424B4 1 ziprecruiter424b4.htm 424B4 Document

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-255488
86,598,896 Shares of Class A Common Stock
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This prospectus relates to the registration of the resale of up to 86,598,896 shares of our Class A common stock by the stockholders identified in this prospectus, or the registered stockholders. Unlike an initial public offering, the resale by the registered stockholders is not being underwritten by any investment bank. The registered stockholders may, or may not, elect to sell their shares of Class A common stock covered by this prospectus, as and to the extent they may determine. Sales of our Class A common stock, if any, will be made through brokerage transactions on the New York Stock Exchange at prevailing market prices. See the section titled “Plan of Distribution” for additional information. If the registered stockholders choose to sell their shares of Class A common stock, we will not receive any proceeds from the sale of such shares of Class A common stock.
We have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to twenty votes and is convertible at any time into one share of Class A common stock. As of March 31, 2021, the holders of our outstanding Class B common stock hold 100% of the voting power of our outstanding capital stock, with our directors, executive officers, and 5% stockholders, and their respective affiliates, holding approximately 85.4% of the voting power of our outstanding capital stock. Prior to any sales of shares of Class A common stock, the registered stockholders who hold Class B common stock must convert their shares of Class B common stock into shares of Class A common stock.
No public market for our Class A common stock currently exists. However, our shares of Class B common stock have a history of trading in private transactions. Based on information available to us, the sales price per share of Class B common stock for such private transactions during the year ended December 31, 2020 was $6.36 and during the period from January 1, 2021 through March 31, 2021 was $9.00. For more information, see the section titled “Sale Price History of our Capital Stock.” Our recent trading prices of Class B common stock in private transactions may have little or no relation to the opening public price or the subsequent trading price of our shares of Class A common stock on the New York Stock Exchange. Further, the listing of our Class A common stock on the New York Stock Exchange without underwriters is a novel method for commencing public trading in shares of our Class A common stock, and consequently, the trading volume and price of shares of our Class A common stock may be more volatile than if shares of our Class A common stock were initially listed in connection with an underwritten initial public offering.
We have been approved to list our Class A common stock on the New York Stock Exchange under the symbol “ZIP.” We expect our Class A common stock to begin trading on or about May 26, 2021.
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.
See the section titled “Risk Factors” beginning on page 23 to read about factors you should consider before buying shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 May 14, 2021



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TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission, or SEC. Neither we nor the registered stockholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor the registered stockholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The registered stockholders will offer to sell, and seek offers to buy, shares of their Class A common stock only in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since that date.
Through and including June 20, 2021 (the 25th day after the listing date of our Class A common stock), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.
For investors outside of the United States: Neither we nor any of the registered stockholders have done anything that would permit possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of Class A common stock by the registered stockholders and the distribution of this prospectus outside of the United States.
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ABOUT THIS PROSPECTUS
This prospectus is a part of a registration statement on Form S-1 that we filed with the SEC using a “shelf” registration or continuous offering process. Under this shelf process, the registered stockholders may, from time to time, sell the Class A common stock covered by this prospectus in the manner described in the section titled “Plan of Distribution.” Additionally, we may provide a prospectus supplement to add information to, or update or change information contained in, this prospectus, including the section titled “Plan of Distribution.” You may obtain this information without charge by following the instructions under the section titled “Where You Can Find Additional Information” appearing elsewhere in this prospectus. You should read this prospectus and any prospectus supplement before deciding to invest in our Class A common stock.
Except as otherwise indicated, all information in this prospectus assumes:
the amendment of our amended and restated certificate of incorporation on April 22, 2021 to redesignate our outstanding common stock as Class B common stock and create a new class of Class A common stock;
the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock, the conversion of which occurred upon the effectiveness of the registration statement of which this prospectus forms a part;
the conversion of our outstanding convertible promissory notes and interest due June 2023 into 3,073,594 shares of Class B common stock, the conversion of which will occur immediately following the first trading day of our Class A common stock on the New York Stock Exchange, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”) and conversion as of March 31, 2021;
the filing and effectiveness of our amended and restated certificate of incorporation and adoption of our amended and restated bylaws, each of which occurred in connection with the effectiveness of the registration statement of which this prospectus forms a part;
the vesting and settlement of 1,860,101 restricted stock units, or RSUs, into the same number of shares of Class B common stock, for which RSUs the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021; and
no exercise of outstanding options or settlement of additional outstanding RSUs after March 31, 2021.
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GLOSSARY OF TERMS USED IN THIS PROSPECTUS
Throughout this prospectus, we use a number of key terms and provide a number of key operating metrics used by management. These key operating metrics are discussed in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Our Business Model—Key Operating Metrics and Non-GAAP Financial Measures.” We define these terms as follows:
Active Job Seeker” means a job seeker who, within a specified period, takes one or more of the following actions: (1) makes at least one visit to a ZipRecruiter-hosted site, (2) launches a ZipRecruiter job seeker mobile application, or (3) opens a ZipRecruiter-hosted engagement email. For purposes of counting Active Job Seekers, we count only unique users who are registered with ZipRecruiter as job seekers and who have previously visited a ZipRecruiter-hosted site at least once. Activity by users not registered with ZipRecruiter, registered users who are logged out of their job seeker account, or users who have opened an email alert generated by sign-ups with a ZipRecruiter partner will not contribute toward the Active Job Seeker metric.
ATS” means applicant tracking system, which refers to the software platform in which hiring teams can review, rate and ultimately decide which candidate to hire.
Average Number of Days Job Stays Posted” means the aggregate number of days jobs have been posted by employers in our marketplace divided by the number of jobs posted during a particular period, excluding jobs having a duration of greater than 90 days to eliminate “ever-green” jobs that remain open to source multiple job candidates.
Cohort” means Paid Employers acquired during a particular year.
Employer Acquisition Expense” means our marketing media expenses incurred for advertising directed toward employers, plus salary, bonus and commission expenses for our customer acquisition sales and marketing teams.
Great Match” means a designation assigned by ZipRecruiter’s technology to either a job seeker or a job to indicate a high potential fit between a job seeker and a job.
Job Acquisition Partners” means third-party sites and ATSs who have a relationship with us and from whom we receive jobs for our marketplace.
Job Distribution Partners” means third-party sites who have a relationship with us and advertise jobs from our marketplace, and includes job boards, newspaper classifieds, search engines, social networks, talent communities and resume services.
Paid Employer(s)” means any employer(s) (or entities acting on behalf of an employer) on a paying subscription plan or performance marketing campaign for at least one day. Paid Employer(s) excludes employers from our Job Distribution Partners or other indirect channels, employers who are not actively searching for candidates, but otherwise have access to previously posted jobs, and employers on free trial.
