You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and the related notes included in Item 1 "Financial Statements" in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. OVERVIEW Our Mission is to actively connect people to their next great opportunity.ZipRecruiter is a two-sided marketplace for work. We generate substantially all of our revenue from fees paid by employers to post jobs and access other features in our marketplace. We offer our employers flat rate pricing on terms ranging from a day to a year, or performance-based pricing, such as cost-per-click, to align with each employer's hiring needs.ZipRecruiter is free to use for job seekers. Job seekers come toZipRecruiter in search of their next opportunity. After establishing a profile, job seekers are able to apply to jobs with a single click. Our automated recruiter curates jobs and proactively sends alerts for new opportunities where they are a Great Match, which is a designation assigned byZipRecruiter's technology to indicate a high potential fit between a job seeker and a job. As our matching technology learns more about job seekers' preferences and attributes, our technology offers increasingly higher quality matches. We plan to continue to invest aggressively in our marketplace to drive growth for the foreseeable future. We have made significant investments in our business to expand our employer and job seeker footprints, increase their engagement, and enhance our datasets and machine learning. For the three months endedSeptember 30, 2021 , our revenue was$212.7 million and we generated a net income of$22.1 million and Adjusted EBITDA of$42.5 million . For the three months endedSeptember 30, 2020 , our revenue was$102.9 million , and we generated a net income of$23.1 million and Adjusted EBITDA of$26.7 million . For the nine months endedSeptember 30, 2021 , our revenue was$521.0 million and we generated a net loss of$17.4 million and Adjusted EBITDA of$60.7 million . For the nine months endedSeptember 30, 2020 , our revenue was$303.8 million , and we generated a net income of$33.3 million and Adjusted EBITDA of$45.9 million . Adjusted EBITDA is a financial measure not presented in accordance with GAAP. For a definition of Adjusted EBITDA, an explanation of our management's use of this measure and a reconciliation of net income (loss) to Adjusted EBITDA, see the section titled "Key Operating Metrics and Non-GAAP Financial Measures." 26 -------------------------------------------------------------------------------- KEY OPERATING METRICS AND NON-GAAP FINANCIAL MEASURES In addition to the measures presented in our consolidated financial statements, we use the following key operating metrics and non-GAAP financial measures to identify trends affecting our business, formulate business plans, and make strategic decisions: March June September December March June September 31, 30, 30, 31, 31, 30, 30, 2020 2020 2020 2020 2021 2021 2021 Quarterly Paid Employers 98,456 76,867 89,810 89,636 114,705 169,191 169,535 Revenue per Paid Employer$1,151 $1,140 $1,145 $1,276 $1,093 $1,081 $1,254 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands, except percentages) Adjusted EBITDA$ 42,465 $ 26,653 $ 60,741 $ 45,872 Adjusted EBITDA margin 20 % 26 % 12 % 15 % Quarterly Paid Employers We quantify the revenue-generating customer base as the number of Paid Employers in our marketplace. The Paid Employer metric includes all actively recruiting employers (or entities acting on behalf of employers) on a paying subscription plan or performance marketing campaign for at least one day in a given calendar quarter. Paid Employers excludes employers from our third-party sites or other indirect channels, employers who are not actively recruiting, and employers on free-trials. This group of employers excluded from our Paid Employer count does not contribute a significant amount of revenue. In the quarter endedSeptember 30, 2021 , Quarterly Paid Employers remained relatively flat when compared to the quarter endedJune 30, 2021 . The elevated levels of hiring activity we saw in the quarter endedJune 30, 2021 continued, driven by the strong demand fromU.S. employers and a robust economy. The longstanding investments in building our brand among employers and in-period sales and marketing efforts contributed to a record number of Paid Employers participating in our marketplace during the third quarter of 2021. Revenue per Paid Employer We evaluate Revenue per Paid Employer as a key indicator of our efforts to increase value provided to employers in our marketplace. We define Revenue per Paid Employer as total company revenue in a given period divided by Quarterly Paid Employers in the same period. In the quarter endedSeptember 30, 2021 , Revenue per Paid Employer increased by 16% when compared to the quarter endedJune 30, 2021 despite the Quarterly Paid Employer count remaining relatively flat in the same period. In the quarter endedJune 30, 2021 , we experienced a large influx of new and reactivated Paid Employers who only contributed revenue for the latter portion of such quarter. Despite quarter to quarter volatility, we expect the longstanding trend of growing Revenue per Paid Employer to continue. 