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

Great, thank you. Thank you everybody for joining us today. This is Liz Milonopoulos from Citi, Global Head of our Internet Investment Banking team. It is my pleasure to introduce the Co-Founder and CEO of ZipRecruiter, Ian Siegel. Ian co-founded ZipRecruiter in 2010 with the mission to fundamentally improve the hiring experience. ZipRecruiter enables work by connecting job seekers and employers in their marketplace. Since inception, almost 3 million businesses and 110 million plus job seekers have come to the ZipRecruiter for their hiring and job searches. In 2020, the company generated almost $450 million of revenue and over $80 million of EBITDA. As you guys may know, earlier this year, Ian's team took the company public through a direct listing. Zip trades on the NASDAQ under the ticker ZIP and is currently valued at almost a $3 billion market cap.

Ian, thank you so much for joining us today. We're thrilled to have in here. Maybe before we go into more detail, we'd love to understand, when you started the company in 2010, what was your vision and what were you seeking to achieve?

At the original founding of the company, I had a relatively straightforward vision for the business and my personal experience working at a series of Internet start-ups was that recruiting was really difficult and I had worked at companies that were too small to have HR departments that would do the recruiting for me. So I was the one who is taking a job and posting it to Monster and CareerBuilder and HotJobs and Craigslist and it was so frustrating because it was so time consuming, and I always wish for this magic button, a button I could push and we just send a job to all the different job works on the web, then have all the candidates come into one easy to view list. That magic button is exactly the first version of the product that we've built. And apparently a lot of other recruiters and businesses have been hoping for a product like that because it's one of those rare cases of just instant product market fit. So we launched and we are effectively off to the races. But since then, our product has evolved considerably and now it's not just about quantity, it's also very, very much about quality.

Got it. And the online recruitment market is only 6% of the total recruiting market today, where do you see that trend and how does online eventually take more share from offline?

Well, I think there has been transformational breakthrough technology that has been introduced to this category in particular over the last five years. So whether it's machine learning or deep learning or meta learning, basically you have software that learns now and rather than having an employer post a job and job seekers go through this weird do it yourself process, where they try to find the right jobs to apply to, now have this smart software that keeps getting smarter as a layer over the entire marketplace, helping people find the right jobs for them to take the guesswork out of it and that has been a significant improvement and satisfaction both for the employers and for the job seekers.

Got it. And in that vein, there are some others out there trying to do the same thing. How do you view your differentiation versus other online peers?

Well, we were the real -- I mean leading edge early adopters of these modern algorithmic approaches and it really came to define our product, which initially had been all about distribution which was -- we were going to turn the entire Internet into one giant job work, but it turned out that after you delivered about 30 candidates to an employer or recruiter, every incremental candidate you said didn't make them incrementally happier, it actually made them incrementally more frustrated. And at the end of the day what everybody really wants is a shortlist of ready to interview highly qualified candidates in the shortest possible timeframe they can be delivered and that's what these algorithms allowed you to do. I mean this is one of those cases where the first version of the machine learning algorithm we put onto the platform, we sufficiently advanced that it felt like magic because of how much it improves the key signals that we get back from employers in terms of their satisfaction with the candidates they're getting. So if you just leave the market to sort of its own traditional devices where an employer posts a job and then job seekers try to find the right jobs to apply to, less than 20% of the time are those job seekers able to find jobs for which they're going to get a thumbs-up. But when you lose one of these modern algorithmic approaches, depending on which generation you're looking at, it's gone from, everything from 40% to 60% now, even very best that we have is over 70%. So we're just getting better and better and the more training data these algorithms get, the smarter they get. And so our primary point of differentiation at this point is really about delivering quality candidates fast. We don't leave it to chance, we are an active broker in the marketplace, we're playing match maker between the two sides.

Got it. And how much or better do you think about matching technology can get in the next few years and how does that affect the average person's experience for a job search?