Payback Period” means the number of months, beginning in January of the Cohort’s initial calendar year, required to generate enough cumulative revenue to recover the Employer Acquisition Expense incurred in the Cohort’s initial calendar year.
Quarterly Paid Employers” means, with respect to any fiscal quarter, the count of Paid Employers during such fiscal quarter.
Revenue per Paid Employer” means the total Company revenue in a particular period divided by the count of Paid Employers in the same period.
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Thumbs Up Rate” means the percentage of all Great Match applicants receiving a rating who received “thumbs up,” or a positive rating, by a Paid Employer.
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PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should carefully read this prospectus in its entirety before investing in our Class A common stock, including the sections titled “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the accompanying notes, provided elsewhere in this prospectus. Some of the statements in this prospectus constitute forward-looking statements. See the section titled “Special Note Regarding Forward-Looking Statements.” Unless the context otherwise requires, the terms “ZipRecruiter,” “the company,” “we,” “us,” and “our” in this prospectus refer to ZipRecruiter, Inc. and our consolidated subsidiaries. Our fiscal year ends December 31.
ZIPRECRUITER, INC.
Before we begin, we first want to recognize the impact of the COVID-19 pandemic. The toll on the health, safety, economic security and emotional well-being of the global community is ongoing and will take years to fully appreciate. Amidst all the stories of the true heroes who have helped manage through the pandemic and those who will bring the pandemic to its end, we feel incredibly grateful and fortunate to tell our story, about a growing business doing our part to help power the economic recovery to come.
Businesses and people need to get back to work after the pandemic. We are committed to helping in that great and noble effort.
Overview
Our Mission. To actively connect people to their next great opportunity.
The Problem. Twenty years after moving online, the job market remains painfully inefficient. Job seekers are required to navigate on their own in order to find the right jobs to apply to, usually across multiple sites, and without effective tools for monitoring new opportunities. Employers in turn are overwhelmed by the complexity of modern recruiting given the abundance of job boards, search engines, and social networks to source talent from. Neither side is an expert at their role. Neither side enjoys the process.
Our Business. We founded ZipRecruiter to simplify the job market for both job seekers and employers. Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employers. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs.
Creating Value for Job Seekers. For job seekers across all industries and levels of seniority, we operate like a dedicated recruiter. That means presenting strong fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their applications. This makes job seekers feel supported while searching for work. That’s why ZipRecruiter has been the #1 rated job seeker app on iOS and Android for the past four years.1
Creating Value for Employers. For employers, we focus on building technology to rapidly deliver quality candidates to companies of all sizes and across all industries. Our algorithms alert the best job seekers in our marketplace when a job goes live. Employers posting jobs often get their first quality candidate before they can get up from their chair. 80% of employers posting in our marketplace receive a
1 Based on ratings information for the Google Play Store and Apple App Store from the AppFollow platform during the period of March 2017 to March 2021 for the job seeker apps of ZipRecruiter, CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, and Monster.
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quality candidate within the first 24 hours. That’s why ZipRecruiter is the #1 rated employment marketplace by G22.
Unique Data and Artificial Intelligence Provide Better Outcomes for Employers and Job Seekers. With a relevant data pipeline created from billions of interactions between job seekers and employers, we are uniquely positioned to harness that data to fuel the advanced artificial intelligence behind our matching, recommendation and marketplace optimization capabilities. Through our deep learning-based natural language processing, we understand job seekers’ and employers’ nuanced needs. We model and analyze clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in our marketplace. Our advanced technology stack processes the data generated by our highly engaged user base to continuously improve our matchmaking. Our climbing satisfaction metrics on both sides of our marketplace over the past few years give us confidence that these technology investments are yielding results for employers and job seekers alike.
Accelerating Network Effects. Increasing the number of jobs in our marketplace attracts more job seekers. A greater number of job seekers attracts more employers who in turn post more job opportunities in our marketplace. These natural, self-perpetuating network effects increase our data and thereby accelerate the rate at which our matching technology gets smarter over time.
Compelling Financial Results. The combination of the scale on both sides of our marketplace, our efficient go-to-market strategy, and intelligent use of technology has resulted in compelling financial results. For the year ended December 31, 2019, our revenue was $429.6 million and we generated a net loss of $6.3 million and Adjusted EBITDA of $9.4 million. For the year ended December 31, 2020, our revenue was $418.1 million and we generated a net income of $86.0 million and Adjusted EBITDA of $80.1 million. For the three months ended March 31, 2020, our revenue was $113.3 million and we generated a net loss of $11.1 million and Adjusted EBITDA of $(6.4) million. For the three months ended March 31, 2021, our revenue was $125.4 million and we generated a net income of $13.4 million and Adjusted EBITDA of $20.0 million. Adjusted EBITDA is a financial measure not presented in accordance with generally accepted accounting principles, or 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 “Summary Consolidated Financial and Operating Data.”
2 Based on G2 satisfaction ratings as set forth in G2, Best Job Boards Software, https://www.g2.com/categories/job-boards?utf8=%E2%9C%93&order=top_shelf (last visited January 25, 2021).
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What We Do
We enable work by connecting job seekers and employers in our marketplace. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs.
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How We Work for Employers
ZipRecruiter is focused on meaningfully reducing the time associated with making a new hire. Our technology delivers high-quality matches immediately after a job goes live and provides tools to streamline the vetting process.
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Quality Candidates Fast
Job distribution. Jobs posted with ZipRecruiter are distributed to well over 1,000 sites managed by our Job Distribution Partners. The diversity and depth of our partner network enables employers to reach an especially broad job seeker audience.
Instant alerts to qualified potential candidates. When employers post a job, ZipRecruiter’s matching technology identifies and sends an alert to the best job seekers in our marketplace.
Direct recruitment messages from the employer. Immediately after a job is posted, ZipRecruiter’s matching technology presents the employer with a list of potential Great Match candidates in the market. The employer can then, with a single click, personally invite the most qualified potential candidates to apply.
Matching that learns. When an employer gives an applicant a “thumbs up” rating, our technology searches for other job seekers with similar profiles to that candidate and proactively encourages them to apply.
Access to an expansive database of job seekers. We provide employers with access to 14 million monthly Active Job Seekers with broad skill sets and a range of experiences.
Efficient Candidate Vetting
All the applicants in one place. For employers who do not already have an established process to manage hiring, job applicants from all these different sites are captured inside the ZipRecruiter ATS.
Great Match filtering. Our technology filters for applicants identified as a Great Match to help hiring managers avoid missing high-quality candidates.
In-demand candidate alerts. We apply an “Act Fast!” label to notify employers when their candidates have received interest from other employers, encouraging them to reach out quickly. In a tight, competitive market for top-quality talent, these notifications prompt hiring managers to move quickly to avoid losing out on a potentially great hire.
