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

All right. I guess we're live. Good morning. I'm Josh Chan, I'm a business services analyst here at UBS. We're pleased today to have ZipRecruiter join us. They're an online marketplace that matches employers with job seekers. And with us from the company is Tim Yarbrough, CFO. We're going to do a fireside chat, so feel free to send in your questions, and I'll incorporate them as we go along. But with that, Tim, great to have you here.

Great to be here.

So I guess just to level set the audience here, could you start off by talking about ZipRecruiter and the background and some recent developments and then maybe we can jump from there.

Yes. Absolutely. So ZipRecruiter is a jobs marketplace. It's a 2-sided marketplace that focuses on bringing both job seekers and employers together, and we do that using technology. So we deploy a variety of algorithms to best match job seekers with the jobs that are the best fits for them. So the company was born out of the pain of posting jobs across multiple different platforms back in the day. And the co-founder said, surely, there's got to be a different way. So they imagined what would it be like if we had a button that we can just press and then instead of going to CareerBuilder and Monster and Craigslist, et cetera, et cetera, what if we can just post a job in one place and it shows up everywhere, and ZipRecruiter was born. So that was the Phase 1 of ZipRecruiter. Then we discovered that we created a nice little problem for all of our employers. So now that it's really easy to post jobs, they were being showered with applications for those jobs. So now if you're sitting on a pile of 150 different resumes to stare at. Well, that's a different kind of pain point. And so that began the next phase of ZipRecruiter, which is better matching. So shining a light on the job seekers, the candidates that are the best fit for those jobs. And so that's where the current era that we're in right now.

Sure Yes. Thanks for that overview. So you talked about the ability to match the job seekers with the employers. And so could you talk about what those capabilities are and how they might be different than other solutions that are kind of out there?

Yes. So the unfair advantage we have is that we have a set of proprietary data which is basically billions and billions of interactions between job seekers and employers that we've built up over the last 15 years that we've been in business. And so we do matching not based on just what a job seeker tells us about themselves, although we do use that information, but also what the job seeker does and also what the employer does. And by that, I mean, if a job seeker says that they're looking for a specific type of job through their search queries, say, but then they end up clicking on a bunch of different types of jobs, then we're learning all the time about what that job seeker actually wants, and we're able to transfer that information that we're gleaning from that job seeker to others that look like that job seeker as well. The same thing is true with the employer. So for example, if an employer has a job posted, and it's a New York-based company. And it doesn't say anything in the job description about it being a New York-based job, or even if it does, if they end up giving a sums up to a candidate, let's say, in the West Coast, we just learned something about that job. They're actually open to having somebody that's remote for that job. They didn't have to tell us that, we learned that. And by we, I mean the algorithms themselves. We're not teaching the algorithms anything. So we knew about remote work before any employer told us that it was the thing. So it's those types of applications of the billions of data points that we have that makes the magic.

That's really interesting, how it can kind of build upon itself. Could you talk about that capability and how your AI algorithms and machine learning has kind of improved over time? How do you measure that improvement internally?

Yes. So we're -- this is the long game for us. So instead of giant flashy technology drops of getting AI improvements that are going to be stairs at functions. This is more of an incremental approach that we take to it. So there are 2 broadly different ways that our technology gets smarter. One is about the type of data points that we collect and also the volume of data points that we collect. This is big data. This is a matching technology that requires lots and lots of data in order for it to work. This is why there's only a handful of this in the industry that can actually do it at scale and do it well. So -- and we'll talk about kind of scaling the job seeker side of the marketplace in a little bit. The other part is the algorithms or what we do with that data. And the wins there are measured in engagement. So for example, last quarter, we deployed an update to the way we send out e-mail alerts to job seekers and that one change resulted in a doubling of the number of job seekers that we were able to reach and also an increase of 120% of applications derived from those job seekers. So we got more job seekers engaged and more engagement from those job seekers. So when we deploy improvements like that, we're looking at engagement within our marketplace.

