Q2 2023 ZipRecruiter Inc Earnings Call
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Joining me on the call today are <unk> <unk> co founder and CEO , David travelers, 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 or the future financial performance of ZIP recruiter actual results could differ materially from those anticipated in these forward looking.
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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 <unk> quarterly report on Form 10-Q for the quarter ended June 32023, 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 ZIP recruiter 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 certain 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.
Conciliation of the non-GAAP metrics to the nearest GAAP metrics are included in zipper cruise shareholder letter and in our Form 10-Q.
Now I will turn the call over to Ian.
Thank you drew good afternoon to everyone joining us today.
Quarter results reflect zipper critters resilience in the face of a cooling hiring environment adjusted EBITDA of $43 million and adjusted EBITDA margin of 25% exceeded the high end of our guidance. While Q2 revenue of 170 million was in line with the midpoint of our guidance.
Employers continue to respond to the enduring macroeconomic uncertainty with caution the number of job openings employers' willingness to pay for those job openings has been declining significantly from the peaks of 2021 and 2022.
This trend is consistent among both SMB and enterprise customers alike across multiple industries and geographies. We see this as a macro economically driven reality impacting companies across the recruiting space.
This result in the continuation of an atypical hiring pattern.
Therefore, we are discontinuing full year adjusted EBITDA guidance. However, we believe that the company will achieve adjusted EBITDA margins in the low to mid 20% range for the full year, given our ability to respond to our environment quickly.
<unk> of near term results, our financial profile and strong capital position allow us to look beyond the ups and downs of labor market cycles.
Long term our growth will be fueled by advancements in our matching technology and the shift in demand towards technology forward solutions like ours.
We remain focused on increasing both our products feature set and ease of use as a range of breakthrough technologies allow us to create remarkable experiences as we increasingly enhanced efficiency and effectiveness in our recruitment process. We believe we will be top of mind for both employers and job seekers. This is what drives us every day.
Now I'll turn it over to Dave to talk through some of our progress against the three pillars of our marketplace strategy.
Thank you and good afternoon.
Ian just touched on we have a massive opportunity to disrupt the recruitment category.
Fellow shareholders and operators of this business our strong conviction in our long term investment thesis remains unchanged.
And we continue to work on bringing your job seekers and employers together using our industry leading matrix technology.
Our first strategic pillar is increasing the number of employers and the revenue per paid employer in our marketplace.
F N b's enjoy zip recruiters applicant tracking system or a T. S larger employers typically use an enterprise grade ETF to manage their hiring campaigns.
Our third party Atf's integrations or a strategic investment nearly a decade in the making.
We believe this serves as a formidable competitive advantage, making it easy for new enterprise customers to activate the precursors recruiting solution.
Integrations also bring the employers jobs directly to our marketplace, where job seekers can apply with our one click zip apply feature without leaving our marketplace as of Q2, we have integrations with over 140 applicant tracking systems and the proportion of our performance marketing revenue driven.
ZIP apply enable jobs with over 30% higher than the prior year period.
In Q2, we completed our integration with U K G. One of the world's leading HCM cloud companies.
Each additional integration like this one enables a subset of our enterprise customer base to benefit from an improved candidate experience delivering three X more applications per job for the same amount of spend.
Now I'll move on to our second pillar, increasing the number of job seekers in our marketplace.
Market downturns present, an opportunity to build the job seeker side of our marketplace. We believe serving more job seekers, many of whom are using ZIP recruiter for the first time, we'll build brand loyalty that will endure for years to come last quarter, we reported a 40% increase in organic visits from job seekers.
We continue to see increased activity for job seekers in Q2 of 2023 we saw a 46% year over year growth in quarterly organic job seeker visits. We believe this is a testament to our strong brand awareness and differentiated product offering.
Jobseekers, often don't know exactly what they're looking for when it comes to their next opportunity in fact over 15% of web searches on ZIP recruiter dotcom or blank using no keywords at all.
In Q2, we launched a new experience to enhance the job discovery process for those using our search products.
Those job seekers are now able to filter the available jobs on Zip recruiter by topics such as industry job title local versus remote salary expectations and more.
This improvement to the job search experience drove an engagement lift greater than 50% compared to the previous search experience.
We continue to we fill our AI driven personal recruiter into our job seeker products.
In Q2, we expanded Phil toward market salary pages for specific rules. These pages are visited over 3 million times per month.
<unk> provides job seekers, who visit these pages with personalized experience include.