Flexible Pricing
Flexible pricing based on customer needs. We provide a variety of pricing plans to best suit an employer’s specific needs, including flat rate pricing on terms ranging from a day to a year, as well as performance-based pricing for employers that run sophisticated recruitment marketing campaigns.
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How We Work for Job Seekers
We make finding work easier.
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Process Efficiency
Search millions of jobs in one place. ZipRecruiter provides job seekers with access to millions of jobs from all over the internet.
Simple, one-click applications. On ZipRecruiter, job seekers create a profile and can then apply for opportunities with a single click. Our one-click application works across both our marketplace and our Job Distribution Partners to remove barriers between a job seeker and their next opportunity.
Job application tracking. Job seekers apply to numerous opportunities throughout the course of their search. Our simple, user-friendly dashboard aggregates their application history so job seekers can track opportunities.
Personalized Recruiter Assistance
Pitched to employers as a potential candidate. After a new job is posted, ZipRecruiter’s matching technology immediately presents potential Great Match job seekers to the employer for consideration. Employers can then directly invite the job seekers they like best to apply.
“Phil,” your personal (automated) recruiter. Our automated recruiter “Phil” curates and presents individual opportunities to job seekers for which they are a Great Match. Phil engages in a human-feeling, positive, personalized dialogue with candidates, inviting them to apply for new open positions.
Job alerts. ZipRecruiter delivers a digest of relevant new opportunities from across the web on a daily basis to job seekers, enabling them to monitor the full breadth of our marketplace offerings.
Match scoring. Match scores highlight best-fit opportunities for job seekers. This allows job seekers to see how well their skills match with available jobs so they can focus their energy on the right opportunities.
Application updates. Our technology notifies job seekers when an employer either views their application or gives them a “thumbs up” rating. This addresses the #1 complaint we hear from job seekers: applying to a job and then hearing nothing back.
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The Future of Work is at an Inflection Point
Today, more than 20% of working Americans, or over 40 million individuals, change jobs every year.3 Additionally, more than half of those currently working employees are either actively searching for new jobs or passively exploring new career opportunities.4
Employees are changing jobs faster. Median tenure of Millennials at a single organization is now only 2.8 years, down from a median of 10 years for the Baby Boomer generation of employees.5 Recruiting is becoming an “always on” reality for an increasing percentage of businesses. Over 75% of employers report using an online job board in 2020.6
We anticipate these trends will continue for the foreseeable future, with tens of millions of job seekers continuing to seek out tens of millions of new jobs each year. As has been the case since our founding in 2010, we believe we will continue to grow the share of that job seeking activity that we enable. But more recent developments, especially those driven by the global pandemic, are also introducing new disruptive forces into the traditional work paradigm.
COVID-19 dramatically suppressed the job market and put an end to a 10-year run of job growth.7 Multiple high volume hiring categories like hospitality, tourism, and live events have gone dormant. Further, in spite of there having been over 20 million people unemployed or under-employed due to the pandemic, according to our internal data, job seekers are currently searching for work in our marketplace at 20% below pre-pandemic levels.
We believe distribution of vaccines for COVID-19 will drive a broad-based and extended recovery in the hiring market on both sides of our marketplace. We further believe that the future of work, and by extension recruiting, has been irreversibly changed.
The percentage of workers around the world that permanently work from home is expected to double in 2021 as employers and workers alike have realized productivity increases during the COVID-19 pandemic.8 Removing a geographic constraint from the definition of a qualified applicant will be a significant change for those executing talent searches. For most new work from home jobs, the qualified candidate pool will increase by orders of magnitude. Trying to select from the hundreds, or even thousands, of candidates resulting from a nationwide job posting would be painfully inefficient for employers.
We believe this dramatic increase in available quality applicants per job opening will tilt employers towards tools with the ability to identify and selectively recruit talent from across the nation. Our advanced matching and existing process tools for employers are well suited to meet the challenges of this dynamic new opportunity.
We believe that the confluence of all the trends above will provide a significant tailwind for our faster, smarter marketplace.
Opportunities to Meet the Challenges Employers Face
Companies have been searching for candidates on the internet for decades, but unlike the vast majority of other internet-enabled services, such as shopping, entertainment, or booking travel, the task of
3 U.S. Bureau of Labor Statistics, Employee Tenure Summary - Employee Tenure in 2020, September 22, 2020 (20% - 24% of Americans change jobs every year). Referred to hereinafter as the U.S. BOL Employee Tenure Summary.
4 Gallup Inc., State of the American Workplace, 2017.
5 U.S. BOL Employee Tenure Summary.
6 ZipRecruiter Brand Awareness Survey, 2020. Referred to hereinafter as the Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
7 U.S. Bureau of Labor Statistics, Total Nonfarm Employment, Seasonally Adjusted.
8 Thomson Reuters Corporation, Permanently remote workers seen doubling in 2021 due to pandemic productivity: survey, October 2020.
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finding the right candidate remains complicated. Employers face a series of challenges that make the process of selecting the best candidate frustrating and inefficient.
Access to all job seekers. Employers want to feel confident they have reached a critical mass of potential candidates.
Surfacing highly qualified applicants. Choosing the right candidate to hire starts with evaluating all applicants to assess if they are a potential Great Match for the role.
Quickly engaging potential Great Match candidates. The best candidates are in high demand and engaging those candidates before the window of opportunity closes is critical.
Opportunities to Meet the Challenges Job Seekers Face
If there is a job seeker out there who loves the traditional job search process, we have not found them yet. Searching for a job is hard and time consuming. We believe technology designed for job seekers can uncover more great opportunities with less effort and rejection.
Access to all jobs. Job seekers often need to search broadly to find the right position, replicating the same search across multiple sites to find the opportunities for which they are a good fit.
Surfacing those jobs that could be a Great Match. Amidst the millions of jobs that are searchable, finding those that fit best is cumbersome.
Providing feedback on where a job application stands. Most job seekers who apply to a job never hear anything back from the employer.
Our Strengths
Transforming how people find work requires a combination of world-class skills. Our core competitive advantages that have been critical to our success include:
Large and unique set of jobs. With over 90 million job postings available for matching in 2020 alone,9 technology brings both jobs listed directly in our marketplace as well as those from our Job Acquisition Partners together. ZipRecruiter was the canonical source for millions of these jobs, which means a job seeker’s search is incomplete unless they access our marketplace.
Engaged job seeker community. Over 36 million Active Job Seekers engaged in the ZipRecruiter marketplace in 2020. Those job seekers come to us directly and through our network of well over 1,000 sites managed by our Job Distribution Partners.
