ZipRecruiter (ZIP) 10-Q2022 Q2 Quarterly report

604 Arizona Avenue
Santa Monica, CA 90401
(877) 252-1062

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒   No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes   ☐     No  ☒ 

The registrant had 83,522,734 shares of Class A common stock outstanding and 30,361,349 shares of Class B common stock outstanding as of August 8, 2022.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “potential,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “target,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management

to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

As used herein, “ZipRecruiter,” “the Company,” “we,” “us,” “our,” and similar terms include ZipRecruiter, Inc. and its subsidiaries, unless the context indicates otherwise.

SUMMARY OF RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” later in this Quarterly Report on Form 10-Q. These risks include, but are not limited to, the following:

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

ZipRecruiter, Inc. was incorporated in the state of Delaware on June 29, 2010. Hereinafter, ZipRecruiter, Inc. and its wholly owned subsidiaries ZipRecruiter Israel Ltd., ZipRecruiter UK Ltd., and ZipRecruiter Canada Ltd. are collectively referred to as “ZipRecruiter” or the “Company.” The Company is a two-sided marketplace that enables employers and job seekers to connect with one another online to fill job opportunities.

2.    Basis of Presentation, Principles of Consolidation, and Summary of Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, certain information and disclosures normally included in consolidated financial statements presented in accordance with U.S. GAAP have been condensed or omitted.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”). The condensed consolidated balance sheet as of December 31, 2021 has been derived from the Company’s audited consolidated financial statements. Certain reclassifications have been made to prior year presentation to conform to current year presentation.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the condensed consolidated financial statements.

There have been no changes in the Company’s accounting policies from those disclosed in the Company’s audited consolidated financial statements and the related notes included in the 2021 Form 10-K, except for the recently adopted accounting pronouncement and the accounting policies related to the senior unsecured notes and the accelerated share repurchases, as further discussed in Note 6 and Note 9, respectively.

The operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results expected for the full year ending December 31, 2022 or any future period.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates include revenue recognition, estimates relating to the measurement of operating lease right-of-use (“ROU”) assets and operating lease liabilities, determination of the fair value of stock-based awards, valuation of common stock in periods prior to becoming a public company, collectability of accounts receivable, impairment of long-lived assets, including goodwill, carrying value and useful lives of property and equipment and internal-use software, the amortization period for deferred commission costs, and income taxes. By their nature, estimates are subject to an inherent degree of uncertainty and actual results could differ from those estimates.

The impact of the Coronavirus pandemic (“COVID-19”) continues to evolve. As a result, many of the Company’s estimates and assumptions require increased judgment and carry a higher degree of variability and volatility.

As of the date these condensed consolidated financial statements are issued, the Company is not aware of any specific event or circumstance that would require an update to the Company’s estimates or judgments, or change to the carrying value of the Company’s assets or liabilities. However, these estimates and judgments may change as new events occur and additional information is obtained, which may result in changes being recognized in the consolidated financial statements in future periods. Actual results could differ from those estimates and any such differences may have a material impact on the financial statements.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Accounting standards describe a fair value hierarchy based on the following three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

The carrying amounts of the Company’s financial instruments, including accounts receivable, accounts payable, and accrued expenses, approximate fair value because of their short-term maturities, except for the Company’s senior unsecured notes which are valued based on quoted prices for the notes in an inactive market. The value of the notes represents a Level 2 input in the fair value hierarchy.

Certain assets, including goodwill and operating leases, are also subject to measurement at fair value on a non-recurring basis using Level 3 or Level 2 inputs, but only when they are deemed to be impaired. As of June 30, 2022 and December 31, 2021, no material impairments were identified on those assets required to be measured at fair value on a non-recurring basis.

The Company operates as a single operating segment. The Company’s Chief Operating Decision Maker, the CEO, regularly reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources. During the three and six months ended June 30, 2022 and 2021, revenue from countries outside of the United States was not material. In addition, property and equipment and operating lease ROU assets outside of the United States were not material as of June 30, 2022 and December 31, 2021.

