ZipRecruiter, Inc. (ZIP) Earnings Call Transcript & Summary

I think ZipRecruiter is not unique in saying this, but AI has been an extraordinary boon to the productivity of ZipRecruiter. The quality and velocity of new features going out on our platform in the last 9 months is probably greater than the sum total of the previous 4 years. And we have been able to do that while simultaneously reducing our overall investment in R&D as a percentage of total. So we're getting incredible operating leverage out of AI as just a means by which to get our ideas into the product. Further, AI has permeated the product. So, we're not big believers in the chatbot interface that partners with a user or a customer to try to help them do things like write better job descriptions or write better resumes. Anything that slows either side down doesn't tend to be a winner for us. We are leveraging AI at multiple points in order to do things either with our algorithm matching or what we call, we call socially engineer the two sides to engage more quickly and a number of product features have gone out that capture this and put a what we are thinking of as our product philosophy. One of which is the new search platform we just brought out in Q2 has been transformational. And instead of optimizing and training our algorithms to go seek more clicks or more applications, because we're a closed-loop system, we had the data to train them on actual employer response to applications, quality applications, if you will, and using that as the training data set has increased the number of qualified candidates by 34% and increased the response rates by employers to applications by 2x. So doubling the amount of conversations happening on our platform is transformational. Just one more example is we launched a product called Smart Outreach. This is just a mechanism to allow employers to better utilize our resume database, which has over 50 million people in it. They can use, they can basically create the job that they're interested in, and then AI will go do all of the sourcing for them, where it will reach out to the appropriate matches. It will have a cadence of messages to try and induce them to become an inbound warm lead for that employer. And satisfaction with this product has been tremendous. And so those are the ways in which we're using AI. It's not as a...

Microsoft paperclip that runs along beside you and gives you advice along the way. So something you're alluding to there that I want to go a little bit deeper on, which is, you know, traditional job queries were very search-oriented in nature. And is there a way in which you're thinking about, it sounds like it is, reordering the funnel to make it either more conversational in nature or to generally change the discovery process on both sides of your market?

I would say we're certainly open to that, and we're deeply thoughtful and experimental with that. But it's very interesting. The bulk of the users on ZipRecruiter are what we call active job seekers. These are people who are saying, I need to find a job. I'm actively engaged in search. Interestingly, the single fastest growing and new source of traffic for ZipRecruiter for job seekers is LLMs. So whether it's Claude or whether it's ChatGPT, we see an influx of job seeker traffic from these two sources. And not only do we see that influx, and not only is it growing rapidly, but these are the most engaged job seekers we've ever received, and it totally makes sense because the conversation is happening on those sites where someone says, like, I'm leaving the military and I'm trying to enter civilian life. What skills, how do my skills translate? What jobs should I be looking at? The AIs are fantastic at answering questions like that. Once they know the type of job the person is interested in, though, they still send the query to us to get the set of jobs to show the individual. And once the individual clicks on one of those jobs, they are then sent to our site. So, uh, I think conversational UI is something that makes sense for LLMs, it's the expectation there. I think our particular site, jury's still out whether we want to move to conversational UI or not.

You know, one thing that's been coming up at the conference over the last couple of days has been the balance that companies are trying to strike in traffic that comes to them from these agents relative to direct traffic and trying to make once someone's landed on the site, more AI infused and less friction. How do you think about making sure you don't lose control of lead generation and you become more overbalanced to traffic that comes from LLM agents over time?

Well, first off, I mean, it's been a 15-year investment in building the brand for ZipRecruiter. We're at 80% brand awareness. We're the answer to the question that when people say in their head, where should I look for work? One of the top ideas that immediately pops in their head, circumventing the need for them to go to Google or an LLM to find us on our site. So that's number 1. Number 2, what makes ZipRecruiter special, fundamentally, is not any specific feature, it's not any specific algorithm, it's the data that we've collected over those 15 years. All the billions of interactions between job seekers and employer jobs and then employers' reaction to those applications is what allows us to do the training on algorithms that creates this magical experience where seemingly the right jobs for you are put in front of you and when you apply to those jobs, you have high probability of getting a response or engagement from the employer. That data does not exist. That data cannot be taken by an LLM. So LLMs have recognized that and partnered with us. We have integrations with both Claude and OpenAI. And we were there at the beginning. And it's a really exciting opportunity for us. We have no fear of the sites taking our business away from us.

Okay. Understood. You've also done a number, well, at least one in particular that I wanted to focus on, but when you've done acquisitions in the past, I'm always curious about how they change your go-to-market strategy or what you're offering to folks in your marketplace. Break Room comes to mind in terms of the way we think about it, but talk to us a little bit about how you continue to make decisions about what you're going to build, what you might acquire, how it might speed up your time to market, how it can change your go-to-market strategy, your product strategy, just to go a little bit deeper on that as a topic.