Sure. And what are some of the future improvements that you feel like can be made to the algorithm to further your matching capabilities?

There's a lot. So like those 2 buckets I just mentioned, we're working really hard at increasing the volume of participants in our marketplace, both on the job seeker side and the employer side. And then also our interface when you go to ziprecruiter.com, you're going to be greeted not with a search bar, but with Phil. Phil is our Siri/Alexa persona that helps job seekers along their journey. And Phil has an interesting way of eliciting information from job seekers at the very early stages of their path. . So everything from what kind of salary expectations do you have? Obviously, what kind of job are you looking for? Do you have a resume? If not, I can help you create one. And all of that turns into a robust job seeker profile with which we apply our algorithms and do better matching over time. So that's on the algorithm side. But then there's all kinds of interesting things that we're doing on the side. For example, when generative AI came out on the scene. Now we can help job seekers create more robust resumes because no job seeker likes creating a resume. And guess what? Employers do not like creating job descriptions either. So we can use newer technologies like that, embed that within our technology stack and then help both sides in the marketplace do their jobs better. We're ultimately in the business of removing friction from the hiring process.

That's great. Maybe jumping over to the competitive set. What do you see as your addressable market and what's the competitive set out there from your perspective?

Yes. It's a big market. In the U.S. alone, we're looking at roughly $300 billion of TAM, and that's the entire recruiting ecosystem within the U.S. Of that, we more directly play in the online portion of it, which is a surprisingly small but faster growing part of the TAM. So the online portion, we sized it around $15 billion or so. So a relatively small percentage of the overall pie. But again, and this is, I think, intuitive, faster growing than the overall pie. So within the online portion in -- well, off-line, you have a lot of the names that you know, obviously, the larger staffing firms, many of whom are customers of ours. Within the online portion, there's really a set of 3 of us, so LinkedIn, Indeed and ZipRecruiter and then a very long tail of other technology players. And we can get into what differentiates us in a second. But I think the thing that sets a few of us apart is, again, that technology advantage that we have that we're sitting on a large treasury trove of data. The approach though, that ZipRecruiter is taking is fundamentally different than everybody else in the field because rather than being a social network or being a verticalized search engine for jobs, we are trying to flip the entire job search process on its head, where employers are reaching out to job seekers. And also job seekers are being engaged by Phil, who is our kind of white glove recruiter professional for job seekers to drive better matching in a more personalized way versus, again, facing the job seeker with a search bar and having them do keyword searches and use filters and whatnot, we want to have this be a more magical matching experience.

Sure. And that's how you think that ZipRecruiter is different than the other online solutions that are out there in terms of their ability to bring people together?

Exactly, right. Yes, I think the difference is pretty evident if you just go to our home site. If you go to our web page or open our app, it's going to look and feel a lot different because it's going to be a much friendlier version of the job search. The job search, this is different for those of us in this room who probably get calls from recruiters. We can talk about how we're different than the off-line set in a second. But the masses do not have that kind of white glove experience. They don't have the joy of being told that they're qualified for a job by a person. So we are bringing that personalized touch to the masses.

Sure. Absolutely. So maybe on the off-line recruiters. So I guess they would argue that maybe like a human touch can help improve their experience or know the customers better. Obviously, you guys have a different position in thinking. So how do you position against that in terms of how do you compete?