As an emerging growth company (“EGC”), the Company is allowed by the Jumpstart Our Business Startups Act to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company has elected to use the adoption dates applicable to private companies. The adoption dates discussed below reflect this election. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. The Company expects to become a large accelerated filer and will no longer qualify as an EGC at the conclusion of the fiscal year ending December 31, 2022. The adoption dates discussed below reflect the updated transition periods for complying with accounting pronouncements not yet adopted.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the existing model for measuring the allowance for credit losses for financial assets measured at amortized cost (including accounts receivable) to a model that is based on the expected losses rather than incurred losses. Under the new credit loss model, lifetime expected credit losses on such financial assets are measured and recognized at each reporting date based on historical, current, and forecasted information. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, and in April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. These ASUs provide supplemental guidance and clarification to ASU 2016-13 and must be adopted concurrently with the adoption of ASU 2016-13, cumulatively referred to as “Topic 326.” Topic 326 is effective for the Company as of December 31, 2022, and the adoption, including the impact and required disclosures, will be included in its Annual Report on Form 10-K for the year ending December 31, 2022. The Company is currently evaluating the effects of the adoption of this update on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of income tax accounting guidance. ASU 2019-12 is effective for the Company as of December 31, 2022, and the adoption, including the impact and required disclosures, will be included in its Annual Report on Form 10-K for the year ending December 31, 2022. The Company is currently evaluating the effects of the adoption of this update on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and which removes certain conditions that should be considered in the derivative scope exception evaluation under Subtopic 815-40. The Company early adopted ASU 2020-06 on January 1, 2022 and applied the changes

using the modified retrospective approach. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

3.    Net Income (Loss) Per Share

Basic and diluted net income (loss) per share are computed using the two-class method as required when there are participating securities and multiple classes of common stock. Basic net income (loss) per share is computed using the weighted-average number of shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of shares and the effect of potentially dilutive securities outstanding during the period.

In April 2021, the Company filed its amended and restated certificate of incorporation, which resulted in the creation of Class A common stock and Class B common stock. As the liquidation and dividend rights are identical for Class A and Class B common stock (see Note 8), the undistributed earnings under the two-class method are allocated on a proportional basis and the resulting net income (loss) per share attributable to common stockholders is, therefore, the same for both Class A and Class B common stock on an individual or combined basis.

The following table presents the Company’s basic net income (loss) per share (in thousands, except per share amounts):

The Company computes diluted net income (loss) per share under the two-class method where income is reallocated between common stock, potential common stock and participating securities. Potential common stock includes stock options and restricted stock units (“RSUs”) computed using the treasury stock method and the conversion of the convertible notes and accrued interest using the if converted method.

The following table presents the weighted average number of potentially dilutive common stock equivalents excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive (in thousands):

4.    Revenue Information

The Company disaggregates revenue into 2 streams: subscription revenue and performance-based revenue. The following table presents the Company’s revenue streams (in thousands):

The Company recognized $24.4 million and $15.5 million of revenue during the three months ended June 30, 2022 and 2021, respectively, that was included in the deferred revenue balances as of March 31, 2022 and 2021, respectively.

The Company recognized $22.6 million and $11.4 million of revenue during the six months ended June 30, 2022 and 2021, respectively, that was included in the deferred revenue balances as of December 31, 2021 and 2020, respectively.

As of June 30, 2022 and December 31, 2021, the Company had no contract assets.

No revenue was recognized during the three and six months ended June 30, 2022 and 2021 from performance obligations satisfied in previous periods.

As of June 30, 2022, the Company did not have any material remaining performance obligations expected to be recognized in the future. The Company’s remaining performance obligations primarily relate to subscription services such as time-based job posting plans, upsell services, and resume database plans that will be invoiced in future periods, and exclude (i) contracts with an original expected term of one year or less and (ii) contracts for which the Company only recognizes revenue at the amount to which it has the right to invoice for services performed.

5.    Accrued Expenses

Accrued expenses consist of the following (in thousands):

6.    Debt

In April 2021, the Company terminated its Second Amended and Restated Loan and Security Agreement dated September 2, 2020 and entered into a new $250.0 million credit facility agreement with

a syndicate of banks. The credit facility has a maturity date of April 30, 2026 and bears interest at a rate based upon the Company’s Net Leverage Ratio. The Company’s 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 twelve months of earnings, adjusted for items such as non-cash expenses and other nonrecurring transactions. The Company is 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 the Company’s Net Leverage Ratio.

The credit facility is collateralized by security interests in substantially all of the Company’s 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 the Company, 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 the Company’s 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.

On November 19, 2021, the Company entered into an amendment to the credit agreement with a syndicate of banks and the lenders named therein (the “Credit Agreement”), to amend certain other provisions under the Credit Agreement relating to how letters of credit denominated in currencies other than U.S. Dollars are valued under the Credit Agreement. 

On January 10, 2022, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) with a syndicate of banks and the lenders named therein. The Second Amendment increased the maximum amount of liquidity (including cash and permitted investments) that may be netted against the Company’s total indebtedness from $100.0 million to $550.0 million for purposes of calculating the Company’s total Net Leverage Ratio under the Credit Agreement.