Well, our product roadmap of driving conversations is derived from a very simple and intuitive insight, which is the more conversations an employer has with job seekers on our site, it's linear the more they pay us. And the more conversations a job seeker has with employers, the inverse of that, the longer they stay active in their job search and the more jobs they apply to. This is why we decided we were going to target everything to this and try to make ourselves a marketplace of conversations. And so the way I look at acquisitions and the performance of features that we have deployed is entirely around how much do they increase the rate of conversations. And so you look at something like Be Seen First, which is a feature we launched at the beginning of the year. This is a product that lets a job seeker say, I'm not only applying to your job, I'm going to raise my hand and show you how enthusiastic I am by telling you why I'm qualified and why I was excited to apply. And that message being included with their application, uh, doubles the probability that they're going to get a response from the employer, which makes sense. Employers are beleaguered with resumes that look perfect because AI is very good at helping people write resumes that look perfect. So how do you differentiate between these candidates? One of the ways is by letting the human speak with their own voice. Another product we have is Break Room. And in a similar lens, Break Room allows customers to on their job listings, not only show the ratings and reviews, for those that don't know, Break Room is kind of like Glassdoor but for frontline workers and instead of having ratings and reviews of employers, workers about their bosses, it just lists a bunch of facts about what it's like. How long do you have to be on your feet? How long do you have your lunch breaks? What is their pay schedule? Things that people who work frontline worker jobs really care about. These jobs represent over 60% of the jobs in the economy. What's so interesting is when you buy Break Room on our site, it lets you put onto your job postings information about your business that also has this third party, like people who've worked there before, data inside of it. And that tremendously increases engagement with jobs and it's the same thing where now the company is basically being enabled to use their real voice to talk to customers and not their traditional job posting voice. And in a way it's almost like getting a pitch from the company and that drives tremendous interest from those job seekers.

Okay, understood. Wanted to double-click on competition. So as the online recruiting and overall hiring and recruiting landscape continues to evolve, how do you think about your current competitive positioning in that landscape, and what are the most of potential for building moat around competitive advantage, as you see playing out when you look against who you compete against today?

Well, I think we are the only company that has taken the particular strategy of not optimizing for clicks, not optimizing for applies, but actually optimizing for 1 to 1 conversations between the two sides of our marketplace. And that's because of, again, the strong correlation we saw with both the amount employers would pay us for the length and duration of uh, engagement that we would get from job seekers. And it is working. Like the most important like if you, if you look at us a year ago, our business top line went backwards 5% and our margins were 9%. And if you look at the run rate that we're on this year and the scenario we've outlined, back to positive single digit growth and our margins are increasing at the same time uh, to between 12% and 14% is the range we've given and that is being entirely driven by this product strategy where we are fundamentally increasing the foundational satisfaction with our service on both sides, that creates enduring growth. That's not a price increase where you get a one-time, one-year bump. That's a compounding benefit over time. Um, so we're really excited about the strategy, and I would say the biggest difference between us and our competition right now is ZipRecruiter is very much in a market share grab volume growth mode. And I think our competition is more in a yield optimization mode, where they're trying to figure out what the limits are on how much they can charge for their products.

Out like what market share as a result. Okay. Maybe building on that, you know, you talked about what happened with growth and margins looking backwards, how you've guided going forwards. I think during a period where you faced headwinds, you took a lot of proactive moves with respect to the cost you could control and some of the incremental margins in the business. If the business returns to more steady-state growth, what's the messaging for investors about how much you'd want to invest behind signals of growth, how much you might build on your last answer about potentially being a share-taker, and how investors should think about the balance you might try to strike between capitalizing on a growth environment and still.

Delivering on margin trajectory. Well, I think a lot of evidence exists for investors of our philosophy about how we run. Since we've gone public, in spite of there being a 3.5 year period where the entire labor market was hiring less every month for those 3.5 years, we've never had a year where we weren't cash flow positive. And then further, you can also look at what we did with our bond debt earlier this year. We had $550 million of bond debt. We were able to retire over half of that um, for a $65 million discount. We saved ourselves $50 million plus in interest payments over the next 3.5 years. We're very thoughtful about the capital that we have available and how we run our business. If you look at the growth that we're getting, it's product-generated growth. As I said, it's going to be enduring and compounding. That's our belief about the way that we're driving this growth. It doesn't require us to significantly change our cost structures in order to harvest and take advantage of that growth. But that said, we've been marketing across a multitude of channels for over a decade. We have highly sophisticated early signal when the markets are either increasing in demand or decreasing in demand, and we're able to adjust our spend rapidly. We will take advantage of opportunities where demand is receptive, rising, but that should translate into uh, increased top line that is observable because the efficiency will be getting better in those scenarios.

Okay, perfect. You did talk about the decision you made on the debt repurchase. Um, with that as a signal, how should investors think about what the right capital structure is for the business medium to long term and how that might feed into the scope to also continue to return capital to shareholders as you reach a capital structure that you feel is where you want to operate in more normalized environments?

I mean, I think our philosophy on what we think is the balance of where we want to invest our dollars has stayed consistent throughout, which is organic growth is always going to be our top priority, and then our secondary priority will be inorganic growth, and obviously we contemplate M&A. We have downside. I think we've moved from $400 million to $170 million of cash on hand, but that's pretty sizable war chest, so M&A is still on the table. And then it would be return of capital to investors, which can happen either through the retirement of additional bond debt or through share repurchase. That is a tertiary priority. We've been highly opportunistic and I would argue very strategic about how we have tackled that capital return. But our priority certainly remains organic growth, and we continue to look for opportunities there.

Okay. We only got a few minutes left, but when you take a step back and if we're lucky enough or I'm lucky enough to have this conversation with you in a year's time, what are the biggest strategic priorities you're focused on? How are you aligning growth investments to accomplish those priorities? What's your sort of 12 to 18-month to-do list?

Well, number 1, we've just gotten started increasing conversations and what's been so fantastic about it is like these were not empty calories. Every tactic we have pursued here where we've moved that metric, revenue has continued to move with it. So it feels great to have a product-led growth strategy. And then number 2, we need to penetrate enterprise. We know this. We want to move our marketplace to a 50-50 split, which is reflective of the U.S. economy. The opportunity there is sizable. Enterprises have persistent hiring needs and deep pockets. It's a community that we know we need to be working with more closely.

MARK BLYTH, Okay.

Well, I look forward to hopefully having the opportunity to check out on those, not only on the earnings, but in a year's time in person. Thanks so much for being part of the conference. Please join me in thanking ZipRecruiter. This live transcript is auto-generated without human intervention or review.