I think there's always going to be a place for the off-line recruiting set. So the high-end executive recruiting types of roles that require a very specific outreach in touch, high-touch environment. I think that's always going to be there. So we're not interested in taking over those types of roles. That said, our jobs corpus looks very much like the U.S. economy. So we've actually had public company CTOs placed through ZipRecruiter. And so it's not the norm because most people are not public company CTOs, but we do have those types of roles. That said, I think there's a couple of things that the flesh and blood off-line recruiters do really well. One is that they provide a curated set of candidates to the employer and then another would be that they compel action. So -- and by that, I mean, if you're talking to the employer side, you're telling -- you're trying to convince them to make a move on the 5 candidates that you brought them. You're saying, hey, I scoured the world out there. This is the best you're going to do. You should hire one of these people. And then on the job seeker side, you're also trying to tell them quit shopping. This is a good gig for you. I've seen the market. So they're compelling action. Technology can do that very well, both of those things. So on the providing a curated set of candidates, that seems pretty clear. We have a bunch of -- we use technology to do that very thing. This is the second area that I referred to at the top of the hour. On the compelling action, this is -- we're getting into kind of social engineering that we're doing within our marketplace, but we can tell employers, hey, this is a hot candidate, like they've applied to a couple of different jobs and they're getting lots of thumbs up. So we see all of this within our marketplace. And we can tell job seekers. This is a brand-new job. So fresh jobs are usually pretty enticing the job seekers, you should go for it. We can also say that, hey, this job is getting a lot of interest, make sure you pay attention to this. So we can compel action within our marketplace as well. So of the handful of key drivers of off-line value, I think technology can provide a pretty compelling pitch to it. Now -- and then all of this is -- technology is obviously a lot more scalable than humans. So we talked about job seekers and how the vast majority of them will not have the magic of having a recruiter call and say, hey, you are great. We think you're going to be great for this role. We can do that for the masses. You can't do that in the off-line world because it just doesn't scale. And then on the employer side, some employers are willing to pay -- will always be willing to pay 20% to 35% of first year salary for that role being placed. We are a tiny fraction of that cost. And so as we prove ourselves over time, we think we'll be meaningfully able to eat into that part of the TAM.

That makes a lot of sense. So when you have the conversations with new prospects and trying to sell the ZipRecruiter solution, what -- how do those conversations typically work? What are the typical hurdles that you usually have to overcome?

The hurdles differ by the customer type. So we have, broadly speaking, two different sets of customers. We grew up serving SMBs primarily. And that conversation is a lot different than the larger enterprise. So they'll take each in turn. So SMBs typically a shorter close cycle where you're having just 1, 2, maybe 3 conversations with oftentimes a sole proprietor who is wearing multiple hats, and they are not put on this earth to hire people. They want to get back to their day job. So those conversations are much more tactical. I have these 3 roles in these locations what do you think I should do? I don't want to write a job description, how do I tweak it to make sure I get the most reach? I'm not getting the kind of traffic that I want to my job, what should I do? It's very tactical. And so we have a sales organization that will reach out to them and help them along their path. For larger enterprises, it's a much longer sales cycle. You're dealing with 3, 6, 9 months of selling into them. In these enterprises, they are buying on a performance basis. So if you look at our revenue line items, we divide between subscription-based revenue, which is roughly 80% of revenue and performance-based revenue, which is 20%. And it's the enterprises that are primarily in the 20% camp. So they have their own applicant tracking system, and they're buying from us on a per click basis. So they're buying traffic in essence. And oftentimes, they're not just buying from us. They're buying from our competitive set as well. And the -- our performance based on the cost per click that they're bidding and the traffic that we're generating, that determines how much we can pay. So it's broadly speaking, how the 2 different sets play together.

And maybe this is a good segue to how you price and how you monetize your services. Yes. Could you talk about the pricing structure, and I guess, is there a move in the industry from going from a price per click to maybe something more tailor like price per application or price per candidate even. And so what are your thoughts on what makes sense there?