27 -------------------------------------------------------------------------------- Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as our net income (loss) before total other (income) expense, net, income tax expense and depreciation and amortization, adjusted to eliminate stock-based compensation expense. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors and other interested parties to evaluate and assess performance. Adjusted EBITDA is not intended to be a substitute for anyU.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. Our Adjusted EBITDA and Adjusted EBITDA margin fluctuate from quarter to quarter depending on a variety of factors including, but not limited to, our investments in research and development, sales and marketing, headcount and our ability to generate revenue. The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) GAAP net income (loss)(1)$ 22,060 $ 23,106 $ (17,389) $ 33,347 Stock-based compensation 22,033 1,256 87,625 4,560 Depreciation and amortization 2,464 2,303 6,999
7,344
Total other (income) expense, net 375 (199) 645
102
Income tax expense (benefit) (4,467) 187 (17,139) 519 Adjusted EBITDA$ 42,465 $ 26,653 $ 60,741 $ 45,872 ____________ (1)GAAP net income (loss) includes one-time general and administrative expenses related to financial advisory services, accounting and legal expenses, the bonus earned by our Chief Executive Officer, and other filing costs in connection with our Direct Listing totaling$0 and$34.0 million in the three and nine months endedSeptember 30, 2021 , respectively.
The following tables present GAAP net income (loss) margin and Adjusted EBITDA margin for each of the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands, except percentages) Revenue$ 212,672 $ 102,851 $ 521,004 $ 303,798 Net income (loss) 22,060 23,106 (17,389) 33,347 GAAP net income (loss) margin 10 % 22 % (3) % 11 % 28 --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands, except percentages) Revenue$ 212,672 $ 102,851 $ 521,004 $ 303,798 Adjusted EBITDA 42,465 26,653 60,741 45,872 Adjusted EBITDA margin 20 % 26 % 12 % 15 % Impact of COVID-19 COVID-19 has had, and continues to have, a significant impact on theU.S. economy and hiring. The economic recovery during the first nine months of 2021 has driven a significant and broadly distributed increase in demand for labor. In the quarter endedSeptember 30, 2021 , we delivered$212.7 million in revenue, a 107% increase compared to the quarter endedSeptember 30, 2020 , reflecting strong execution across product, marketing and operations, and the continuation of an economic recovery. We saw employers in our marketplace increase by 89% in the quarter endedSeptember 30, 2021 versus the quarter endedSeptember 30, 2020 as macroeconomic conditions improved and we increased our sales and marketing investments to aid in bringing on more Paid Employers. Components of Our Results of Operations Revenue We generate revenue primarily from fees paid by employers to post and distribute jobs in our marketplace, as well as multiple sites managed byJob Distribution Partners , which are third-party sites who have a relationship with us and advertise from our marketplace, and includes job boards, classifieds, search engines and social networks. Our subscription revenue consists of time-based job posting plans, upsells which complement or expand visibility and prominence to job posting plans, and resume database plans. We offer job posting plans with terms ranging from a day to a year on a flat rate subscription basis to access our marketplace, where customers may create and manage job postings and review incoming candidate applications. We recognize revenue ratably over the subscription period beginning on the date the subscription service is made available to the customer. Our nonrefundable subscriptions are typically subject to renewal at the end of the subscription term. Our upsell services complement or expand visibility to job posting plans and are typically sold on a subscription basis. Upsell services revenue is recognized ratably over the term of the agreement beginning on the date the upsell services are made available to the customer. Additionally, upsell services include job posting enhancements which are applied to individual job postings to provide customers with a temporary boost in the prominence of their job postings. Revenue from job posting enhancements is recognized as the customer uses the enhancements on its job postings. Resume database plans allow our customers to search and view resumes and revenue is recognized ratably over the subscription period. Performance-based revenue is recognized when a candidate clicks on or applies to a job distributed byZipRecruiter on behalf of a customer. For performance-based revenue, our customers pay an amount per click or per job application usually capped at a contractual maximum per job recruitment campaign. We may distribute jobs to candidates from sources who have job seeker or candidate databases. When a job seeker from a candidate source clicks on or applies to a job posting, we pay the candidate 29 -------------------------------------------------------------------------------- source a percentage of the revenue we earn from our customer for the click or application according to the terms