Including tailored jobs suggestions removing the friction from the job search process and enabling ZIP recruiter to provide a differentiated jumped seeker experience.
Job seekers, who onboard with Phil generate nearly twice as many applications as job seekers, who register through our other channels further demonstrating the value of Phil's personal recommendations.
I'll conclude with our progress around our third pillar, making our matching technology smarter overtime.
We bring employers and job seekers together using industry, leading metric technology.
Machine learning and AI has been a central focus of our technology efforts for many years.
We believe our massive and proprietary dataset gives us a distinct advantage as we drive efficiencies into the hiring process.
A I driven matching technology learns from every data point collected in our marketplace.
We're also constantly improving the underlying algorithms that match job seekers to open jobs unzip recruiter driving even more improvements over time.
These matching algorithms power, our job alerts emails, which we send daily towards millions of job seekers to enhance their job search.
Algorithm enhancements made in Q2 continued to improve the quality of matches our job seekers receive the email and resulted in a 15% lift in her job seeker engagement with the jobs they were shot.
Now I'll turn it over to Tim to talk through the financial results and our guidance Tim.
Thank you, Dave and good afternoon, everyone. Our second quarter revenue of $174 million was in line with the midpoint of guidance provided in May.
This represents a 29% decline year over year and is primarily reflective of a continued and accelerating softening in the hiring market quarterly.
Quarterly paid employers were 102000, representing a 35% decrease versus Q2, 'twenty, two and a 4% decrease versus Q1 'twenty. Three this is primarily reflective of weakness amongst small and medium sized businesses, which make up the vast majority of our paid employers.
Revenue per paid employer with $1677, an increase of 9% every year, but a sequential decrease of 3%.
The sequential decrease was driven by employers willingness to pay being unfavorably impacted by overall macroeconomic conditions. 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 $14 $4 million in Q2, 2023 compared to $13 $1 million in Q2 'twenty to <unk>.
Q2, 23, adjusted EBITDA was $43 $3 million equating to a margin of 25% compared to $45 4 million a margin of 19% in Q2 'twenty two.
Net income and adjusted EBITDA remained relatively flat year over year as lower revenue was mostly offset by lower operating expenses.
Cash cash equivalents in marketable securities was $497 2 million as of June 32023, compared to $519 $1 million as of March 31, 2023, the decrease quarter over quarter was primarily due to $55 million of share repurchases in the second quarter given.
Our long term growth outlook, our capital allocation strategy prioritizes organic growth investments and M&A over returning capital to shareholders. However, given the strength of our balance sheet and our free cash flow, but with appropriate consideration of the uncertainty we face we continue to opportunistically repurchase shares when we believe that there is an attractive ROI and potential.
And the stock price.
Moving onto guidance as Ian mentioned earlier employers have continued to pull back on hiring in light of an uncertain macroeconomic backdrop. The speed of this deceleration is particularly noteworthy which aligns revenue being down approximately 31% year over year. This informs our Q3 'twenty three revenue guidance of $150 million at the midpoint.
Representing a 34% decline year over year.
Our adjusted EBITDA guidance of $40 million at the midpoint or 27% adjusted EBITDA margin for the quarter reflects our continued fully funded investment in product innovation, while simultaneously moderating our operating expenses during the slowdown.
The atypical hiring patterns observed year to date give us limited visibility beyond Q3, Q4 has typically been a seasonally softer period for hiring and we do not yet have a clear view of when employers confidence will recover.
Last quarter, we discussed our view of a path to delivering adjusted EBITDA of 178.
$192 million given the topline scenarios, we could reasonably foresee at that time.
The rapidity and inconsistency of the cooling hiring environment tests. However, reduce this confidence therefore, we are withdrawing our prior full year adjusted EBITDA guidance.
However, even with the wide range of possible revenue scenarios for Q4, our adaptable business model gives us confidence in achieving adjusted EBITDA margins in the low to mid 20% range for the full year. This reflects our financial flexibility and an ROI informed propensity to conserve capital during downturns. While we also continue investing for long term growth.
One of our strategic assets is our ability to navigate turbulent times, we approached both up and down cycles with the same ROI focused orientation and speed to act.
While the current environment calls for cost optimization, we have a healthy balance sheet and remain committed to disciplined capital allocation.
This includes pressing our technological advantage through our investments in AI, driven matching allocating sales and marketing spend to high performing channels and restructuring our teams for greater efficiency. It's these decisions and investments that we believe will position us well for the next several economic cycles with that we can now open the line for questions operator.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
To follow the policy a policy of one question and one follow up we will pause for just a moment to compile the Q&A roster.