On April 26, 2022, the Company entered into a Third Amendment to the Credit Agreement with the administrative agent to clarify the amounts to be held with the administrative agent.

The Company had no amounts outstanding under the Credit Agreement and was in compliance with the financial covenants as of June 30, 2022. The amount available under the credit facility as of June 30, 2022 was $244.5 million, which is the credit limit less letters of credit outstanding of $5.5 million.

The Notes were issued pursuant to an indenture dated as of January 12, 2022 (the “Indenture”) between the Company and the trustee. Pursuant to the Indenture, the Notes will mature on January 15, 2030 and bear interest at a rate of 5% per year. Interest on the Notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2022. Unpaid amounts are included within accrued interest in the Company’s condensed consolidated balance sheets.

7.    Commitments and Contingencies

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. If the Company determines that it is probable that a loss has been incurred and the amount is reasonably estimable, the Company will record a liability. However, if the Company determines that a contingent loss is reasonably possible and the loss or range of loss can be estimated, the Company will disclose the possible loss in the condensed consolidated financial statements. Legal costs relating to loss contingencies are expensed as incurred.

In the ordinary course of business, the Company may provide indemnification of varying scopes and terms to customers, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from certain claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has the Company been sued in connection with these indemnification arrangements. As of June 30, 2022, the Company has not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is neither probable nor reasonably estimable.

The Company collects and remits sales and use, value added and other taxes (“non-income taxes”) relating to the sale of the Company’s services in various jurisdictions. The Company accrues non-income taxes that may result from examinations by, or any anticipated negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, then the reasonably possible loss is disclosed. Due to the inherent complexity and uncertainty of these matters and judicial process in certain jurisdictions, the final outcome may be materially different from the Company’s expectations.

8.    Common Stock and Redeemable Convertible Preferred Stock

The Company is authorized to issue a total of 1.45 billion shares consisting of 700 million shares of Class A common stock, 700 million shares of Class B common stock, and 50 million shares of preferred stock, all with a par value per share of $0.00001.

The Class A common stock is entitled to 1 vote per share and the Class B common stock is entitled to 20 votes per share. The Class A and Class B common stock have the same dividend and liquidation rights. The Class B common stock converts to Class A common stock at any time at the option of the holder. Additionally, each share of Class B common stock will convert automatically into 1 share of Class A common stock upon any transfer, except for certain transfers described in the amended and restated certificate of incorporation.

On May 14, 2021, the holders of the Series A preferred stock and Series B preferred stock converted all outstanding shares of preferred stock into 24.2 million shares of Class B common stock.

9.    Share Repurchase Program

In February 2022, the Company’s board of directors authorized the Company to repurchase up to $100.0 million of outstanding shares of its common stock pursuant to a new share repurchase program (the “Program”). Additionally, in June 2022, the Company’s board of directors authorized an increase to the Program of $150.0 million, which resulted in a total of $250.0 million of outstanding shares of its common stock authorized to be repurchased under the Program.

The Company may repurchase shares of common stock through open market or privately negotiated transactions, block purchases, or pursuant to one or more Rule 10b5-1 plans. The Program has no expiration date and will continue until otherwise suspended, terminated, or modified at any time for any reason by the board of directors.

The Program does not obligate the Company to repurchase shares of common stock. There is no minimum or maximum number of shares to be repurchased under the Program. The timing and actual number of shares repurchased will depend on a variety of factors including price, market conditions, corporate and regulatory requirements, and other investment opportunities.

During the six months ended June 30, 2022, the Company repurchased 0.6 million shares of its Class A common stock totaling $12.3 million through open market purchases, 2.2 million shares of its Class A common stock totaling $50.0 million under an accelerated share repurchase agreement entered into in March 2022 (the “March ASR”) and completed in May 2022, and 1.8 million shares of its Class A common stock delivered under a Rule 10b5-1 plan totaling $32.9 million.

Additionally, in June 2022, the Company entered into a new accelerated share repurchase agreement (the “June ASR”) with Goldman Sachs & Co. LLC to repurchase an aggregate of $50.0 million in shares of the Company’s Class A common stock. The Company made an initial payment of $50.0 million and received an initial delivery of 2.6 million shares, which represented $40.0 million (or 80%) of the June ASR. The final number of shares to be repurchased will be based on the volume-weighted average price of the Company’s Class A common stock during the term of the June ASR, net of fees. The final settlement of the June ASR will occur during the third quarter of 2022.

Approximately $104.8 million will remain available for future repurchases of the Company’s Class A common stock under the Company’s share repurchase program after completion of the June ASR.

All shares repurchased under the share repurchase program were immediately retired. Repurchased shares reduced the Company’s outstanding shares and its weighted average number of common shares outstanding for purposes of calculating basic and diluted earnings per share.