Yes. We haven't been hearing that from our customers. So price per click has been the industry standard for quite some time. There has been some recent pushes by others to get into cost per application, but they've since moved away from that and refer -- resorted back to the price per click. So we haven't really seen that kind of push. I think in the long run, there's certainly opportunity to move monetization further down the hiring funnel. So going from click to application to even hire. So I think that probably can happen over time, but we're not there today. . Our pricing structure on the enterprise side, again, is on a performance basis, so we monetized primarily by the click. And the price per click that we garner is really a function of what's happening in the marketplace. It's an auction fundamentally. So it's supply and demand. If you're looking for a nurse oncologists in Anchorage, Alaska, guess what? You're going to have to pay more for that because there are fewer of them out there. If you're looking for an accountant in Chicago, there's going to be more of them. So the price per click will be lower. All this is intuitive. So it's fundamentally what the marketplace will support. On the SMB side, it's very different. So SMBs, they don't have their own applicant tracking system, like an ISMs or Taleo or Workday. So we provide them a lightweight applicant tracking system that we don't even call an ATS. We just call it dashboard. And they sign in, they post jobs and voila, lots of candidates show up and they get to rank them and rate them, and they don't even know what's going on in the backside. But fundamentally, it's the same thing that's happening. We are charging them, however, on a per job per day basis or on a monthly basis for a certain number of job slots. We have a couple of different flavors. And overall SMBs, in particular, really like the price certainty that we offer for those offerings.

Okay. And you recently launched a couple of new features ZipIntro and you updated your Resume Database. And so I guess, could these services lead to ultimately to incremental monetization opportunities? And how are you thinking about value capture for kind of additional services that you launched in the future?

Yes. So I'll give a quick intro on ZipIntro and Resume Database just to catch everybody out. So ZipIntro is essentially speed-dating for recruiting. So it's a pretty magical product where an employer can sit down, sign up with us post a job, and within 2 hours, start talking to people. This hasn't happened before. So you they can post a job and then on the back end, once they schedule their ZipIntro session. On the back end, we're sending out notifications to job seekers that match the description that they're going after and then invite them to queue up at a certain hour. And so when that time comes, they have aligned job seekers that are waiting to talk to them and they can have quick 5-minute conversations with a bunch of candidates for their job and move through as many as they want and they can make hires very, very quickly. So job seekers love it. So over 90% say that they would be more than happy to do a ZipIntro session again. And on average, employers get 3x the amount of quality candidates. So it's been widely successful. Right now, we don't charge for it explicitly. So it's included in the general service bundle that SMBs get. But that will change over time. I think we have a really long history of creating lots of value and then figure out how to -- figuring out how to extract value over time. And you can -- this is borne out in the fact that our revenue per paid employer number has trended up reliably over time over the last couple of years. It's been trending in a 14% compounded annual growth rate. So we create lots of value. And then over time, we figure out how to extract that value. So that's ZipIntro. Resume Database, that's an existing product that's been in market for a very long time. So there's -- and we had an existing Resume Database as well. What we did was fundamentally retooled it. So we introduced things like Semantic Search into it. So you can type in, for example, artist and if you're looking for an artist. In the old days, this is true for other search engines as well or other resume databases as well, you would get things like a subway sandwich artist, which is not actually what you're looking for. So Semantic Search allows employers to actually get more accurate results from what they're coming through. And so within seconds, they can sit down, find candidates, and then reach out to them and invite them to apply for jobs. So after deploying that, we saw the number of resume unlocks or profile unlocks, which is just the employer engaging with a profile and viewing more information jump 20% after we launched it. So it's one of these things where you can see it on a chart. You can see exactly when we launched the product. So we're really excited about those things. So we're going to roll that out to enterprises. We're monetizing it separately already for SMBs. And I think the reach is only going to grow. But that's another example of some extra value that we're creating that we'll monetize over time.

That's great to hear. You mentioned in the past that do you think job seeker traffic growth is going to lead to share gains over time. Could you elaborate on what's giving you conviction that, that's the way to grow market share? And how would you see this playing out on the platform?

Yes. That's just -- it's been a truism in our place for -- in our industry for a while. So if you look at the historical larger players like Monsters and CareerBuilder's and even some of the more modern players, I think the revenue growth has have been on the tail end of job seeker growth, which has been the case. And simply put, employers want to be where the job seekers are. . So this is why we've been really excited about the job seekers growth that we've been experiencing over the last 2 years or so. So at the -- from a site visit perspective, we're growing north of 20% on a year-over-year basis, and that's a good 13 percentage points faster than our competition. So we've been making a lot of great progress. And a lot of that is from organic search growing at a comfortable 20-plus percent rate over the last couple of years.