I definitely think it can get better because we've seen such consistent improvement over-time and if you look at just the last two years on ZipRecruiter, we went from 39 days to fill a job down to 16 days to fill a job and that's just through this consistent retraining and improvement of the website and this is still relatively novel technology. We're still figuring out all the ways to deploy it and it makes intuitive leaps on its own, but you don't have to tell it to do that are so fascinating when you sort of peel back the onion and you look at it and it just makes you realize like there is so much more to do. An example of that would be one of the things we discovered is that when employers in Los Angeles, in the tech community were posting jobs, the algorithm was showing that job to candidates in New York. And it is so fascinating, we didn't tell it to do that but it turns out candidates from New York are very willing to consider an even move to Los Angeles to take jobs in the tech community. So that's the kind of insight this wisdom of the crowd that these algorithms were capable of, but it really just to put a really fine point on this, it doesn't stop there because that's the wisdom of the crowd broadly, but as an employer, a unique specific individual employer starts engaging with our service and starts engaging with candidates. The algorithms actually learn the custom preferences of that unique employer and start to goal seek delivering more candidates like the ones they like. So it doesn't just get smarter in aggregate, it gets smarter in how it learns about you and that is what is so exciting about this novel approach.

Got it. By the way, it sounds like your algorithms predictive remote work too. So I think they're probably smarter than just job seeking. And so with that, I mean, so, clearly your technology, the AI behind it, the data behind that, you've clearly cracked the code on that. You've also done a really good job of building a brand awareness. And so can you talk a little bit about how you've done that and how you see the brand evolving over-time?

Well, one of the things that I am now fully appreciating in a post COVID world is that we spent over $600 million on marketing to employers to tell them that we work, to make sure that we were ubiquitous and top of mind for anyone who is hiring in America and then COVID strikes and like everyone we had to go into some pretty severe austerity measures, because it was just indeterminate how long would this downturn in the economy last, how long will this significant impact to the hiring market last. But what we discovered is that when we turned our marketing basically all the way down, new employers kept coming and signing up without the marketing to prompt them and more importantly, an even more exciting was previous customers kept coming back and reactivating and that's still true today and that is the power of both having a recognizable brand in an exceptional product. Marry the two, what you have is real operating leverage over-time and now we are as thoughtful about building a stronger brand on the job-seeker side of our business as we have managed to build on the employer side of our business where we have greater than 80% brand awareness and we feel really confident in our ability to sustain and maintain that brand awareness.

Got it. That's great. And then can you talk a little bit about the types of workers and the types of verticals that ZipRecruiter specializes in? Is this something that you think ZipRecruiter solution can be applied to any type of worker, any type of vertical, any type of industry or do you focus on a particular part of that market?

ZipRecruiter's Bag, so we are a mirror of the overall hiring market. We are in every job category at every seniority level and in every geography and I definitely believe that this works for everyone as evidenced by our customer base, which is becoming increasingly also a mirror of the business division by size across the United States. So we deal with SMBs, mid-sized companies and enterprise.

That's great. And so then maybe that's a great transition into talking about today's job market. Clearly, it's an unprecedented environment and what types of trends are you guys seeing today?

Well, this is unique. I mean, I think this is unique sort of in the history of the job market because we're all in a post-pandemic world where a lot of things are true, which is number one, employers are back, they have an aggressive and rapid appetite for talent. We have a record number of open jobs. There is 40% more open jobs right now than there was pre-pandemic and then ironically job seekers are still reluctant to come back and a lot of people hypothesize that it was fear of COVID, which is rationale. They had kids that were doing online learning. So they were trapped at home, providing sort of day care for their kids while they went to online school and there was a lot of stimulus monies, the federal stimulus plus the state stimulus was paying people as much for more than they were making. So there was very little incentive to go back to work. Well, now the kids are back in school, we got the vaccine and the stimulus is over and everyone is saying where is the job seekers, still have the Delta variant. And the other truth is that these job seekers score the way, very large next steps, so this on-ramp to sort of a normal job market could be more protracted than we had anticipated. However, we are definitely seeing the early signals of job seekers returning in larger numbers. So I'm hopeful that over the next six to 12 months, we will return to a normal more healthy job market.