10.    Stock-Based Compensation

Total stock-based compensation expense is recorded in the Condensed Consolidated Statements of Operations as follows (in thousands):

Prior to adoption of the 2021 Equity Incentive Plan (the “2021 Plan”), the Company granted awards under the 2012 Equity Incentive Plan (the “2012 Plan”) or 2014 Equity Incentive Plan (the “2014 Plan”, and together with the 2012 Plan, the “Prior Plans”). All awards currently are granted from the 2021 Plan. However, the Prior Plans continue to govern the terms and conditions of the outstanding awards previously granted under the 2012 Plan and 2014 Plan.

Under the amended and restated certificate of incorporation, all outstanding options to purchase common stock became options to purchase an equivalent number of shares of Class B common stock and all RSUs became RSUs for an equivalent number of shares of Class B common stock under the Prior Plans.

In April 2021, the Company adopted the 2021 Plan, which became effective on May 14, 2021 in connection with the Direct Listing. The 2021 Plan permits the grant of incentive stock options to employees and the grant of non-qualified stock options, restricted stock, restricted stock awards, RSUs, stock appreciation rights, performance units, performance shares and stock bonus awards to the Company’s employees, directors, and consultants. Under the 2021 Plan, 10.7 million shares of Class A common stock were initially reserved for issuance. The number of shares initially reserved for issuance pursuant to awards under the 2021 Plan will be increased by (i) (a) any reserved shares not issued or subject to outstanding awards granted under the Prior Plans that cease to be subject to such awards by forfeiture or otherwise after the effective date, (b) shares issued under the Prior Plans before or after the effective date pursuant to the exercise of stock options that are, after the effective date, forfeited, (c) shares issued under the Prior Plans that are repurchased by the Company at the original purchase price or are otherwise forfeited, and (d) shares that are subject to stock options or other awards under the Prior Plans that are used to pay the exercise price of a stock option or withheld to satisfy the tax withholding obligations related to any award and (ii) an annual increase on January 1st of each year beginning in 2022 through 2031, by the lesser of (a) 5% of the number of shares of all classes of the Company’s common stock issued and outstanding on December 31 immediately prior to the date of increase or (b) such number of shares determined by the board of directors. Under the 2021 Plan, as of June 30, 2022, 18.0 million shares of Class A common stock were authorized, of which 12.6 million shares of Class A common stock were available for future issuance.

The ESPP allows eligible employees the option to purchase shares of the Company's Class A common stock at a 15% discount through payroll deductions of their eligible compensation, subject to certain plan limitations. On each purchase date, eligible employees can purchase the Company’s Class A common stock at a price per share equal to 85% of the lesser of the fair market value of the Company’s Class A common stock on (i) the offering date or (ii) the purchase date. The purchase date is the last day of any concurrent offering and purchase period. During the six months ended June 30, 2022, 0.3 million shares of Class A common stock were purchased under the ESPP for an aggregate amount of $5.3 million.

In the three and six months ended June 30, 2022, total stock-based compensation expense of $0.5 million and $1.3 million, respectively, was recognized related to the ESPP. As of June 30, 2022, there was $0.3 million of unrecognized stock-based compensation expense that is expected to be recognized over the remaining term of the offering period ending August 14, 2022. As of June 30, 2022, the Company recorded a liability of $3.0 million related to the accumulated payroll deductions, which are refundable to employees who withdraw from the ESPP. This amount is included within accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

A summary of the Company’s stock option activity under the Prior Plans and the 2021 Plan (collectively, the “Plans”) for the six months ended June 30, 2022 is as follows (in thousands, except weighted average information):

As of June 30, 2022, total remaining stock-based compensation expense for unvested stock options is $4.7 million, which is expected to be recognized over a weighted average period of 1.2 years.

The Company has granted RSUs to certain employees and directors of the Company. The granted RSUs vest upon the satisfaction of both a time-based service condition and a liquidity event requirement. The time-based service condition for these awards is generally satisfied over four years. On April 19, 2021, the Company’s board of directors waived the liquidity event performance condition for the RSUs then outstanding so those that had satisfied the service condition would vest upon the earlier of the first day of trading of the Company’s common stock on the New York Stock Exchange, or March 15, 2022.

On April 19, 2021, the Company also granted the CEO Performance Award, which provides for a grant of 1.4 million RSUs. The CEO Performance Award vests upon achieving stock price targets as well as satisfying certain minimum service requirements. During the three and six months ended June 30, 2022, the Company recorded stock-based compensation expense of $1.4 million and $2.9 million, respectively, related to the CEO Performance Award. During both the three and six months ended

June 30, 2021, the Company recorded stock-based compensation expense of $0.6 million related to the CEO Performance Award.