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Our first question comes from the line of Ralph <unk> from William Blair Ralph Go ahead.
Good afternoon, thanks for taking the questions two if I could Tim I think you'd talked about 30 plus percent declines in July revenues can you maybe give us a broader picture of what the linearity of the revenue decline was through the quarter and then the follow up is just more philosophically, how youre thinking about it.
If this is sort of a prolonged down cycle for hiring is there a minimum level of dollar spend that you'd want to maintain in the sales and marketing line or would you just be purely focused on preserving margins or whatever that may be whatever percentage that may be going forward. Thank you.
Hey, Ralph Thanks for the question. This is actually Ian and I, just want to take sort of a meta whack at this before I turn it over to Tim to get into more specificity.
But I just want to say that it seems really clear from where we're sitting at what we're looking at is macroeconomic.
Our data is showing that job postings and we're talking both free and paid job postings, they're down from a year ago. This is consistent with what others in the industry are reporting so it seems very clear to us that this trend that we're observing is something that is an external force as opposed to an internal problem, but I also want to reiterate.
What we just said on the call, which is we're literally built for this type of.
Environment and if the macro continues to soften the truth about our business as.
We're well capitalized we're profitable even in the face of the declining demand we've observed over the past year, we've been able to maintain that profitability.
The product fundamentally works, our marketplaces rated number one by both job seekers and employers alike.
And we have 80% aided brand awareness on both sides of that marketplace.
Finally, I just want to say, we're operating at full speed. Our roadmap is focused on making the process of hiring more efficient for employers and more effective for job seekers.
We are hard at work at the next generation of our product right now so that when a recovery comes you can look for us to take as rapid action to increase investment and spend into that uptick as we did to bring costs down and operationalize around the reality that we say that we find ourselves in today and as.
As far as sort of the trend line on what you are seeing in the specifics, but I'm going to turn it over to Tim and let him give you more granularity on that answer.
Hey, Ralph this is Tim as far as revenue trends within Q2, we saw revenues certain continuing to trend down through the balance of the quarter, but it really accelerated towards the backend into June and July and as you noted we disclosed that the July revenue was approximately 31% year over year.
The trend was really back end weighted generally speaking and then to your second question about minimum spend in terms of sales and marketing.
Just kind of give you some high level thoughts on how we think about sales and marketing. So when you look at the Q2 sales and marketing bucket of roughly $72 million.
That's a fair amount of money and it's deployed based on.
Number of different factors that we measure so it's not just a ROI, but cash on cash payback LTV.
It's been brand as well and one of the reasons why I think I think our minimum spend.
Can be pretty low is because we have already built up a fairly substantial brand awareness among employers and job seekers and so we noticed it before but it's much more expensive and difficult to build a brand than it is to maintain it and so even as we flex the marketing spend down we're doing that because that marginal dollars not performing to the level that we.
Would otherwise require given the expense of it and so we demand a lot from those marketing dollars and kind of flex up and flex down accordingly.
The other thing I'll mention is that as a matter of strategic importance, we commit very little capital to outer periods. So that's another reason why we're able to move very quickly. We don't have large amounts that we have to spend within a given period in other words.
Yeah.
Great. Thanks, Dan Thanks, Tim.
Yeah.
Our next question comes from the line of Trevor Young from Barclays.
Trevor go ahead.
Great. Thanks.
Look out 12 to 24 months what opportunities do you see or how are you trying to position yourselves to come out of this cycle stronger or with greater market share and I think you alluded to maybe some new iterations on product.
And then as you see those potential share gains coming out of the cycle are those still coming from some of the incumbent solutions or is some of that more coming from direct online competitors basically what's the recession playbook from here.
Thank you for the question I think what I said upfront is what I will reiterate which is.
Because of the sensitivity.
Our ability to measure the appetite amongst both small and large employers for recruiting services, we're able to very rapidly responds whenever macroeconomic condition, we find ourselves in and the playbook for us is to operate a profitable business and win.
There is a demand on the increase we will invest into that which as I said, we can detect very quickly and when we see demand on the decrease we will moderate our spend and we will reorganize our business.
Bring down our operating expenses.
The largest mortgage as we can to prepare for whatever the next uptick is now what does that mean it means that we're going to bring down investments that have either a slower rate of return and or do not have the same level of LTV to them. However, we're going to keep.
It all to the metal on technology investments as we build the next generation of our product we've been working with AI for multiple years now everywhere. We introduced it into our product is either an engagement force multiplier or it has produced some fairly profound results in terms of the quality.
