ZIPRECRUITER, INC. 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 "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 typically 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, 2022 , our revenue was$227.0 million and we generated net income of$20.6 million and Adjusted EBITDA of$51.7 million . For the three months endedSeptember 30, 2021 , our revenue was$212.7 million , and we generated net income of$22.1 million and Adjusted EBITDA of$42.5 million . For the nine months endedSeptember 30, 2022 , our revenue was$694.2 million , and we generated net income of$42.1 million and Adjusted EBITDA of$134.3 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 . 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." 29
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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 31, June 30, September 30, December 31, June 30, September 30,
2021 2021 2021
2021
114,705 169,191 169,535 147,081 150,233 156,537 135,703
Revenue per Paid Employer $ 1,093 $ 1,081 $ 1,254 $ 1,497 $ 1,513 $ 1,533 $ 1,673
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands, except percentages)
Adjusted EBITDA $ 51,662 $ 42,465 $ 134,259 $ 60,741
Adjusted EBITDA margin 23 % 20 % 19 % 12 %
Quarterly Paid Employers
We quantify the revenue-generating customer base as the number of Paid Employers
in our marketplace. The Quarterly 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 ended September 30, 2022 , Quarterly Paid Employers decreased when
compared to the quarter ended June 30, 2022 . The record-setting levels of hiring
activity we saw throughout the first half of 2022 started to show signs of
softening near the end of the quarter ended June 30, 2022 . We saw employers
pulling back on job postings during the final weeks of June 2022 . This trend
continued through the quarter ended September 30, 2022 , as the U.S. labor market
continued to be impacted by supply chain disruptions, inflation, and rising
interest rates which posed challenges for many businesses.
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, 2022 , Revenue per Paid Employer increased when compared to the quarter endedJune 30, 2022 . Amidst the cooling hiring environment, employers' willingness to pay continued to grow in the current quarter as we saw employers being more selective in their hiring and increasingly seeking out solutions with the best matching technology to help them identify and recruit standout candidates. Our products and services continue to improve, offering more value for employers of all sizes.
Adjusted EBITDA and Adjusted EBITDA Margin
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We define Adjusted EBITDA as our net income (loss) before interest expense, other income (expense), net, income tax expense (benefit) 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,
2022 2021 2022 2021
(in thousands)
Net income (loss) (1) $ 20,556 $ 22,060 $ 42,083 $ (17,389)
Stock-based compensation 19,324 22,033 57,478 87,625Depreciation and amortization 2,867 2,464 7,989
6,999
Interest expense 7,361 221 21,157
696
Other (income) expense, net (321) 154 (332)
(51)
Income tax expense (benefit) 1,875 (4,467) 5,884
(17,139)
Adjusted EBITDA $ 51,662 $ 42,465 $ 134,259 $ 60,741
____________
(1)Net income (loss) includes one-time general and administrative expenses
related to accounting and legal expenses and other filing costs in connection
with our Direct Listing totaling $0 in both the three and nine months ended
September 30, 2022 , and $0 and $34.0 million in the three and nine months ended
September 30, 2021 , respectively.
The following tables present net income (loss) margin and Adjusted EBITDA margin for each of the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands, except percentages)
Revenue $ 226,968 $ 212,672 $ 694,171 $ 521,004
Net income (loss) 20,556 22,060 42,083 (17,389)
Net income (loss) margin 9 % 10 % 6 % (3) %
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Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands, except percentages)
Revenue $ 226,968 $ 212,672 $ 694,171 $ 521,004
Adjusted EBITDA 51,662 42,465 134,259 60,741
Adjusted EBITDA margin 23 % 20 % 19 % 12 %
Impact of Macroeconomic Conditions
We saw significantly higher Revenue per Paid Employer in the quarter endedSeptember 30, 2022 compared to the quarter endedSeptember 30, 2021 and we delivered$227.0 million in revenue, a 7% increase compared to the quarter endedSeptember 30, 2021 , driven by higher demand of our products as the economy continued to improve from the economic downturn caused by the COVID-19 pandemic amidst a more competitive labor market. However, we saw employers pulling back on job postings during the final weeks ofJune 2022 and the trend continued throughout the quarter endedSeptember 30, 2022 as supply chain disruptions, inflation, and rising interest rates posed challenges for many businesses. Any global economic recovery remains uncertain and unpredictable and will be impacted by developments in the pandemic, including any subsequent waves of outbreak or new variant strains of the COVID-19 virus, which may require additional closures or other preventative measures and influence job seeker and employer activity.