For all RSUs, excluding the CEO Performance Award, the Company recorded stock-based compensation expense of $15.4 million and $33.1 million during the three and six months ended June 30, 2022, respectively, and $63.4 million during both the three and six months ended June 30, 2021. The Company did not recognize any stock-based compensation expense during the three months ended March 31, 2021 for any RSUs granted because the Company concluded that during the three months ended March 31, 2021 and prior to the Direct Listing, the liquidity event performance condition described above for the RSUs was not probable of being satisfied.

A summary of the Company’s RSU activity for the six months ended June 30, 2022 is as follows (in thousands, except weighted average information):

As of June 30, 2022, total unrecognized stock-based compensation expense for RSUs associated with the CEO Performance Award was $16.4 million, which is expected to be recognized over a weighted average period of 2.9 years. Additionally, as of June 30, 2022, there was $2.5 million of unrecognized stock-based compensation expense related to performance-based RSUs which will be recognized by the second quarter of 2028 if achievement of the performance condition becomes probable. For the remaining RSUs, including performance-based RSUs that are probable of vesting, total unrecognized stock-based compensation expense for unvested RSUs as of June 30, 2022 was $150.8 million, which is expected to be recognized over a weighted average period of 1.5 years.

11.    Income Taxes

The effective tax rate for the three and six months ended June 30, 2022 differed from the U.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 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 six months ended June 30, 2021 differed from the U.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 tax benefits from research and development tax credits, partially offset by non-deductible expenses including certain stock-based compensation expenses.

During the three and six months ended June 30, 2022, the Company continued to record reserves for the current year uncertain tax positions recognized within the effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months.

12.    Subsequent Events

In August 2022, subsequent to period end, the purchase period for the June ASR ended and an additional 0.3 million shares were delivered to the Company. In total, 2.9 million shares were purchased by the Company under the ASR at a volume-weighted average price of $16.99 per share, net of fees.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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 to ZipRecruiter 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 by ZipRecruiter’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 ended June 30, 2022, our revenue was $239.9 million and we generated net income of $13.1 million and Adjusted EBITDA of $45.4 million. For the three months ended June 30, 2021, our revenue was $183.0 million, and we generated a net loss of $52.8 million and Adjusted EBITDA of $(1.7) million. For the six months ended June 30, 2022, our revenue was $467.2 million, and we generated net income of $21.5 million and Adjusted EBITDA of $82.6 million. For the six months ended June 30, 2021, our revenue was $308.3 million, and we generated a net loss of $39.4 million and Adjusted EBITDA of $18.3 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.”

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:

In the quarter ended June 30, 2022, Quarterly Paid Employers increased when compared to the quarter ended March 31, 2022. The elevated levels of hiring activity we saw throughout the quarter ended March 31, 2022 continued, driven by the strong demand from U.S. employers entering and returning to our marketplace. Although we saw employers pulling back on job postings during the final weeks of June 2022, for the quarter ended June 30, 2022 as a whole, the job growth trend in the U.S. labor market continued even as supply chain disruptions, inflation, and rising interest rates posed challenges for many businesses. The longstanding investments in building our brand among employers and in-period sales and marketing efforts contributed to a growing number of Paid Employers participating in our marketplace during the second quarter of 2022.

In the quarter ended June 30, 2022, Revenue per Paid Employer increased slightly when compared to the quarter ended March 31, 2022. Employers’ willingness to pay continued to grow in the current quarter as demand for talent remained high. Our products and services continue to improve, offering more value for employers of all sizes.

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 any U.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:

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Impact of COVID-19

COVID-19 has had, and continues to have, a significant impact on the U.S. economy and hiring. The economic recovery during the year ended 2021 drove a significant and broadly distributed increase in demand for labor. In the quarter ended June 30, 2022, we delivered $239.9 million in revenue, a 31% increase compared to the quarter ended June 30, 2021, reflecting strong execution across product, marketing and operations, and the continuation of an economic recovery. We saw significantly higher Revenue per Paid Employer in the quarter ended June 30, 2022 versus the quarter ended June 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 of June 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 re-closures or other preventative measures and influence job seeker and employer activity.

Components of Our Results of Operations

We generate revenue primarily from fees paid by employers to post and distribute jobs in our marketplace, as well as multiple sites managed by Job 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 by ZipRecruiter 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.

For a description of our revenue accounting policies, see the section titled “Critical Accounting Policies and Estimates” below.

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.

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.

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.

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.

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 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.