased by growing paid employers north of 40% sequentially in the quarter.

We do expect that among our two key drivers, paid employers is the one that will be more impacted by cyclical swings in the economy like we saw in Q2.

So we do expect that there may be a little bit more choppiness there versus on the monetization side on revenue per paid employer where depending on what the shape of the recovery really is on the -- we certainly don't expect 40% growth in paid employers every quarter.

On the monetization side of things, what we see is despite the very unique nature of the quarter what we see is the underlying trends are the same where when we look at cohorts over time, we see continued improvements in monetization as employers get to know us better, they are more and more willing to pay us more and we deliver more and more comfortable with the amount of value we deliver to them.

So over time that is going to be reliably going up and to the right as those cohorts take their natural journey.

Obviously as you referenced depending on the size of new cohorts in a given quarter, depending on how back loaded they may or may not be, there can be a little bit of disruption to that but we expect despite a quarter-to-quarter disruption like we've had in the past quarter or two that we will see that revenue per paid employer number go up reliably overtime..

Great. That's helpful David. And then, just one more if I could. I mean, you called out, the improvement in algorithm change I think behind the job recommendations for seekers and led to increased applications in the quarter. I'm sure you've made a lot of kind of improvements through the years.

But just curious, is this, a more significant change sort of more part of the continuum? I'm just kind of curious any more color you could add on that?.

Yeah. When we look at our algorithmic matching, it's an effort not measured in weeks or months, but rather in years. And it's a discipline that we've been practicing over that long period of time. And what happens is we're getting better-and-better at training these algorithms.

But on top of that, we're getting better-and-better at understanding the psychology of the interplay between job seekers and employers. And we're deploying features. And we're using language between them, to facilitate a feeling of rapid communication.

And examples of that include things like we've mentioned in the past where, when an employer reads a job seeker's resume who has applied, we send a notification to that job speaker, so that they are aware that something is happening. When an employer rates that candidate, we send a notification to that job seeker so they know, they've been rated.

It's this feeling of momentum that keeps the job seeker invested and interested.

And it's features like that that we continue to deploy on top of that training and retraining of our algorithms, which has led to such persistent growth in the thumbs-up rate and the quality of the matches that we've generated and also the outcomes that our service has been able to generate for both sides of our marketplace..

Okay, great. Thank you and thanks David..

[Operator Instructions] Your next question comes from the line of Trevor Young from Barclays. Your line is open..

Great. Thanks. First one for Ian, you just made some comments that were helpful on the thumbs-up rating. And I know another KPI that you have is the time to fill jobs.

Given some of the narrative we're hearing about the supply-demand mismatch between seekers and employers, are you seeing that manifest in like extended time to fill or anything like that, or are you still seeing kind of that continued improvement that you've been seeing over the long-term? And then, one for David, just on the implied 4Q guide obviously implying a decel and your commentary was helpful about expecting some normal seasonality and tougher compares, but just trying to unpack that a little bit as to how much is conservatism.

Or do you think there's been some pull forward in 2Q and 3Q? Thanks..

I will take the matching question first. And fundamentally, the simplest answer to your question is, we continuously improve. It's one of the things I literally say in the orientation to every one of our new members on our team which is the fun thing about ZipRecruiter is every month we get better.

And so, yes, our algorithmic matching continues to improve. And outcomes continue to improve. But we are facing what is a once in a lifetime pandemic, that is having a ripple effect through many job categories. And it's having a different effect on different job categories.

So you look at something like, leisure and hospitality, or industries that are people to work in close proximity with the public, and those industries are particularly challenged right now when it comes to attracting talent and those industries are the ones that have to reevaluate things like salary and benefits and flexible work schedules.

So you're starting to see variation between job categories in terms of the outcomes and the speed to hire. But overall when taken in aggregate we continue to relentlessly improve. And that's the advantage of software that learns that is the foundation of what our product is.

And it even learns to accommodate for the changes that are occurring in the job market as they happen..

Yeah. And then, to the second part of your question, in terms of seasonality, Trevor, the -- what we saw last year in 2020 was the shape of the recovery was so strong even though it was incredibly early last year in Q4, that it basically overtook the normal seasonality, so there wasn't a seasonal dip in Q4.

What we saw several years going back before that was there is a seasonal dip in Q4, related to holiday slowdown in job seeking activity and the like. And so what's embedded in our guide here is mainly just a return to normalcy.

It's probably on the margin slightly more than a normal -- as the embedded assumption is as I mentioned earlier is that we're on this glide path, where we're going to return between the super spike in activity, we've been seeing recently to more normal like labor market early recovery type conditions in the early part of next year and then going on to recovery.

To the extent to which that's conservative or not really depends on the extent to which that overarching outlook on the labor market ends up being accurate or not. Obviously our -- like I've said many times before our crystal ball is cloudy on that. The pandemic is not taking a smooth glide path as everyone knows.