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, newspaper classifieds, search engines, social networks, talent communities and resume services. 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 typically 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. 32
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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 constantly measure the expected returns of specific sales and marketing initiatives and adjust spend levels up or down accordingly. This discipline has been a key aspect of our strong financial performance through a wide range of macroeconomic conditions.
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 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.
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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.
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 continue 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.
Interest Expense
Interest expense consists of interest costs associated with our outstanding borrowings, undrawn fees associated with our credit facility, and amortization of issuance costs for our credit facility and senior unsecured notes.
Other Income (Expense), Net
Other income (expense) consists primarily of interest income recognized on cash, cash equivalents and marketable securities, gains and losses from foreign currency exchange transactions, and realized gains and losses recognized on sales of available-for-sale debt securities. 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. Other income (expense) also includes sublease income which consists of income earned from noncancellable sublease agreements related to two of our office facilities.
Income Tax Expense (Benefit)
We are subject to federal and state income taxes inthe United States , as well as several international jurisdictions. The effective tax rate for the three and nine months endedSeptember 30, 2022 differed from theU.S. federal statutory tax rate of 21% primarily due to book and tax differences relating to the exercise of non-qualified stock options and settlement of RSUs and from the net tax benefits from research and development tax credits, partially offset by non-deductible expenses including certain stock-based compensation expenses and limitations on the amount of deductible officer compensation. The effective tax rate for the three and nine months endedSeptember 30, 2021 differed from theU.S. federal statutory tax rate of 21% primarily due to book and tax differences relating to the exercise of non-qualified stock options and from the net tax benefits from research and development tax credits, partially offset by non-deductible expenses including certain stock-based compensation expenses. 34
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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,
2022 2021 2022 2021
(in thousands)
Revenue(1) $ 226,968 $ 212,672 $ 694,171 $ 521,004
Cost of revenue(2) 21,839 22,277 65,202 59,838
Gross profit 205,129 190,395 628,969 461,166
Operating expenses
Sales and marketing(2) 112,574 112,178 386,795 289,825
Research and development(2) 33,008 27,155 93,577 82,079General and administrative(2)(3) 30,076 33,094 79,805
123,145
Total operating expenses 175,658 172,427 560,177 495,049
Income (loss) from operations 29,471 17,968 68,792 (33,883)
Other income (expense)
Interest expense (7,361) (221) (21,157) (696)
Other income (expense), net 321 (154) 332 51
Total other expense, net (7,040) (375) (20,825) (645)
Income (loss) before income taxes 22,431 17,593 47,967 (34,528)
Income tax expense (benefit) 1,875 (4,467) 5,884 (17,139)
Net income (loss) $ 20,556 $ 22,060 $ 42,083 $ (17,389)
____________(1)Revenue was comprised as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands)
Subscription revenue $ 175,129 $ 172,525 $ 537,290 $ 424,321
Performance-based revenue 51,839 40,147 156,881 96,683
Total revenue $ 226,968 $ 212,672 $ 694,171 $ 521,004 (2)Includes stock-based compensation expense as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands)
Cost of revenue $ 210 $ 158 $ 613 $ 911
Sales and marketing 2,890 2,999 7,947 15,415
Research and development 7,655 6,935 23,215 26,333
General and administrative 8,569 11,941 25,703 44,966
Total stock-based compensation
(3)Includes one-time charges related to accounting and legal expenses and other filing costs in connection with our Direct Listing totaling$0 in both the three and nine months endedSeptember 30, 2022 , and$0 and$34.0 million in the three and nine months endedSeptember 30, 2021 , respectively. 35
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Comparison of the Three and Nine Months Ended
Revenue
Nine Months Ended
Three Months Ended September 30, September 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(in thousands, except percentages)Total revenue$ 226,968 $ 212,672 $ 14,296 7 %$ 694,171 $ 521,004 $ 173,167 33 % Revenue increased$14.3 million , or 7%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Performance-based revenue increased$11.7 million , or 29%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The increase in performance-based revenue was primarily due to the onboarding of new customers who ran sophisticated recruitment marketing campaigns in addition to increased budgets as employers' hiring needs ramped up amidst a more competitive labor market in the current period. Subscription revenue increased by$2.6 million , or 2%, for the same periods, which was primarily due to significantly higher Revenue per Paid Employer in the current period driven by higher demand of our products as employers continued to seek out the best and most efficient technology and tools to recruit talent. Revenue increased$173.2 million , or 33%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Subscription revenue increased by$113.0 million , or 27%, for the same periods, which was primarily due to significantly higher Revenue per Paid Employer in the current period driven by higher demand of our products as the economy continued to improve from the economic downturn caused by the COVID-19 pandemic amidst a more competitive labor market, partially offset by lower Quarterly Paid Employers in our marketplace for the same periods. The number of Quarterly Paid Employers was higher in the prior-year period due to the surge in hiring demand driven by the reopening of the American economy. Performance-based revenue increased$60.2 million , or 62%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase in performance-based revenue was primarily due to the onboarding of new customers who run sophisticated recruitment marketing campaigns in addition to increased budgets as employers' hiring needs ramped up as the economy continued to recover amidst a more competitive labor market in the current period.