of the revenue share agreement. In these arrangements, we have the responsibility for advertising the customer's job postings, discretion in how and where we choose to advertise the customer's job postings, and discretion in establishing the price paid by the customer. We recognize the fees we receive from our customers as revenue and the revenue share due is recorded in cost of revenue in the Consolidated Statements of Operations. For a description of our revenue accounting policies, see the section titled "Critical Accounting Policies and Estimates" below. Cost of Revenue and Gross Profit Cost of Revenue Cost of revenue consists of third-party hosting, credit card processing fees, personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for customer support employees, partner revenue share amounts, job distribution costs from performance-based revenue, and amortization of capitalized software costs associated with our marketplace technology to provide services for our customers. In addition, we allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to cost of revenue based on headcount. We expect cost of revenue to increase in absolute dollars in future periods due to payment processing fees, third-party hosting fees, personnel related costs to support additional transaction volume, and amortization expense associated with our capitalized internal-use software and development cost. Our cost of revenue may fluctuate in absolute dollars from period to period based on the amount and timing of all of these items. Gross Profit and Gross Margin Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by our revenue, timing and amount of investments to expand hosting capacity, our continued investments in our support teams, and the amortization expense associated with our capitalized internal-use software and development cost. Costs and Operating Expenses Sales and Marketing Sales and marketing expense consists of personnel related costs (including salaries, sales commissions, bonuses, benefits, and stock-based compensation) for our sales and marketing employees, marketing activities, and related allocated overhead costs. Marketing activities include advertising, online lead generation, customer and industry events, and candidate acquisition. We allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to sales and marketing expense based on headcount. We expect that sales and marketing expenses will increase on an absolute dollar basis and may vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in sales and marketing to attract both employers and job seekers to our marketplace and to increase our brand awareness. We expect that these expenses will continue to be our largest operating expense category for the foreseeable future as we continue to expand on our sales and marketing efforts. We expect our marketing expense to continue to grow on an annual basis, but to decline as a percentage of total revenue over time. Research and Development Research and development expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for our research and development employees, amortization of 30 -------------------------------------------------------------------------------- capitalized software costs associated with the development of the databases supporting our marketplace, and the cost of certain third-party service providers. We allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to research and development expenses based on headcount. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred. We believe continued investments in research and development are important to attain our strategic objectives, and expect research and development expense to increase in absolute dollars. This expense may vary as a percentage of total revenue for the foreseeable future as we continue to invest in research and development activities related to ongoing improvements to, and maintenance of, our marketplace, expansion of our services, as well as other research and development programs, including the hiring of engineering, product development, and design employees to support these efforts. We expect our research and development expense to continue to grow, but to decline as a percentage of total revenue over time. General and Administrative General and administrative expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees in our executive, finance, human resource and administrative departments, and fees for third-party professional services, including consulting, legal and accounting services. General and administrative expense also consists of non-recurring costs as part of our transition to a publicly traded company and includes fees paid to our financial advisors in connection with our Direct Listing. In addition, we allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to general and administrative expense based on headcount. We expect to invest in corporate infrastructure and incur additional expenses associated with transitioning to and operating as a public company, including expenses related to compliance and reporting obligations pursuant to the rules and regulations of theSEC , and higher expenses for investor relations costs, professional services, and director and officer insurance. As a result, we