Powerful artificial intelligence powered technology. Our technology captures insights from billions of user interactions facilitated by our marketplace, driving meaningful increases in the quality of matches we can enable over time.
Designed for simplicity and speed. We thrive on taking unnecessarily complex processes and simplifying them. This product design philosophy permeates our entire company. We focus on continually making ZipRecruiter faster and simpler for employers and job seekers to use.
Metrics-driven culture. We are a metrics and data-driven company. We are disciplined about setting quantitative operating goals and then finding innovative ways to achieve those goals.
Powerful network effects. The scale of matching activity in our marketplace provides us with a unique and growing data set consisting of billions of signals which help drive superior matching.
9 According to internal data tracking the number of unique job postings, based on hiring company, job title, and location, available on our marketplace during 2020.
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More jobs, more job seekers and better matching technology over time create more high-velocity hiring activity in our marketplace, fueling a self-perpetuating cycle of network effects.
Our brand. Since our founding, we have invested over $600 million in building the ZipRecruiter brand. We are proud that our investment in our brand has led to 82% aided brand awareness among U.S. employers.10
Our Growth Strategy
Our strategy is to use technology to consistently grow our marketplace in three key areas: more jobs, more job seekers and better matching. These three growth vectors will both directly grow our business and also strengthen the network effects that serve as a competitive advantage. Several specific growth initiatives fit well into our overall strategy:
Increasing the number of employers in our marketplace. We believe the marketplace we have built serves employers of all sizes, regions and industries. We see an opportunity to continue to meaningfully grow our employer footprint, from small businesses to large global enterprises.
Increasing the number of job seekers in our marketplace. We believe we can continue to drive a greater volume of Active Job Seekers to our marketplace as well as innovate ways to engage job seekers that are more passively open to evaluating new opportunities.
Strengthening our artificial intelligence powered technology. Our artificial intelligence and matching algorithms continually improve as we ingest incremental data. The signals across our marketplace train our recommendations, increasing utility for both job seekers and employers. Despite our progress, we believe there remains a significant opportunity to continue to further improve our matching with ongoing investment in technology and an increase in the number and quality of data signals we collect over time.
Continuing to optimize performance-based pricing. Employers’ willingness to pay for recruitment varies by company and by each job opening. We believe we have multiple pricing optimization opportunities that will provide more flexibility to employers of different sizes.
Expanding our global footprint. We believe our strengths as a company, especially our purpose-built technology for bringing job seekers and employers together, can be leveraged in additional markets as we continue to expand our geographic footprint. Many of our over 1,000 Job Distribution Partners already operate in other markets which will accelerate our ability to expand internationally.
Building an enduring brand. We plan to increase our brand investment to ensure ZipRecruiter further develops as a category-defining, enduring brand for employers and job seekers alike.
CEO Letter Agreement
In April 2021, we entered into a letter agreement with Ian Siegel, our chief executive officer, which provides that, upon the earliest to occur of (1) (a) the first trading day following our initial public offering or direct listing pursuant to an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, or (b) the consummation of a merger, acquisition or other business combination involving us and a publicly traded special purpose acquisition company, that results in us or our business becoming a publicly traded company or (2) a Change of Control, as defined in the 2014 Plan, Mr. Siegel will be entitled to a special cash bonus in an amount equal to $10.0 million, provided that Mr. Siegel is employed by us at the time of either event.
10 Brand Awareness Survey. For more information about the Brand Awareness Survey, see the section titled “Market and Industry Data.”
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Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks include:
We face intense competition and could lose market share to our competitors, which could adversely affect our business, operating results, and financial condition.
COVID-19 has caused significant uncertainty and disruption in our business operations. The ongoing effects of the COVID-19 pandemic continue to be unpredictable, and may have an adverse effect on our business, results of operations, and financial condition.
Our business is significantly affected by fluctuations in general economic conditions, which have been adversely affected by the COVID-19 pandemic. There is risk that any economic recovery may be short-lived and uneven, and may not result in increased demand for our services.
Our marketplace functions on software that is highly technical and complex, and if it fails to perform properly, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.
Our future success depends in part on employers purchasing and renewing subscriptions and performance-based services from us. Any decline in our user renewals or performance-based services could harm our future operating results.
We have experienced growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we cannot manage our growth effectively, our business, operating results, and financial condition could be adversely affected.
Significant segments of the market for job advertisements services may have hiring needs and service preferences that are subject to greater volatility than the overall economy.
Our efforts and ability to sell to a broad mix of businesses could adversely affect our operating results in a given period.
Our business depends largely on our ability to attract and retain talented employees, including senior management and key personnel. If we lose the services of Ian Siegel, our Chief Executive Officer, or other members of our senior management team, we may not be able to execute on our business strategy.
If internet search engines’ methodologies or other channels that we use to direct traffic to our website are modified to our disadvantage, or our search result page rankings decline for other reasons, our user growth could decline.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business, which makes our future results difficult to predict.
Our success depends on our ability to maintain the value and reputation of the ZipRecruiter brand.
An active, liquid, and orderly market for our Class A common stock may not develop or be sustained. You may be unable to sell your shares of Class A common stock at or above the price at which you purchased them.
The trading price of our Class A common stock, upon listing on the New York Stock Exchange, may have little or no relationship to the historical sales prices of our capital stock in private transactions, and such private transactions have been limited.
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None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.
Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.
The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to our listing, including our directors, executive officers, and 5% stockholders who will hold in the aggregate 85.4% of the voting power of our capital stock following the registration and listing of our Class A common stock on the New York Stock Exchange, which will limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
The registration and listing of our Class A common stock differs significantly from an underwritten initial public offering.
Corporate Information
We were incorporated in 2010 as ZipRecruiter, Inc., a Delaware corporation. In March 2020, in response to the global COVID-19 pandemic, a vast majority of our employees began to work remotely rather than on-site. Our principal executive offices are located at 604 Arizona Avenue, Santa Monica, California 90401, and our telephone number is (877) 252-1062. Our website address is www.ziprecruiter.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this prospectus. Investors should not rely on any such information in deciding whether to purchase our Class A common stock.
ZipRecruiter, the ZipRecruiter logo, and other registered or common law trade names, trademarks, or service marks of ZipRecruiter appearing in this prospectus are the property of ZipRecruiter. This prospectus contains additional trade names, trademarks, and service marks of other companies that are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.
Channels for Disclosure of Information
Following the effectiveness of the registration statement of which this prospectus forms a part, we intend to announce material information to the public through filings with the SEC, the investor relations page on our website (www.ziprecruiter.com), press releases, public conference calls, public webcasts, our Twitter feed (@ZipRecruiter), our Facebook page, and our LinkedIn page.
The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels.
Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company,
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we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include, but are not limited to:
being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
an exemption from the requirement that critical audit matters be discussed in our independent auditor’s reports on our audited financial statements or any other requirements that may be adopted by the Public Company Accounting Oversight Board unless the SEC determines that the application of such requirements to emerging growth companies is in the public interest;
reduced disclosure obligations about our executive compensation arrangements;
exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements; and
extended transition periods for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (4) the last day of the fiscal year ending December 31, 2026.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. Further, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies that have adopted the new or revised accounting standards. It is possible that some investors will find our Class A common stock less attractive as a result, which may result in a less active trading market for our Class A common stock and higher volatility in the stock price of our Class A common stock.
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables summarize our consolidated financial and operating data. The summary consolidated statements of operations data for the years ended December 31, 2019 and 2020 and the summary consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and summary consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial statements on the same basis as the audited financial statements, which include, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for the fair statement of the interim condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.
You should read the following summary consolidated financial and operating data together with the sections titled “Selected Consolidated Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The summary consolidated financial and operating data in this section are not intended to replace our consolidated financial statements and the related notes and are qualified in their entirety by our consolidated financial statements and the related notes included elsewhere in this prospectus.
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Consolidated Statements of Operations Data:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands, except per share data)
Revenue$429,559 $418,142 $113,292 $125,372 
Cost of revenue(1)
54,778 54,163 14,472 15,961 
Gross profit374,781 363,979 98,820 109,411 
Operating expenses:
Sales and marketing(1)
276,197 191,141 78,880 63,476 
Research and development(1)
65,410 69,408 19,226 17,015 
General and administrative(1)
39,492 38,998 11,488 12,454 
Total operating expenses381,099 299,547 109,594 92,945 
Income (loss) from operations(6,318)64,432 (10,774)16,466 
Other income (expense):
Interest expense(575)(1,037)(279)(209)
Sublease income1,170 1,051 282 292 
Other income (expense), net(38)(109)(144)94 
Total other income (expense), net557 (95)(141)177 
Income (loss) before income taxes(5,761)64,337 (10,915)16,643 
Income tax expense (benefit)588 (21,711)167 3,245 
Net income (loss)(6,349)86,048 (11,082)13,398 
Less: Accretion of redeemable convertible preferred stock(3,722)(3,883)(955)(997)
Less: Undistributed earnings attributable to participating securities— (19,148)— (2,913)
Net income (loss) attributable to common stockholders$(10,071)$63,017 $(12,037)$9,488 
Net income (loss) per share(2)
Basic$(0.13)$0.79 $(0.15)$0.12 
Diluted$(0.13)$0.70 $(0.15)$0.10 
Weighted-average shares used in computing net income (loss) per share(2)
Basic79,337 79,651 79,423 78,834 
Diluted79,337 94,156 79,423 98,435 
Pro forma net income per share (unaudited)(2)
Basic$0.23 $0.03 
Diluted$0.21 $0.03 
Weighted-average shares used in computing pro forma net income per share (unaudited)(2)
Basic106,085 107,590 
Diluted118,591 123,364 
Other Financial Information:
Adjusted EBITDA (3)
$9,366 $80,133 $(6,382)$19,994 
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________________
(1)Includes stock-based compensation expense as follows:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands)
Cost of revenue$119 $73 $24 $16 
Sales and marketing1,031 704 306 99 
Research and development3,159 3,050 861 825 
General and administrative2,431 1,925 767 286 
Total stock-based compensation$6,740 $5,752 $1,958 $1,226 
(2)See Note 3 in our audited consolidated financial statements and Note 2 in our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net income (loss) per share, pro forma net income per share, and the weighted-average number of shares used in the computation of the per share amounts.
(3)Adjusted EBITDA is not a measure of our financial performance under GAAP and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other measures derived in accordance with GAAP. For a definition of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see "Non-GAAP Financial Measures."
Selected Consolidated Balance Sheet Data:
As of December 31,As of March 31,
2019202020212021
ActualActualActual
Pro Forma(1)
(in thousands)
Cash$35,529 $114,539 135,065 $103,432 
Working capital (deficit)(2)
(5,518)73,309 92,255 60,622 
Total assets117,724 212,129 237,808 206,175 
Long-term borrowing10,000 — — — 
Convertible notes and accrued interest with related parties— 25,371 25,545 — 
Total liabilities107,062 125,569 133,350 107,805 
Redeemable convertible preferred stock132,973 136,856 137,853 — 
Total stockholders' equity (deficit)$(122,311)$(50,296)(33,395)$98,370 
______________
(1)The pro forma column reflects (a) the redesignation of 80,002,658 shares of our outstanding common stock into 80,002,658 shares of Class B common stock outstanding as of March 31, 2021 as if such redesignation occurred on March 31, 2021, (b) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock as if such conversion occurred on March 31, 2021, (c) the conversion of the principal amount of the convertible notes and accrued interest thereon with related parties outstanding as of March 31, 2021 into 3,073,594 shares of Class B common stock at a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”) as if such conversion occurred on March 31, 2021; provided that to the extent that the volume-weighted average price on the first day of trading following our Direct Listing is less than $11.05 per share, then the convertible notes and contractual accrued interest will convert at 75% of the volume weighted average price, which would result in the issuance of additional shares of Class B common stock upon conversion, (d) vesting and settlement of 1,860,101 RSUs, into the same number of shares of Class B common stock, for which the service-based vesting condition was satisfied as of March 31, 2021 and for which RSUs our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, (e) stock-based compensation expense of $46.6 million associated with RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, based on the estimated fair value of the RSUs on the date that the liquidity event-based event condition was waived and which stock-based compensation expense is reflected as an increase to additional paid-in capital and accumulated deficit, (f) a cash payment of $10.0 million to Ian Siegel, our chief executive officer, as further described in the section titled “Executive Compensation—CEO Letter Agreement” which is reflected as a reduction in cash, working capital and total assets and a corresponding increase to stockholders’ deficit and (g)
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approximately $21.6 million in transaction expenses related to the listing of our Class A Common Stock on the New York Stock Exchange.
(2)Working capital (deficit) is defined as current assets less current liabilities. See our consolidated financial statements and the accompanying notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
Key Operating Metrics
Three Months Ended
December 31,
Three Months Ended
March 31,
2019202020202021
Quarterly Paid Employers(1)
102,541 89,636 98,456 114,705 
Revenue per Paid Employer(1)
$1,098 $1,276 $1,151 $1,093 
____________
(1)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics and Non-GAAP Financial Measures” included elsewhere in this prospectus for definitions of these metrics.
Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, net income (loss), income (loss) from operations, and other results under GAAP, we use Adjusted EBITDA and Adjusted EBITDA margin to evaluate our business. We have included these non-GAAP financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
We define Adjusted EBITDA as our net income (loss) before total other income (expense), net, income tax expense (benefit) and depreciation and amortization, adjusted to eliminate stock-based compensation expense. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of 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.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands, except percentages)
GAAP net income (loss)$(6,349)$86,048 $(11,082)$13,398 
Stock-based compensation6,740 5,752 1,958 1,226 
Depreciation and amortization8,944 9,949 2,434 2,302 
Total other (income) expense, net(557)95 141 (177)
Income tax expense (benefit)588 (21,711)167 3,245 
Adjusted EBITDA$9,366 $80,133 $(6,382)$19,994 
Adjusted EBITDA margin%19 %(6)%16 %
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks occur, our business, financial condition, operating results, and future prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose part or all of your investment.
Risk Related to Our Business
Operational Risks
We face intense competition and could lose market share to our competitors, which could adversely affect our business, operating results, and financial condition.
We face intense competition from many well-established online job sites such as CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn and Monster and may face additional competition from newer entrants such as Google or Facebook. Many of our existing and potential competitors are considerably larger or more established than we are and have larger work forces and more substantial marketing and financial resources. Price competition for job marketplaces such as ours is likely to remain high, which could limit our ability to maintain or increase our market share, revenue and/or profitability.
Many of our larger competitors have long-standing relationships or access to employers, including our Paid Employers, as well as those whom we may wish to pursue. Some employers may be hesitant to use a new platform and prefer to upgrade products offered by these incumbent platforms for reasons that include price, quality, sophistication, familiarity, and global presence. These platforms could offer competing products on a standalone basis at a low price or bundled as part of a larger product sale.
Many of our competitors are able to devote greater resources to the development, promotion, sale, and support of their products and services. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. Our competitors may also establish cooperative relationships among themselves or with third parties to enhance their product offerings or resources. If our competitors’ products, platforms, services or technologies maintain or achieve greater market acceptance than ours, if they are successful in bringing their products or services to market earlier than ours, or if their products, platforms or services are more technologically capable than ours, then our revenue could be adversely affected. Also, some of our competitors may offer their products and services at a lower price. If we cannot optimize pricing, our operating results may be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.
The number of employers distributing their job posting service purchases among a broader group of competitors may increase which may make it more difficult to retain or maintain our current share of business with existing Paid Employers. We also face the risk that employers may decide to provide similar services internally or reduce or redirect their efforts to recruit job seekers through online job advertisements. As a result, there can be no assurance that we will not encounter increased competition in the future.
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COVID-19 has caused significant uncertainty and disruption in our business operations. The ongoing effects of the COVID-19 pandemic continue to be unpredictable, and may have an adverse effect on our business, results of operations, and financial condition.
COVID-19 has caused significant uncertainty. Public health problems resulting from COVID-19 and precautionary measures instituted by governments and businesses to mitigate its spread, including travel restrictions and quarantines, could continue to contribute to a general economic slowdown, adversely impact our employers and job seekers and other business partners, and disrupt our operations.
As a result of the COVID-19 pandemic, in March 2020, we transitioned our entire staff to a remote working environment, which impacts productivity and our business operations. We have had to expend, and expect to continue to expend, resources to respond to the COVID-19 pandemic, including to develop and implement internal policies and procedures and track changes in laws. The remote working environment may also create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our reputation and commercial relationships. Changes in our operations in response to COVID-19 or employee illnesses resulting from COVID-19 may also result in inefficiencies or delays, and additional costs related to business continuity initiatives, that cannot be fully mitigated through succession and business continuity planning, employees working remotely or using teleconferencing technologies. Any prolonged diversion of resources may have an adverse effect on our operations. Over time, such remote operations may decrease the cohesiveness of our teams and our ability to maintain our culture, both of which are critical to our success. Additionally, a remote working environment may impede our ability to undertake new business projects, foster a creative environment, and hire and retain team members. Such effects may adversely affect the productivity of our team members and overall operations, which could have a material adverse effect on our business, results of operations, financial condition, and future prospects.
The impact of the ongoing COVID-19 pandemic is severe, widespread, and continues to evolve. The extent to which the COVID-19 pandemic will continue to impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time, including:
the duration and spread of the pandemic, including any additional resurgences;
the timing, distribution and efficacy of COVID-19 vaccines;
governmental, business, and individuals’ actions taken in response to the pandemic, including business closures and any shelter in-place guidelines;
the impact of the pandemic on national and global economic activity, unemployment levels, and capital and financial markets, including the possibility of a national or global recession;
the impact of the pandemic on the financial circumstances and employment needs of our employers and job seekers;
other business disruptions that affect our workforce; and
actions taken to contain the pandemic or treat its impact.
To the extent the COVID-19 pandemic or a similar public health threat has an impact on our business, results of operations, and financial condition, it is likely also to have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our business is significantly affected by fluctuations in general economic conditions, which have been adversely affected by the COVID-19 pandemic. There is risk that any economic recovery may be short-lived and uneven, and may not result in increased demand for our services.
Our business depends on the overall demand for labor and on the economic health of current and prospective employers and job seekers that use our marketplace. Demand for recruiting and hiring
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services is significantly affected by the general level of economic activity and employment in the United States and the other countries in which we operate. Any significant weakening of the economy in the United States or the global economy, increased unemployment, reduced credit availability, reduced business confidence and activity, decreased government spending, economic uncertainty, financial turmoil affecting the banking system or financial markets, trade wars and higher tariffs, and other adverse economic or market conditions may adversely impact our business and operating results. Significant swings in economic activity historically have had a disproportionately negative impact on hiring activity and related efforts to find candidates. In addition, as a result of the adverse impact of the COVID-19 pandemic on economic activity, many employers have significantly decreased the number of candidates they are hiring, implemented hiring freezes or were forced to cease operations altogether, each of which has resulted in a decrease in the number of job seekers and Paid Employers in our marketplace. We may also experience more pricing pressure during periods of economic downturn.
The COVID-19 pandemic has caused significant volatility in financial markets and has caused what may be an extended global recession. There is a risk that as overall global conditions improve, we could continue to experience declines in all, or in portions, of our business. Recoveries are difficult to predict, and may be short-lived, slow, or uneven, with some regions, or countries within a region, continuing to experience declines or weakness in economic activity while others improve. Differing economic conditions and patterns of economic growth or contraction in the geographical regions in which we operate may affect demand for our marketplace. As global economic conditions improve, we may not experience uniform, or any, increases in demand for our marketplace within the markets where our business is concentrated.