Cost of Revenue and Gross Margin
Three Months Ended September Nine Months Ended
30, September 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(in thousands, except percentages)Cost of revenue$ 21,839 $ 22,277 $ (438) (2) %$ 65,202 $ 59,838 $ 5,364 9 % Gross margin 90 % 90 % 91 % 89 % Cost of revenue and total gross margin remained flat for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . This reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth.
Cost of revenue increased
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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,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(in thousands, except percentages)Sales and marketing$ 112,574 $ 112,178 $ 396 - %$ 386,795 $ 289,825 $ 96,970 33 % Percentage of revenue 50 % 53 % 56 % 56 % Sales and marketing expenses remained flat for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Personnel-related costs for our sales and marketing employees increased by$6.2 million , largely due to an increase in headcount. This increase was offset by a decrease of$7.3 million in marketing and advertising in the current period compared to the prior-year period reflecting our discipline in proactively adjusting marketing spend levels in relation to the macroeconomic conditions. Sales and marketing expenses grew$97.0 million , or 33%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The increase was primarily attributable to an additional$75.4 million in marketing and advertising compared to the prior-year period reflecting our efforts in ramping up advertising to both job seekers and employers to grow both sides of the marketplace. Personnel-related costs for our sales and marketing employees increased by$24.0 million , largely due to an increase in headcount. These increases were partially offset by a decrease of$7.5 million in stock-based compensation expense, 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. Research and Development Three Months Ended September Nine Months Ended 30, September 30, 2022 2021 $ Change % Change 2022 2021 $ Change % Change (in thousands, except percentages)
Research and development$ 33,008 $ 27,155 $ 5,853 22 %$ 93,577 $ 82,079 $ 11,498 14 % Percentage of revenue 15 % 13 % 13 % 16 % Research and development expenses increased$5.9 million , or 22%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , primarily due to a$3.8 million increase in our personnel-related expenses for our research and development employees, primarily attributable to an increase in headcount. Research and development expenses increased$11.5 million , or 14%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily due to an increase in our personnel-related expenses for our research and development employees of$10.4 million largely due to an increase in headcount. This increase was partially offset by a decrease in stock-based compensation expense of$3.1 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. 37
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General and Administrative
Three Months Ended September Nine Months Ended
30, September 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(in thousands, except percentages)
General and administrative $ 30,076 $ 33,094 $ (3,018) (9) % $ 79,805 $ 123,145 $ (43,340) (35) %
Percentage of revenue 13 % 16 % 11 % 24 %
General and administrative expenses decreased $3.0 million , or 9%, for the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 , primarily due to a decrease in non-income tax expense related to a $6.8
million charge recorded in the prior-year 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.
Stock-based compensation expense decreased by $3.4 million , largely due to a
$3.8 million charge related to the modification of RSUs and options granted to
our former COO in the prior-year period. These decreases were partially offset
by a $7.3 million increase in our personnel-related expenses for our general and
administrative employees, largely due to an increase in headcount.
General and administrative expenses decreased $43.3 million , or 35%, for the
nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 . This is primarily due to a decrease in professional fees
mostly attributable to the non-recurring fees for legal, accounting and other
costs related to our Direct Listing in the nine months ended September 30, 2021
totaling $24.0 million , of which, $19.4 million was paid to our financial
advisors. Additionally, stock-based compensation expense decreased by $19.3
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, and to a lesser extent, driven by a $3.8 million
charge related to the modification of RSUs and options granted to our former COO
in the prior-year period. Furthermore, the decrease was driven by a $10.0
million bonus paid to our CEO in connection with the Direct Listing in the
second quarter of 2021. Lastly, non-income tax expense decreased by $6.8 million
due to a charge recorded in the prior-year 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. These
decreases were partially offset by a $12.1 million increase in our
personnel-related expenses for our general and administrative employees,
primarily due to an increase in headcount.