expect general and administrative expense to increase in absolute dollars in future periods, but this expense may vary as a percentage of total revenue. Interest Expense Interest expense consists of interest costs associated with our outstanding borrowings, undrawn fees associated with our credit facility, payment-in-kind interest on our convertible notes with related parties, and amortization of issuance costs for our credit facility. Our convertible notes with related parties converted into shares of common stock in connection with the Direct Listing inMay 2021 . Sublease Income Sublease income consists of income earned from a noncancellable sublease agreement for one of our office facilities. The agreement terminated inMarch 2021 . Other Income (Expense), Net Other income (expense) consists primarily of gains and losses from foreign currency exchange transactions. We have foreign currency exposure primarily related to personnel related expenses that are denominated in currencies other than theU.S. Dollar, principally the Canadian Dollar, British Pound and the Israeli New Shekel. Income Tax Expense (Benefit) We are subject to federal and state income taxes inthe United States . The effective tax rate for the three and nine months endedSeptember 30, 2020 differed from theU.S. federal statutory tax rate of 21% primarily due to the valuation allowance maintained against netU.S. federal and state deferred tax assets. As a result of our earnings in 2020 and forecasted taxable income, we released our valuation 31 -------------------------------------------------------------------------------- allowance against our net deferred tax assets, which resulted in an income tax benefit for 2020. For the three and nine months endedSeptember 30, 2021 , our effective tax rate of (25)% and 50%, respectively, differed from theU.S. federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options and settlement of RSUs, partially offset by other permanent items such as our Direct Listing costs and officer compensation limitations. Results of Operations The following table sets forth our consolidated results of operations for each of the periods presented: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) Revenue(1)$ 212,672 $ 102,851 $ 521,004 $ 303,798 Cost of revenue(2) 22,277 12,949 59,838 39,261 Gross profit 190,395 89,902 461,166 264,537 Operating expenses Sales and marketing(2) 112,178 41,713 289,825 148,662 Research and development(2) 27,155 16,863 82,079 52,395
General and administrative(2)(3) 33,094 8,232 123,145
29,512
Total operating expenses 172,427 66,808 495,049
230,569
Income (loss) from operations 17,968 23,094 (33,883) 33,968 Other income (expense) Interest expense (221) (179) (696) (825) Sublease income - 226 151 783 Other income (expense), net (154) 152 (100) (60) Total other income (expense), net (375) 199 (645) (102) Income (loss) before income taxes 17,593 23,293 (34,528) 33,866 Income tax expense (benefit) (4,467) 187 (17,139) 519 Net income (loss)$ 22,060 $ 23,106 $ (17,389) $ 33,347 ____________
(1)Revenue was comprised as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) Subscription revenue$ 172,525 $ 84,839 $ 424,321 $ 254,206 Performance-based revenue 40,147 18,012 96,683 49,592 Total revenue$ 212,672 $ 102,851 $ 521,004 $ 303,798 32
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(2)Includes stock-based compensation expense as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) Cost of revenue$ 158 $ 16 $ 911 $ 58 Sales and marketing 2,999 134 15,415 559 Research and development 6,935 737 26,333 2,310 General and administrative 11,941 369 44,966 1,633
Total stock-based compensation
(3)Includes one-time charges related to financial advisory services, accounting and legal expenses, the bonus earned by our Chief Executive Officer, and other filing costs in connection with our Direct Listing totaling$0 and$34.0 million in the three and nine months endedSeptember 30, 2021 , respectively. Comparison of the Three and Nine Months EndedSeptember 30, 2021 and 2020 Revenue Nine Months Ended Three Months Ended September 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages) Total revenue$ 212,672 $ 102,851 $ 109,821 107 %$ 521,004 $ 303,798 $ 217,206 71 % Revenue increased$109.8 million , or 107%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Subscription revenue increased by$87.7 million , or 103%, for the same periods, which was driven by strong efforts in sales and marketing and by the recovery of the economy as employers continued to post more job opportunities within our marketplace. Performance-based revenue increased$22.1 million , or 123%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 due to the onboarding of new customers and increased spend from existing customers who run sophisticated recruitment marketing campaigns. Revenue increased$217.2 million , or 71%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Subscription revenue increased by$170.1 million , or 67%, while performance-based revenue increased$47.1 million , or 95%, for the same periods. The increase is primarily due to the number of Quarterly Paid Employers who are joining our marketplace as we ramped up our marketing spend and the macroeconomic environment continued to improve.