Maybe switching gears to the macro environment for a second here. Obviously, it's been a challenging last 2 years for the overall hiring market. You've guided to a continuation of this environment into the Q4. And so what are you seeing in terms of customer behavior? And how would you expect the market to progress over the next several months?

Yes. So we are in the midst of a historical decline in the hiring industry. So hiring, if you look at the Bureau of Labor Statistics, hiring rates have been declining pretty continuously for the last 2 years, a little bit over 2 years now. And we noticed this decrease starting in June of 2022. Called it out and sure enough, we've been on that kind of decrease ever since. This is in contrast if you zoom out a little bit historically. If you go back to COVID, we saw the world fall apart during COVID and then to everybody's great surprise, I think, recovered quite quickly. And then we were in a white-hot hiring market really up until that point of mid-2022. But again, since then, we've been on the decline. Over the next couple of months, I think we're still going to see plenty of the same. A lot of that's going to be factored into -- taking into account seasonality that we see within our space. So as we get into the holiday periods, SMBs, in particular, tend to not hire as much, whereas some enterprises that are focused on retail and transportation, they'll continue hiring throughout the end of the year. But I think the milieu we continue to find ourselves in is that of uncertainty. And so some of that might have cleared up with the election. Nobody -- when you talk to SMBs in particular, they're not going to cite the election as something that's causing them pause in terms of hiring, but I think that's got to be out there a little bit. We'll see if that has cleared anything up for them. But when you're on the tail end of this high interest rate environment, inflation, and a lot of uncertainty out there. When you're making a big decision like hiring, you're not going to hire into that uncertainty. So when we see some of that uncertainty be replaced with stabilization and certainty, then I think we'll see a rebound there.

Yes. What's going to be the real catalyst from here to cause people to hire more? Would it be the macro kind of headwinds lifting? Or how would you think about that?

I think it's primarily going to be macro headwinds lifting. There's kind of two parts to the hiring picture. One is job growth, which I think when there is more a sense of certainty and stabilization, like I mentioned before, then SMBs and enterprises are going to be more confident in making bigger hiring decisions. But also, I think we're going to get into this a little bit, but the great stay is a very real phenomenon. By that, we mean the fact that labor turnover has been at a near historical low. So excluding the pandemic era, hiring or rather job seekers leaving their jobs. So the quits rate according to the Bureau of Labor Statistics has been at the lowest point since 2015, excluding the pandemic era. And that alone contributes or accounts for roughly 95% of overall hiring. So huge driver of hiring in the U.S., and that's been low. So people are just basically staying in their current positions, which means that employers don't have to backfill.

So you basically need the voluntary turnover to accelerate for one reason or another.

Exactly. And this is -- this is the opposite of what we experienced during the height of the hiring boom, where you could trip on another job on your way to work and make another $25,000. So people were switching jobs at a much faster rate because we had a historically large distance between the number of jobs posted and the number of job seekers available, it's like 3:1 for a while, and that compressed over time. But when you have that disequilibrium within the marketplace, the job seekers have all of the control and all the power in the marketplace, everything is flipped on its head right now. Things are historically very tight.

Right. That makes sense. So when it comes to margins, you're leveling off at around mid-teens EBITDA this year. As you think about margins going forward, what are some of the factors that will cause margins to expand or compress into next year?