Total Other Expense, Net
Three Months Ended September Nine Months Ended
30, September 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(in thousands, except percentages)Total other expense, net$ (7,040) $ (375) $ (6,665) *$ (20,825) $ (645) $ (20,180) * ______________
*Percentage not meaningful.
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Total other expense, net, increased
Total other expense, net, increased
Income Tax Expense (Benefit)
Three Months Ended September Nine Months Ended
30, September 30,
2022 2021 $ Change % Change 2022 2021 $ Change % Change
(in thousands, except percentages)
Income tax expense
(benefit) $ 1,875 $ (4,467) $ 6,342 (142) % $ 5,884 $ (17,139) $ 23,023 (134) %
Effective tax rate 8.4 % (25.4) % 12.3 % 49.6 %
Income tax expense increased $6.3 million for the three months ended
September 30, 2022 compared to the three months ended September 30, 2021 . The
increase in income tax expense is primarily due to increased pre-tax
profitability in the nine month period ended September 30, 2022 and tax benefits
related to the exercise of non-qualified stock options and the vesting of RSUs
in the period ended September 30, 2021 related to our Direct Listing, the
magnitude of which was not repeated in the nine month period ended September 30,
2022 . For the three and nine months ended September 30, 2022 , our effective tax
rate of 8.4% and 12.3%, respectively, differed from the U.S. federal statutory
rate of 21% primarily due to book and tax differences relating to the exercise
of non-qualified stock options and settlement of RSUs and net tax benefits from
research and development tax credits, partially offset by permanent items such
as our officer compensation limitations.
Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had cash, cash equivalents, and marketable securities totaling$669.7 million and$244.5 million available in unused borrowing capacity under our current 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 our senior unsecured notes, bank loans, and convertible notes. As ofSeptember 30, 2022 , we had no amounts outstanding under our credit facility. We believe our existing cash, cash equivalents, marketable securities, 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 12 months. To the extent existing cash, cash equivalents, marketable securities, 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 39
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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. Credit Facility InApril 2021 , we entered into a$250.0 million credit facility agreement with a syndicate of banks. The credit facility has a maturity date ofApril 30, 2026 and 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$550.0 million , divided by the trailing 12 months of earnings, adjusted for items such as non-cash expenses and other nonrecurring transactions. We are also obligated to pay other customary fees including a commitment fee on a quarterly basis based on amounts committed but unused under the credit facility at a rate between 0.25% to 0.35%, depending on our Net Leverage Ratio. The amount available under the credit facility is reduced by letters of credit outstanding, which totaled$5.5 million as ofSeptember 30, 2022 . The letters of credit outstanding relate to various leased office spaces. The credit facility is collateralized by security interests in substantially all of our assets and includes customary events of default such as non-payment of principal, non-payment of 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 credit facility. The credit facility agreement 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. The negative covenants include restrictions that, among other things, restrict our 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.
For more information on the credit facility, please see Note 6 - Debt to our condensed consolidated financial statements included in this report.
We have no amounts outstanding under the credit facility and are in compliance
with our debt covenants as of
Issuance of Senior Unsecured Notes
OnJanuary 12, 2022 , we issued an aggregate principal amount of$550.0 million senior unsecured notes due 2030 in a private placement. The senior unsecured notes were issued pursuant to an indenture dated as ofJanuary 12, 2022 , or the Indenture. Pursuant to the Indenture, the senior unsecured notes will mature onJanuary 15, 2030 and bear interest at a rate of 5% per year. Interest on the senior unsecured notes is payable semi-annually in arrears onJanuary 15 andJuly 15 of each year. The Indenture contains certain customary negative covenants, including, but not limited to, limitations on the incurrence of debt, limitations on liens, limitations on consolidations or mergers, and limitations on asset sales. The Indenture also contains customary events of default. At any time prior toJanuary 15, 2030 , we have the option, at our sole discretion, to redeem all or a portion of our senior unsecured notes subject to the payment of certain premiums, make-whole provisions, and accrued and unpaid interest. Upon the occurrence of a change of control triggering event, 40
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we must offer to repurchase the senior unsecured notes at a repurchase price equal to 101% of the aggregate principal amount to be repurchased, and any accrued and unpaid interest.
For more information on the senior unsecured notes, please see Note 6 - Debt to our condensed consolidated financial statements included in this report.