Cost of Revenue and Gross Margin
Three Months Ended September Nine Months Ended 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages)
Cost of revenue$ 22,277 $ 12,949 $ 9,328 72 %$ 59,838 $ 39,261 $ 20,577 52 % Gross margin 90 % 87 % 89 % 87 % 33
-------------------------------------------------------------------------------- Cost of revenue increased$9.3 million , or 72%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to an increase of$3.4 million in job distribution costs from performance-based revenue, an increase of$2.5 million in credit card processing fees and an increase of$2.1 million in partner revenue share amounts. Total gross margin improved from 87% to 90% in the three months endedSeptember 30, 2020 andSeptember 30, 2021 , respectively, and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth. Cost of revenue increased$20.6 million , or 52%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to an increase of$10.5 million in job distribution costs from performance-based revenue, an increase of$4.9 million in credit card processing fees and an increase of$3.8 million in partner revenue share amounts. Total gross margin improved from 87% to 89% in the nine months endedSeptember 30, 2020 andSeptember 30, 2021 , respectively, and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth. Sales and Marketing Nine Months Ended Three Months Ended September 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages) Sales and marketing$ 112,178 $ 41,713 $ 70,465 169 %$ 289,825 $ 148,662 $ 141,163 95 % Percentage of revenue 53 % 41 % 56 % 49 % Sales and marketing expenses grew$70.5 million , or 169%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . The increase was primarily attributable to an additional$57.2 million in marketing and advertising versus the prior year period. Personnel related costs for our sales and marketing employees increased by$10.3 million , largely due to an increase in headcount. Lastly, stock-based compensation costs increased$2.9 million , primarily attributable to the ongoing stock-based compensation expense related to the vesting of RSU awards that was not applicable in the prior-year period. Sales and marketing expenses grew$141.2 million , or 95%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increase was primarily due to an additional$116.0 million in marketing and advertising versus the prior year period. Stock-based compensation costs increased$14.9 million , primarily attributable to our RSUs which vested as a result of our board of directors' waiver of the liquidity event-based vesting condition during the second quarter of 2021, in addition to the ongoing stock-based compensation expense related to our RSU awards over the remaining service period. Lastly, personnel related costs for our sales and marketing employees increased by$10.9 million , largely due to an increase in headcount. 34 -------------------------------------------------------------------------------- Research and Development Three Months Ended September Nine Months Ended 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages)
Research and development$ 27,155 $ 16,863 $ 10,292 61 %$ 82,079 $ 52,395 $ 29,684 57 % Percentage of revenue 13 % 16 % 16 % 17 % Research and development expenses increased$10.3 million , or 61%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . The increase was primarily due to the ongoing stock-based compensation expense of$6.2 million related to the vesting of RSU awards that was not applicable in the prior-year period. Personnel related costs for our research and development employees increased by$2.7 million , primarily attributable to an increase in headcount. Research and development expenses increased$29.7 million , or 57%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 primarily due to an increase in stock-based compensation of$23.9 million mostly attributable to our RSUs which vested as a result of our board of directors' waiver of the liquidity event-based vesting condition during the second quarter of 2021, in addition to the ongoing stock-based compensation expense related to our RSU awards over the remaining service period. Personnel related costs for our research and development employees increased by$4.8 million , primarily attributable to an increase in headcount. General and Administrative Three Months Ended September Nine Months Ended 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages) General and administrative$ 33,094 $ 8,232 $ 24,862 302 %$ 123,145 $ 29,512 $ 93,633 317 % Percentage of revenue 16 % 8 % 24 % 10 % General and administrative expenses increased$24.9 million , or 302%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . The increase was primarily due to the ongoing stock-based compensation expense of$7.8 million related to the vesting of RSU awards that was not applicable in the prior-year period, also driven by$3.8 million of stock-based compensation