But despite all that we feel very good based on the assumptions, I just laid out about the guidance we just laid out that is significantly stronger than what we put out just a few months ago. .

Super helpful..

Your next question comes from the line of Mark Mahaney from Evercore ISI. Your line is open. .

Hey guys and I apologize if you've already covered this, but you usually disclose some metrics around the speed of matching and the quality of matching. Could you just provide an update on those and testing whether that mousetrap that you have provided data in the past that suggests that the speed of the matches has been increasing.

Has that continued to be? And your thoughts on just how far you can take that. .

Sure. Yes. We touched on a little bit earlier Mark but you're absolutely right. It's something we spend a lot of time thinking about. What we've seen over the course of the quarter is one it's such an extraordinary quarter.

It's hard to draw too many long-term lessons from it, but what we have definitely learned during the quarter is a our teams have executed in such a way that has allowed us to really take advantage of extraordinary circumstances that includes on the technology side of things where, despite extraordinary circumstances our confidence in those long-term trends remains robust if anything strengthens by what we've seen during the quarter despite the tightening of the labor market et cetera.

So we really feel like our matching algorithms continue to drive on those metrics you mentioned and other important ones that we follow.

And specifically, we feel very confident that over time it's going to take employers less time to make great hires with less toil on our platform and everything we've learned during the course of the quarter some extraordinariness baked in there has only reinforced that. .

And then one follow-up question please. On sales and marketing you've noted the spike in sales and marketing intensity in the quarter. Just talk about the path for that going forward.

Should we expect that to come down as a percent revenue? I assume that's the case long term, but you may well be hitting heavy against or leaning into a newer market opportunity. Maybe you held back like they did for a while there during the pandemic.

So just talk about what the outlook should be there for sales and marketing spend new channels of interest and the rate of which we should see leverage? Is it quickly or over time?.

Good question Mark. So the way we -- we are quantitative in our approach to marketing and we let the industry dynamics dictate how much we're investing at any given time. I have said before and I will say again, that we are scientists more than we are artists when it comes to marketing.

And right now we're investing aggressively into what is probably the strongest tailwind we've seen in the 11-year history of the company. You should expect though that as we see that tailwind diminish, we will bring down marketing costs and that is a lever that we have to pull.

And we will continue to tune it to the appropriate level of investment as the market dictates and warrants based on the behavior we're seeing from employers and from job seekers..

Yes, I totally agree with that. And just to add on, the metrics have been very strong over the course of the past couple of quarters on the marketing front. And as a result, you've seen us increase those investments significantly.

We're encouraged by both the near-term ROI and the long-term brand building that we see happening on both sides of our marketplace. Related to that, it continues to be highly diversified.

And when you think about what's implicit in our guide is that we're going to stay on the front foot for the balance of the year given the extraordinary circumstances. And obviously, we'll adjust as -- in one way or another, as the data dictates, as Ian just referenced, but we feel very good even in an uncertain market about what we're doing.

And then, in terms of your long-term question, we laid out during the registration process before the direct listing a very clear view that we did get to 30% EBITDA margins over time, adjusted EBITDA margins. We remain very confident. If anything our confidence has grown. And you can see that as we raise our guidance.

We haven't put a specific time line on that, but -- and to a large extent, the time line will be dictated by the opportunity we see to really grow, the marketplace on both sides and build a durable competitive advantage in terms of our brands. But -- so, I don't have a specific time line for you.

But what I do have is increasing confidence in our ability to get to that target EBITDA margin..

Okay. Thank you, David. Thank you, Ian..

And your last question comes from the line of Aaron Kessler from Raymond James. Your line is open..

Great. Thanks guys, and congrats on the quarter. A couple of questions. First, can you just give us a sense for how many of these employers were new to ZipRecruiter versus returning? It looks like obviously with them being at an ultimate high a lot of these were new.

Then, can you talk about how they're coming to the platform? Is it mostly through self-service? Is it recent of the Salesforce, et cetera? And then, maybe second question just, do you think you're gaining kind of meaningful market share in this environment as well? Thank you..

Yes. So, we have experienced basically record levels of interest in ZipRecruiter from every class and cohort of customers.

So that, new customers coming in, it's a record number of reactivations from prior customers, which for us is one of the great signals in our business of the value that we deliver increases our confidence in our strategic product approach, because clearly it's resonating with a large segment of the market.

And I think unquestionably right now, ZipRecruiter is in a market share grabbing mode, as I said, during this process, when it was back at the initial direct listing, I'll say it again now that, we've effectively been disrupting ourselves by being so focused on reducing the time to hire and that has been our primary goal and continues to be our primary goal.

And we're really reaping the rewards of that during this period where we have such a significant tailwind in our business. And so yes, it is a blend of both new customers and returning past customers at record levels that is creating the swell of total active customers on the platform.

And yes, we are definitely gaining market share during this period..

Great. Thank you, guys..

And there are no further questions over the phone line at this time. This concludes the ZipRecruiter earnings conference call. We thank you all for participating and you may now disconnect..