Economic uncertainty may cause some of our current or potential employers to curtail spending in our marketplace and may ultimately result in cost challenges to our operations. These adverse conditions could result in reductions in revenue, increased operating expenses, longer sales cycles, slower adoption of new technologies, and increased competition. We cannot predict the timing, strength, or duration of any economic slowdown or any subsequent recovery generally. There is also risk that when overall global economic conditions are positive, our business could be negatively impacted by a decreased demand for job postings and our services. If general economic conditions significantly deviate from present levels, our business, financial condition, and operating results could be adversely affected.
Substantially all of our revenue is generated by our business operations in the United States. Prior to the recent COVID-19 pandemic, the United States had largely experienced positive economic and employment trends since our founding in 2010 and therefore we do not have a significant operating history in periods of weak economic environments and cannot predict how our business will perform in such periods. Any significant economic downturn in the United States or other countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.
Our marketplace functions on software that is highly technical and complex and if it fails to perform properly, our reputation could be adversely affected, our market share could decline and we could be subject to liability claims.
Our marketplace functions on software that is highly technical and complex and may now or in the future contain undetected errors, bugs, or vulnerabilities. Some errors in our software code may be discovered only after the code has been deployed. Any errors, bugs, or vulnerabilities discovered in our code after deployment, inability to identify the cause or causes of performance problems within an acceptable period of time, or difficulty maintaining and improving the performance of our marketplace could result in damage to our reputation or brand, loss of employers and job seekers, loss of revenue, or liability for damages, any of which could adversely affect our business and results of operations.
As the usage of our marketplace grows, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to operate our marketplace. If we cannot continue to effectively scale and grow our technical infrastructure to accommodate these increased
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demands, it may adversely affect our user experience. We also rely on third-party software and infrastructure, including the infrastructure of the internet, to provide our marketplace. Any failure of or disruption to this software and infrastructure could also make our marketplace unavailable to our users.
Our marketplace is constantly changing with new updates, which may contain undetected errors when first introduced or released. Any errors, defects, disruptions in service, or other performance or stability problems with our marketplace, or the insufficiency of our efforts to adequately prevent or timely remedy errors or defects, could result in negative publicity, loss of or delay in market acceptance of our marketplace, loss of competitive position, our inability to timely and accurately maintain our financial records, inaccurate or delayed invoicing of Paid Employers, delay of payment to us, claims by users for losses sustained by them, corrective action taken by gatekeepers of components integral to our marketplace, or investigation and corrective action taken by a regulatory agency. In such an event, we may be required, or may choose, for user relations or other reasons, to expend additional resources to help resolve the issue. Accordingly, any errors, defects, or disruptions in our marketplace could adversely impact our brand and reputation, revenue, and operating results.
Because of the large amount of data that our Paid Employers collect and manage by means of our services, it is possible that failures or errors in our systems could result in data loss or corruption, or cause the information that we or our Paid Employers collect to be incomplete or contain inaccuracies that our Paid Employers regard as significant. Furthermore, the availability or performance of our marketplace could be adversely affected by a number of factors, including users’ inability to access the internet or to send or receive email messages, the failure of our network or software systems, security breaches or variability in user traffic for our services. We may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our users for damages they may incur resulting from certain of these events. In addition to potential liability, if we experience interruptions in the availability of our marketplace, our reputation could be adversely affected and we could lose employers and job seekers.
Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.
Our future success depends in part on employers purchasing and renewing subscriptions and performance-based services from us. Any decline in our user renewals or performance-based services could harm our future operating results.
Many of our Paid Employers pay for access to our marketplace on a per-job-per-day basis, rather than entering into new longer term paid time-based job posting plans, renewing their paid time-based job posting plans when such contract terms expire, or purchasing performance-based services from us. Employers who enter into paid plans have no obligation to renew their plans after the expiration of their contract period, which typically range from one day to twelve months. In addition, employers may renew for lower subscription amounts or for shorter contract lengths. Historically, some of our Paid Employers have elected not to renew their agreements with us and as we expand into new products and markets, we have a limited ability to reliably predict future renewal rates. Our future renewal rates for both existing and potential new products may be lower, possibly significantly lower, than historical trends.
Our future success also depends in part on our ability to sell upsell services to employers who use our marketplace. If employers do not purchase upsell services from us, our revenue may decline and our operating results may be harmed.
Our Paid Employer subscription renewals, performance-based services, and upsells may decline or fluctuate as a result of a number of factors, including user usage, user satisfaction with our services and user support, our prices, the prices of competing services, mergers and acquisitions affecting our user base, the effects of global economic conditions, or reductions in our Paid Employers’ spending levels generally.
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We have experienced growth in recent periods and expect to continue to invest in our growth for the foreseeable future. If we cannot manage our growth effectively, our business, operating results, and financial condition could be adversely affected.
We have experienced growth in a relatively short period of time. For example, although our total revenue for the year ended December 31, 2020 was $418.1 million, reflecting a 3% decrease from the year ended December 31, 2019 primarily due to the impacts of the COVID-19 pandemic, our total revenue for the year ended December 31, 2019 was $429.6 million, representing a year-over-year growth rate of 18% over the year ended December 31, 2018. Additionally, our total revenue for the three months ended March 31, 2021 was $125.4 million, representing an increase of 11% over the $113.3 million in total revenue we recorded for three months ended March 31, 2020. Over time, we expect to expand our operations and personnel significantly. Sustaining our growth will place significant demands on our management as well as on our administrative, operational, and financial resources. To manage our growth, we must continue to improve our operational, financial, and management information systems; expand, motivate, and effectively manage and train our work force; and effectively collaborate with our third-party partners. If we cannot manage our growth successfully, our business, operating results, financial condition, and ability to successfully advertise our marketplace and serve our employers and job seekers could be adversely affected.
Our historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks, challenges, and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks, challenges, and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our financial condition and operating results could differ materially from our expectations, our growth rates may slow, and our business would be adversely impacted.
Significant segments of the market for job advertisements services may have hiring needs and service preferences that are subject to greater volatility than the overall economy.
The employers in the United States’ private sector are heterogeneous across a number of business characteristics, including company size, geography, and industry, among other factors. Hiring activity may vary significantly among businesses with different characteristics and accordingly, any concentration we may have among businesses with certain characteristics may subject us to high volatility in our financial results. Smaller businesses, for example, typically have less persistent hiring needs and may experience greater volatility in their need for job advertisement services and preferences among providers of such services. Along with a relatively shorter sales cycle, smaller businesses may be more likely to change platforms based on short-term differences in perceived price, value, service level, or other factors. Difficulty in acquiring and/or retaining these employers may adversely affect our operating results.
Our efforts and ability to sell to a broad mix of businesses could adversely affect our operating results in a given period.