Got it. And so, as that relates to the ZipRecruiter, in Q2, you had a record for quarterly paid employer growth around almost 170,000 in Q2, up for a 115,000 in Q1. What do you think drove the specifically for you and was it primarily new employers or those returning to the platform?

Well, we set records for both new employers and this is the part that just gets me so fired up, reactivating employers because there's no greater endorsements for what we've been doing and the hard work we've been putting in and seeing such a high number of companies that are coming back the next time that they have hiring needs, but certainly there are macroeconomic tailwinds in a post-pandemic world where employers are trying to hire. In addition to that, the difficulty with hiring right now is -- meaning that it's taking longer for employers to fill open jobs, which means more employers are simultaneously hiring, which creates even more competition inside the job market to those job seekers that are available. We do anticipate a return to a more normal marketplace over the next call it six to 12 months. It's just very difficult to predict the exact timing of that.

Got it. And you actually -- you also -- this was -- revenue per paid employer was actually down a bit. Can you clarify why that was and the dynamic there?

Certainly. Well, when you when you stack massive record numbers of new cohorts, which have huge quantities of customers in, those customers have simply just not been on the platform long enough to mature from a revenue standpoint to make contributions at the same levels as the previous cohorts. However, we see them performing similarly to all the cohorts from the past. There is not some novelty to them. So this is just a matter of time, but we have a lot of confidence in our ARPU prediction and that will continue to go up over-time.

Got it. That's helpful. Can you talk a little bit, I mean you've been to that point, now you've been attracting a lot of great employers, new ones, attracting more people to the platform, building a technology. It's really impressive what you've done and you've done it with scale, growth and profitability. It feels like that's something that you've been doing very consistently over-time, it's not must sort of a one-time thing now that we're in this really unprecedented time. Can you talk about a little bit about how you balance that and why you're uniquely able to make that happen?

Well, the great thing for us is that there is still so much headroom for growth and we've always been thoughtful operators is what I would say. We bootstrapped the business for the 4.5 years, took into north of $50 million in revenue with millions of free cash flow, before we ever took any venture capital money in. So I've always described us as scientists, not artists in the way that we approach this industry. I definitely think that there is significant tailwinds behind us right now. I anticipate continuing to grow top line as well as growing our adjusted EBITDA percentage margins over-time as well. I feel great about where the business is from a product standpoint and I believe that as awareness of the improvements we've made to the experience on both sides of the marketplace become more pervasive, that's going to create a snowball effect and it's going to make what I just said true.

Got it. And that's a one. Given the massive opportunity, I mean if you had to prioritize one of your top three growth levers right now, what would those be?

Well, certainly, we know we're in a marketplace business. So in a marketplace what is always going to be true is that the more participants you have on both sides of your marketplace, just, the better you can deliver satisfaction to both sides customers. So certainly maximizing the number of employers on our platform, plus maximizing the number of job seekers are our top two priorities at all times. Make no mistake, this is a category that is in the midst of significant disruption as a result of new technology. And so we are pressing the advantage we already have. We are hiring aggressively. We have an R&D center in Israel with almost 100 employees that are focused on building the greatest search and matching product that has ever been produced in our category. We're really thoughtful about what, how employers are hiring and what they're looking for in candidates. So that when we present candidates, we're showing the information employers want most to make it as simple and efficient as possible for these two sides to effectively get to a higher in the shortest period of time. So I think between growing the marketplace and really, really continuing to invest in that AI matching technology that's going to be what you're going to hear from me as a repetitive refrain for the next few years, because it's such a simple formula to take advantage of the significant runway we have in front of us.

Got it. And how do we think about international as part of strategy, if at all?