Share Repurchase Program
During the nine months endedSeptember 30, 2022 , our board of directors authorized us to repurchase up to$250.0 million of our outstanding common stock, with no fixed expiration. During the nine months endedSeptember 30, 2022 , we repurchased 10.7 million shares of our Class A common stock for$200.1 million under our share repurchase program, including 5.1 million shares of our Class A common stock delivered under the ASRs totaling$100.0 million , 5.0 million shares of our Class A common stock delivered under a Rule 10b5-1 plan totaling$87.8 million , and 0.6 million shares of our Class A common stock totaling$12.3 million through open market purchases.
Approximately
Investments
During the three months endedSeptember 30, 2022 , we began investing primarily in highly rated debt securities and money market mutual funds to manage our excess cash reserves. The primary objectives in investing our excess cash reserves are to preserve capital, provide sufficient liquidity to satisfy both operational cash flow requirements and potential strategic investment opportunities, and to obtain a reasonable or market rate of return on investments. We consider all of our investments as available for use in current operations, including those with maturity dates beyond one year, and therefore classify these securities within current assets in our condensed consolidated balance sheets. As ofSeptember 30, 2022 , we held$400.3 million in total investments, consisting of money market mutual funds and available-for-sale debt securities. These investments are included within cash and cash equivalents and marketable securities within our condensed consolidated balance sheets. For more information, see Note 8 - Financial Instruments to our condensed consolidated financial statements included in this report.
Forecasted Cash Tax Liability
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible thatCongress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we have analyzed the provision and worked with our advisors to evaluate its application to our business. If this provision is not deferred, modified, or repealed with retroactive effect toJanuary 1, 2022 , it would decrease our expected cash from operations in 2022. The actual impact on 2022 cash from operations will depend on if and when this 41
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provision is deferred, modified, or repealed by
Cash Flows
The following table summarizes our cash flows for the periods presented (in
thousands):
Nine Months Ended
September 30,
2022 2021
Net cash provided by operating activities
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, 2022 , cash provided by operating activities was$84.3 million resulting from our net income of$42.1 million , adjusted by non-cash charges of$71.3 million and a net decrease of$29.0 million in our operating assets and liabilities. The non-cash charges primarily resulted from$57.5 million for stock-based compensation expense,$8.0 million pertaining to amortization of intangible assets and depreciation, and$3.5 million pertaining to non-cash lease expense. The decrease of$29.0 million related to changes in our operating assets and liabilities was primarily driven by a$22.2 million decrease in our accrued expenses and other liabilities and accounts payable, an$8.2 million increase in accounts receivable, and a$5.1 million decrease in operating lease liabilities, partially offset by a$5.9 million increase in accrued interest associated with our senior unsecured notes. 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 depreciation and amortization of intangible assets, 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 the realization 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.
Investing Activities
For the nine months ended
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 42
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improvements for one of our operating leases and an increase of
Financing Activities
For the nine months endedSeptember 30, 2022 , cash provided by financing activities was$339.3 million which consisted of$550.0 million of proceeds from the issuance of our senior unsecured notes,$8.1 million of proceeds from the issuance of stock under the employee stock purchase plan, and$4.0 million of proceeds from the exercise of stock options, partially offset by$198.7 million for the repurchase of common stock,$14.7 million for the net settlement of taxes on RSUs, and$9.4 million for the payment of the issuance costs related to the issuance of our senior unsecured notes. 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 our Class A common stock and$1.3 million for the payment of the issuance costs related to our credit facility.
Obligations and Other Commitments
See our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , or the 2021 Form 10-K, for our future minimum commitments related to certain software service agreements. ThroughSeptember 30, 2022 , 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 Note 2 - Basis of Presentation, Principles of Consolidation, and Summary of Significant Accounting Policies to our condensed consolidated financial statements included in this report. There have been no changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the 2021 Form 10-K, except for the recently adopted accounting pronouncement and the accounting policies related to the senior unsecured notes, investments, and share repurchases, as further discussed in Note 6 - Debt, Note 8 - Financial Instruments, and Note 10 - Share Repurchase Program, respectively, to our condensed consolidated financial statements.
JOBS Act Accounting Election
We currently meet the definition of an emerging growth company under the
Jumpstart Our Business Startups Act of 2012, or 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 longer an emerging growth company or
until we affirmatively and irrevocably opt out of the extended transition
period. As a result, our consolidated
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financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies. We will no longer be an emerging growth company at the conclusion of this fiscal year endingDecember 31, 2022 .
Recent Accounting Pronouncements
See Note 2 - Basis of Presentation, Principles of Consolidation, and Summary of Significant Accounting Policies to our condensed consolidated financial statements included in this report for more information.
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