expense in the current period related to the modification of RSUs and options granted to our former COO. Additionally, a non-income tax expense of$6.8 million was recorded in the current period. We record non-income taxes that may result from examinations by, or any anticipated negotiated agreements with, tax authorities when a loss is probable and reasonably estimable. Lastly, personnel related expenses for our general and administrative employees increased by$1.9 million due to an increase in headcount. General and administrative expenses increased$93.6 million , or 317%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 mostly due to an increase in stock-based compensation of$39.5 million primarily attributable to our RSUs which vested as a result of our board of directors' waiver of the liquidity event-based vesting condition during the second quarter of 2021, in addition to the ongoing stock-based compensation expense related to the vesting of RSU awards that was not applicable in the prior-year period, and to a lesser extent, the increase also related to the$3.8 million of stock-based compensation expense in the current period related to the modification of 35 -------------------------------------------------------------------------------- RSUs and options granted to our former COO. Additionally, we incurred non-recurring fees for legal, accounting, and other costs related to the Direct Listing in the nine months endedSeptember 30, 2021 totaling$24.0 million , of which$19.4 million was paid to our financial advisors. Also included in the increase between periods is a$10.0 million bonus paid to our CEO in connection with the Direct Listing along with an overall increase in general professional consulting fees, directors' and officers' insurance, and general investor marketing fees totaling$3.5 million as we incurred additional expenses as part of the transition to becoming a public company. Furthermore, we recorded a non-income tax expense of$6.8 million in the current period. We record non-income taxes that may result from examinations by, or any anticipated negotiated agreements with, tax authorities when a loss is probable and reasonably estimable. Lastly, personnel related expenses for our general and administrative employees increased by$2.9 million , primarily attributable to an increase in headcount. Other Income (Expense), Net Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages) Other income (expense), net$ (375) $ 199 $ (574) (288) %$ (645) $ (102) $ (543) 532 % There were immaterial fluctuations in other income (expense) for the three and nine months endedSeptember 30, 2021 compared to the three and nine months endedSeptember 30, 2020 . Income Tax Expense (Benefit) Three Months Ended September Nine Months Ended 30, September 30, 2021 2020 $ Change % Change 2021 2020 $ Change % Change (in thousands, except percentages) Income tax expense (benefit)$ (4,467) $ 187 $ (4,654) *$ (17,139) $ 519 $ (17,658) * Effective tax rate (25) % 1 % 50 % 2 % ______________ *Percentage not meaningful. Income tax expense decreased$4.7 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . For the three and nine months endedSeptember 30, 2020 , our tax expense primarily related to taxes for our foreign operations as we maintained a full valuation allowance against our federal and state deferred tax assets. We released the valuation allowance during the fourth quarter of 2020. For the three and nine months endedSeptember 30, 2021 , our effective tax rate of (25)% and 50%, respectively, differed from theU.S federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options and settlement of RSUs, partially offset by permanent items such as our Direct Listing costs and officer compensation limitations. Liquidity and Capital Resources As ofSeptember 30, 2021 , we had cash totaling$204.9 million , and$244.2 million available in unused borrowing capacity under our current revolving credit facility. We have financed our operations and capital expenditures primarily through cash generated from operations, sales of shares of common and preferred stock and from bank loans and convertible notes. As ofSeptember 30, 2021 , we had no amounts outstanding under our revolving credit facility. 