The results at both the employers and Jobseekers on our service are able to achieve.
That is going to continue.
You look at the world as it exists today.
The opportunities presented by AI.
And their application to our category are more exciting right now than they have ever been.
And I think you can expect.
You will see us continue to update over the coming quarters on what we are doing with the opportunities that are as I said at parent.
At this moment and I think the playbook is simply to continue to invest in building a truly disruptive product one that makes things easier and more efficient for both sides of our marketplace.
As we prepare for and the cyclical environment that we're in the inevitable uptick any increase in demand and need for recruiting services.
That's really helpful color and actually probably a good segue into my follow up just on the efficacy of seekers Onboarding BSL, but to X number of applications, what proportion of new to ZIP job seekers are actually opting to onboard with so.
Yes.
So when we look at L. A initially it was deployed on just a couple of entry points into our service and every quarter. We've been updating you as we take what has proven to be a winner and spread.
That entry Onboarding experience across every possible.
Entry points into our product. So you have seen us over the previous quarter's tell you that we have broad sales through our mobile app that.
We have Brian sale to our salary pages.
There are many many entry points into zipper Critter, there are a wide variety of ways a job seeker can find their way onto the platform.
As quickly as possible, bringing fill into every one of those so that the experience that you would have coming through the homepage experience, who have regardless of where you find your way into our solution and that's because what has proven to be true already is that AI is transformational to the experience not only.
They're a significant increase in terms of the number of users who landed on our site, who subsequently decided to register when they meet Phil as opposed to just a search box and we now have the downstream data on their click activity and we can see that it also doubled the number of clicks or the level of <unk>.
<unk> they show with the product because fundamentally theyre, having a better experience myself greeting them, we're able to capture more information about who they are and what their needs are so we're better able to serve them and I think it's really just the tip of the iceberg in terms of what we can do with Phil and the quality of the experience we can deliver.
Great. Thank you.
Again, I would like to remind everyone. If you would like to ask a question to press the number one on your stock whenever one on your telephone keypad.
Our next question comes from Doug Anmuth from Jpmorgan.
Doug go ahead, all right. Thanks.
Hi, Thanks for taking the question. This is Wes on for Doug just wanted to ask on the enterprise I think it step back again, a little bit this quarter as far as overall mix of the business.
Kind of around to where you were in <unk> and 'twenty two.
How should we be thinking about it going forward or are there things that you can kind of get it going in the other direction again or is it just a function of macro at this point.
Thanks Wes.
This is Dave.
We have incredible long term confidence in the enterprise, what we've seen is that whereas smbs a year ago was the first to feel the effects of the downturn.
In the labor economy enterprises are feeling that now are responding.
By reducing their demand for labor now.
And so.
You see that reflected in some of the enterprise numbers there.
From a from a product market fit standpoint, everything about our long term outlook for the enterprise business remains intact, we've been onboarding amazing new customers.
Getting incredible experiences and testimonials from shared some of those with you you'll see over time that we'll share more and more and we're increasingly tuning our go to market with ever more sophistication we started.
With over a decade ago really focused on the SMB market in just the past few years transitioned to also focusing market with a more sophisticated go to market and just recently in the past few quarters and really up level, the sophistication and the infrastructure we have to serve these most sophisticated custom.
<unk> in.
In the world and they are long term investments the sales cycles are vastly longer than the one day five day closing process.
SMB has.
And so all of the long term outlook there is excellent and what we're seeing now is that enterprises were slower to react with their now reacting.
To the downturn in pulling back some of their hiring plans.
And so we remain incredibly ambitious and this will be a growth area for us for a long time to come through ups and downs of multiple cycles.
And I just wanted to add to that if I can at part of the reason for our confidence in the long term and enterprise is it's one thing to sell customers. It's a very different thing to both onboard and deliver for them.
And the 140, plus Ats integrations that we have now completed and what turning ZIP applied does.
Turning on to apply for those customers basically tripled their results for the same amount of money and make it often makes activating as a new customer as simple as making a single click.
We feel like.
If you look at the ingredients that are required.
A lot of artists work is already under our belt and we're well positioned to penetrate this enterprise market consider it to be one of the real challenges for anyone who wants to sell into enterprise is getting these integrations done and it's been really a decade of work in order to get to where we are today.
Great. Thank you Barbara.
Ladies and gentlemen that concludes our call today. Thank you for joining you may now disconnect.
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Yes.
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