Well, we are acutely aware of the opportunity international represents. And if you look at countries around the world, there are a lot of them that have pretty much the same dynamics that we saw in the US 10 years ago, where there is a number of different job sites that people want to take advantage of in order to get sort of the full spectrum of candidates that are available at any given time. So that magic button approach of just press it once and turn the entire Internet into a job board, that's a viable strategy in a lot of different countries. But we're going to be so much better when we get there, because we're going to layer in that smart tech that keeps learning on top of it, so that the results aren't just going to be delivered by distribution, they're also going to be delivered by this modern matching algorithms. It's definitely on our roadmap. It's something that we're aware of. It's not going to be this year, but it is going to happen in the future.

Got it. That's helpful. Why don't we switch gears a little bit, to going public? And so you went public this year via direct listing in May. Why did you decide to go this route instead of a traditional IPO or the [indiscernible]?

I think ZipRecruiter was in a relatively unique and strong position for our company that was going public, in that we had more cash on hand than we had ever raised in primary capital. We had just had a year where we did $80 million in EBITDA. We believe that we are not just about a positive EBITDA company in the previous year, but that we would be this year and pretty much going forward. We believe we can expand those EBITDA margins. I mean we're just in a place where we felt we had a lot of strength and so we didn't need to add capital to the balance sheet at that point. But there were many other reasons to go public and so when we considered the variety of flavors and options that were out there, it definitely sounded like direct listing was the right choice for us. I say whenever anyone asked me was, do you still think it's the right choice? Ask me in two years. I think it's going to take time for -- I think we're the eighth direct listing that was ever done and so we will assess it through the lens of history and not at this current moment, but I am -- if you really press me, I would say, I'm delighted with the choice that we made. We're in a great place as a business. We're executing well and going public has delivered all of the value that we had anticipated that it would, and doing the direct listing definitely feels like the right choice right now.

Got it. And then in terms of -- and this goes back a little bit to the point of -- we're a little bit in unprecedented times and now that you're public company and you see probably a lot around data trends of what other employers are doing, but how do you think about ZipRecruiter's own strategy for back-to-work, remote, what is your strategy for the business?

We have the advantage of having data, not just on what our own employees want, but what on the industry broadly is saying about back to work. And by that I mean we do a lot of surveys and we audit a lot of other third-party surveys around sentiments from both employers and from job seekers. And what we've discovered is that this grand social experiment we all participated in over the last year and a half has turned out with a surprising result, which is that a lot of participants in the job market on both sides have decided that remote work is a viable solution, but possibly most importantly 50% or more of job seekers say they want to maintain either a hybrid work life or a fully remote work life and that is a massive, massive change in expectation from job seekers, relative to where we were two years ago. To put that in perspective, two years ago less than 2% of jobs were done remotely and now 50% of job seekers would like some or all of their job to be remote. That is a sea change that is going to have a massive impact on the job market. It's going to have an impact on the recruiting industry because the majority of the recruiting industry is built around geographic proximity to a specific location. So it could be like a city or it could be a state, but when you start telling recruiters that you need them to recruit nationwide for the best talent, operationally, they're not set up for it. And it's not as simple as just posting a job in the 50 major metros, because if you do that you're going to get 10,000 applicants, which is no good for either the applicant or for the employers. So it's going to take this modern algorithmic technology to surgically identify the best and right candidates across the country to really take advantage of it. But to land the plane and answer your question, what are we going to do at Zip? We're going to listen to what the talent wants, both the current talent and the talent we're recruiting, and we're going to make sure that we create a hybrid workspace so that anyone can find the style of work they want at ZipRecruiter. And we've had a positive response from our current employee base and we're seeing a really positive response from those that we are recruiting right now.

That's great. And thank you so much. I know we're coming up on time here. And so I wanted to open up to the rest of the audience for any questions for Ian at this time. Going once, going twice, quiet group today. Okay. Well, Ian, thank you so much for doing this. This is really helpful. This is great. Congratulations on all the success, on the successful direct listing, on the stock price today. We're thrilled to have you here and we look forward to continuing this year's success. Thank you.

Thanks, Liz.

Okay guys, thank you. Take care. Bye.