36 -------------------------------------------------------------------------------- We believe our existing cash, cash flow from operations, and amounts available for borrowing under our bank loan agreement will be sufficient to meet our working capital requirements for at least the next twelve months. To the extent existing cash, cash from operations, and amounts available for borrowing are insufficient to fund future activities, we may need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital could adversely affect our ability to achieve our business objectives. Prior Revolving Credit Facility We previously entered into a loan and security agreement with a financial institution that provided for a revolving credit facility, or the Prior Revolving Line. Our Prior Revolving Line terminated onApril 30, 2021 when we entered into a new credit facility as described below. Current Revolving Credit Facility InApril 2021 , we entered into a Credit Agreement with the lenders named therein, andJPMorgan Chase Bank, N.A ., as administrative agent, or the Current Revolving Line. The Current Revolving Line provides for a$250 million revolving credit facility and has a maturity date ofApril 30, 2026 . The amount available under the Current Revolving Line is reduced by letters of credit outstanding, which relates to various leased office spaces, which was$5.8 million as ofSeptember 30, 2021 . As described in the Current Revolving Line, the credit facility bears interest at a rate based upon our Net Leverage Ratio. Our Net Leverage Ratio is defined as total debt less total cash and permitted investments outstanding at period end, with a maximum total cash and permitted investments adjustment of$100 million , divided by the trailing twelve month of earnings, adjusted for items such as non-cash expenses and other nonrecurring transactions. We are also obligated to pay other customary fees for a credit facility of this size and type, including a commitment fee on a quarterly basis based on amounts committed but unused under the Current Revolving Line at a rate between 0.25% to 0.35%, based upon our Net Leverage Ratio. The Current Revolving Line is collateralized by security interests in substantially all of our assets. The revolving credit facility includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of certain covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments against us, and a change of control. The occurrence of an event of default could result in the acceleration of the obligations under the Current Revolving Line. The Current Revolving Line contains customary representations, warranties, affirmative covenants, such as financial statement reporting requirements, negative covenants, and financial covenants, such as maintenance of certain net leverage ratio requirements, applicable to us. The negative covenants include restrictions that, among other things, restrict our and our subsidiaries' ability to incur liens and indebtedness, make certain investments, declare dividends, dispose of, transfer or sell assets, make stock repurchases and consummate certain other matters, all subject to certain exceptions. We have no amounts outstanding under the Current Revolving Line and are in compliance with our debt covenants as ofSeptember 30, 2021 . 37 -------------------------------------------------------------------------------- Convertible Notes with Related Parties InJune 2020 , we issued subordinated secured convertible promissory notes, or the Convertible Notes, to related parties who were then holders of our Redeemable Convertible Preferred Stock. The Convertible Notes totaled$25 million and had a maturity date ofJune 22, 2023 . InMay 2021 , the Convertible Notes converted into shares of common stock in connection with the Direct Listing and were no longer outstanding as ofSeptember 30, 2021 . Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Nine Months Ended September 30, 2021 2020
Net cash provided by operating activities
$ 90,342 $ 66,758 Operating Activities The primary source of operating cash inflows is cash collected from our customers for our services. Our primary uses of cash from operating activities are for personnel related expenditures, marketing costs and third-party costs incurred to support our marketplace. For the nine months endedSeptember 30, 2021 , cash provided by operating activities was$89.8 million resulting from our net loss of$17.4 million , adjusted by non-cash charges of$81.9 million and a net increase of$25.3 million in our operating assets and liabilities. The non-cash charges primarily resulted from$87.6 million for stock-based compensation expense,$7.0 million pertaining to amortization of intangible assets and depreciation, and$4.1 million pertaining to non-cash lease expense partially offset by$18.3 million related to the change in our deferred tax assets driven by our current year operating loss and the tax related impact of stock-based compensation. The increase in our operating assets and liabilities was primarily driven by an increase of$46.7 million in our accrued expenses and other liabilities and accounts payable as we increased our marketing spend targeted at job seekers during the nine months endedSeptember 30, 2021 , partially offset by an increase of$23.8 million in our accounts receivable associated with an increase in revenue due to the number of Quarterly Paid Employers who are joining our marketplace as we ramped up our marketing spend and the macroeconomic environment continued to improve. For the nine months endedSeptember 30, 2020 , cash provided by operating