Yes. So when we look at next year and really beyond, we don't manage margins on a quarterly basis. So I don't walk over to our CMO and say, "Here's your marketing budget. Here's what you're allowed to spend." That's not how it works at all. Rather, they come to me and say, based on everything we're seeing, based on the ROIs that we're seeing, this is what we can profitably spend, and we go from there. And we can do that with high confidence because we have a lot of years under our belt knowing what kind of lifetime value is going to come on the other end of that marketing dollar spend. So we respond. We don't predict, we respond. So in a world where 2025 shapes up to be a very, very strong hiring year and America is back and we're all guns blazing, then we'll lean into that. And so that means that margins can very well come down, and we'll do that and make those trade-offs happily because we know that the revenue growth is going to be on the other end of that marketing investment. On the other hand, if things continue to be chilly or if we see some kind of dramatic drop off, we will respond in kind like we have over the last 2 years. We have a tremendous degree of control over our cost structure. And our sales and marketing bucket is very flexible, and that's intentionally so. So we can respond and weather storms as we have been in the past.

Okay. And as you get past this environment of uncertainty, what's the right incremental margins to think about as the business grows, perhaps a more sustainable kind of stable way?

Yes. So we've been very public about confidence around a 30% adjusted EBITDA margin profile for the business over the long term. And that's informed by other players in our industry, other international players as well. And we've been there before if we've had margins that high. We're in a position right now where we want to continue to lean into our product and technology investments that we're doing right now despite the fact that things have been a little cloudy from a macro perspective. So we don't want to take our eye off that ball. And we're able to moderate our sales and marketing spend, again, based on the demand. But yes, I think 30% we feel good about.

Okay. And on the flexibility of sales and marketing, why is there so much flexibility in that line? And what kind of constitute your spend there in terms of what does sales and marketing kind of...

Yes. So there's two buckets of spend in there. There's the media spend. So if you listen to podcasts, you're welcome. You've heard of us, we do a lot of advertising there, but we're multichannel in nature. So we do direct mail. We do TV. We do digital channels, podcasts on and on it goes. So we're wide open in terms of our marketing inflow. But it's strategically important for us to have a comparably small percentage of our marketing spend committed to future periods. So that means that we can be pretty dynamic. So if we see the environment being a little chilly. Like I said before, we can pull back, and we can make those decisions on a channel-by-channel basis. And the flip side is true as well. In Exhibit A, I would say, would be the early pandemic area. We actually saw that the market was rebounding quite a bit faster than anybody really expected. We saw that because one, the number of reactivations into our marketplace started picking up without us doing any extra marketing at all. So it's kind of us having a finger on the pulse on the demand side of the equation. But secondly, we were always in the market Elyse in a little bit. We saw some -- we felt some bites in the line. And so we're able to see that there are signs of life and invest in that very quickly. So it's important for us strategically to have a very small percentage of our capital committed in future periods, so we can maintain that flexibility. And then the other part of that spend is really our sales force. And we have an inside sales team that focuses primarily on SMBs, and we have a larger enterprise -- well, we have enterprise sales team that serves our larger customers, and they provide more of a white-glove experience. We can build that team up quickly because we use ZipRecruiter to hire. And we can also respond, and we have natural mechanisms in place where people don't hit their quotas, and they turn out of the business. So even that bucket is functionally variable as well.

Okay. Maybe one with the question on the incentives. So on the metrics, your annual plan kind of targets revenue growth exclusively. So could you talk about the rationale behind that? And at some point, in your growth trajectory, would it make sense to emphasize other metrics? Or would you feel like revenue is really the exclusive?

It certainly would, at some point, our growth. We're still very early stage, though. We've talked about how big the TAM is and how comparatively small we are. We really feel like we're just getting started here. And so for right now, having the team focused on revenue seems like the right incentive structure. All that said, you can look at the results on the bottom line. We have been profitable ever since we went public. And despite the decrease in revenue that we've experienced over the last 2 years have maintained a comfortable profitable -- comfortably profitable profile. So we have a good track record there of managing margin. However, of the 2 sides of the equation, revenue growth is still, I think, the right way to drive the team.

That's great to hear. With that, we're out of time. Tim, thanks for being here. Great to have you at the conference.

Yes, absolutely. Thanks.