activities was$56.3 million resulting from our net income of$33.3 million , adjusted by non-cash charges of$19.0 million and a net decrease of$3.9 million in our operating assets and liabilities. The non-cash charges primarily resulted from$7.3 million pertaining to amortization of intangible assets and depreciation,$4.6 million for stock-based compensation expense, and$4.1 million pertaining to non-cash lease expense. Investing Activities For the nine months endedSeptember 30, 2021 , cash used in investing activities was$11.2 million resulting from an increase in capital expenditures of$5.7 million primarily related to leasehold improvements for one of our operating leases and an increase of$5.5 million related to capitalized software development costs. 38 -------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2020 , cash used in investing activities was$6.0 million resulting from an increase in capitalized software development costs of$5.0 million and an increase in capital expenditures of$1.0 million to purchase property and equipment. Financing Activities For the nine months endedSeptember 30, 2021 , cash provided by financing activities was$11.7 million which consisted of$15.8 million of proceeds from the exercise of stock options partially offset by$2.8 million for the repurchase of common stock and$1.3 million for the payment of the issuance costs related to our Current Revolving Line. For the nine months endedSeptember 30, 2020 , cash provided by financing activities was$16.5 million , which primarily consisted of$25.0 million in proceeds from our convertible notes with related parties,$10.0 million in proceeds from our term loan, and$1.5 million of proceeds from the exercise of stock options, partially offset by a$20.0 million repayment of our term loan. The drawdowns on our Prior Revolving Line in the nine months endedSeptember 30, 2020 of$16.5 million were repaid in full in the same period. Obligations and Other Commitments See Note 11 of the audited consolidated financial statements and related notes included in our final prospectus filed with theSEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, onMay 26, 2021 , or the Prospectus, for our future minimum commitments related to certain software service agreements. ThroughSeptember 30, 2021 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, stock-based compensation, and income taxes. We base our estimates on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and assumptions. Our significant accounting policies are discussed in "Notes to Consolidated Financial Statements - Note 2. Basis of Presentation, Principles of Consolidation and Summary of Significant Accounting Policies" in the Prospectus. There have been no changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the Prospectus, except for the estimated fair value of our market condition RSU grant for stock-based compensation and the fair value of employee stock purchase rights under the ESPP as described in Note 2 to the condensed consolidated financial statements. JOBS Act Accounting Election We meet the definition of an emerging growth company under the JOBS Act, which permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use this extended transition period until we are no 39 -------------------------------------------------------------------------------- longer an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies. Recent Accounting Pronouncements See Note 2 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information. Item 3. Quantitative and Qualitative Disclosures About Market Risk We have operations both withinthe United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign currency exchange rates. Interest Rate Risk We are subject to interest rate risk in connection with our Current Revolving Line which bears a floating interest rate. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our condensed consolidated financial statements. Foreign Currency Risk We are exposed to fluctuations in foreign exchange risk related primarily to expenses denominated in currencies other than theU.S. Dollar, principally the Canadian Dollar, British Pound, and Israeli New Shekel. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced, and will continue to experience, fluctuations in our net income (loss) as a result of transaction gains and losses related to the remeasurement of our asset and liability balances that are denominated in currencies other than theU.S. Dollar. A hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as ofSeptember 30, 2021 . Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as ofSeptember 30, 2021 , our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act during our most recent fiscal 40 --------------------------------------------------------------------------------
quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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