Our ability to increase revenue and maintain profitability depends, in part, on widespread acceptance and utilization of our marketplace by businesses of all sizes and types. Because our customers reflect a wide variety of businesses, we face a variety of challenges, including but not limited to, pricing pressure, cost variances and marketing strategies that vary based on the business type and size, varying lengths of sales cycles, and less predictability in completing some of our sales. For example, some of our larger prospective customers may need us to provide greater levels of education regarding the use and benefits of our marketplace and services, because the prospective customer’s decision to use our marketplace and services may be a company-wide decision. We are in the nascent stages of developing the analytical tools that will allow us to definitively determine how prospective customers can be most effectively directed within, and addressed by, our sales organizations. As a result, we may not always approach new opportunities in the most cost-effective manner or with the most appropriate resources. Developing and successfully implementing these tools will be important as we seek to efficiently capitalize on new and
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expanding market opportunities. In addition, because we are a relatively new company with a limited operating history when compared to some of our existing competitors, our target employers and job seekers may prefer to use offerings from more established competitors that are more tailored to their specific requirements.
Our business depends largely on our ability to attract and retain talented employees, including senior management and key personnel. If we lose the services of Ian Siegel, our Chief Executive Officer, or other members of our senior management team, we may not be able to execute on our business strategy.
Our future success depends in large part on the continued services of our senior management and other key personnel and our ability to retain and motivate them. In particular, we are dependent on the services of Ian Siegel, our Chief Executive Officer, and our technology, marketplace, future vision, and strategic direction could be compromised if he were to take another position, become ill or incapacitated, or otherwise become unable to serve as our Chief Executive Officer. We rely on our leadership team in the areas of marketing, sales, finance, support, product development, human resources, and technology. Our senior management and other key personnel are all employed on an at-will basis, which means that they could terminate their employment with us at any time, for any reason, and without notice. If we lose the services of senior management or other key personnel, or if we cannot attract, train, and retain the highly-skilled personnel we need, our business, operating results, and financial condition could be adversely affected.
Our future success also depends on our continuing ability to attract, train, and retain highly skilled personnel, including software engineers and sales personnel. We face intense competition for qualified personnel from numerous software and other technology companies. This competition for highly skilled personnel is especially intense in the regions where we have significant operations, and we may incur significant costs to attract and retain them. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. We may incur significant costs to attract and retain highly skilled personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment in recruiting and training them. To the extent we move into new geographies, we would need to attract and recruit skilled personnel in those areas. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity or equity awards declines, it may adversely affect our ability to retain highly skilled employees. If we cannot attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational, and managerial requirements, on a timely basis or at all, our business may be adversely affected.
If internet search engines’ methodologies or other channels that we use to direct traffic to our website are modified to our disadvantage, or our search result page rankings decline for other reasons, our user growth could decline.
We depend in part on various internet search engines, such as Google, as well as other channels to direct a significant amount of traffic to our website. Our ability to maintain the number of visitors directed to our website is not entirely within our control. For example, our competitors’ search engine optimization and other efforts such as paid search may result in their websites receiving a higher search result page ranking than ours; internet search engines or other channels that we utilize to direct traffic to our website could revise their methodologies in a manner that adversely impacts traffic to our website, or we may make changes to our website that adversely impact our search engine optimization rankings and traffic. As a result, links to our website may not be prominent enough to drive sufficient traffic to our website, and we may not be able to influence the results.
Search engines and other channels that we use to drive employers and job seekers to our website periodically change their algorithms, policies, and technologies, sometimes in ways that cause traffic to our website to decline. These changes can also result in an interruption in their ability to access our
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website or a drop in our search ranking, or have other adverse impacts that negatively affect our ability to maintain and grow the number of employers and job seekers that visit our website. We may also be forced to significantly increase marketing expenditures in the event that market prices for online advertising and paid listings escalate or our organic ranking decreases. Any of these changes could have an adverse impact on our business, user acquisition, and operating results.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business, which makes our future results difficult to predict.
Our quarterly results of operations, including the levels of our revenue, gross margin, and profitability, may vary significantly in the future and period to period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. We also have a limited operating history and make pricing and other changes from time to time, all of which make it difficult to forecast our future results. As a result, you should not rely upon our past quarterly operating results as indicators of future performance.
Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
our ability to attract new employers and job seekers;
Paid Employer renewal rates;
Paid Employers purchasing upsell services;
the addition or loss of large Paid Employers, including through acquisitions or consolidations;
the timing of recognition of revenue;
the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;
network outages or security breaches;
general economic, industry and market conditions;
changes in our pricing policies or those of our competitors;
seasonal variations in sales of our products, which has historically been most pronounced in the fourth quarter of our fiscal year;
the timing and success of new product or service introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors or strategic partners; and
the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.
Our success depends on our ability to maintain the value and reputation of the ZipRecruiter brand.
We believe that our brand is important to attracting and retaining both employers and job seekers. Maintaining, protecting, and enhancing our brand depends largely on the success of our marketing efforts, ability to provide a compelling job marketplace, including services, features, content, and support related to our marketplace, and our ability to successfully secure, maintain, and defend our rights to use the “ZipRecruiter” mark, our logo, and other trademarks important to our brand. We believe that the importance of our brand will increase as competition further intensifies and brand promotion activities may require substantial expenditures. Our brand could be harmed if we cannot achieve these objectives or if our public image were to be tarnished by negative publicity. Unfavorable publicity about us could diminish
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confidence in our marketplace and services. Such negative publicity also could have an adverse effect on the volume, engagement and loyalty of our employers and job seekers and could have an adverse effect on our business.
If we are not able to provide successful enhancements, new products, services, and features, our business could be adversely affected.
The market for job-posting marketplaces is characterized by frequent product and service introductions and enhancements, changing user demands, and rapid technological change. The introduction of products and services embodying new technologies can quickly make existing products and services obsolete and unmarketable. The success of our business will depend, in part, on our ability to adapt and respond effectively and timely to these changes. We invest substantial resources in researching and developing new products and services and enhancing our marketplace by incorporating additional features, improving functionality, and adding other improvements to meet our employers’ and job seekers’ evolving demands in our highly competitive industry. If we cannot provide enhancements and new features or services that achieve market acceptance or that keep pace with rapid technological developments and the competitive landscape, our business could be adversely affected. The success of any enhancements or improvements to, or new features of, our marketplace or any new products and services depends on several factors, including timely completion, competitive pricing, adequate quality testing, integration with new and existing technologies in our marketplace and third-party partners’ technologies, overall market acceptance, and resulting user activity that is consistent with the intent of such products or services. We cannot be sure that we will succeed, either timely or cost effectively, in developing, marketing, and delivering enhancements or new features, products and services to our marketplace that respond to continued changes in the market for job placement services, nor can we be sure that any enhancements or new features to our existing or any new products and services will achieve market acceptance or produce the intended effect. In addition, if new technologies emerge that allow our competitors to deliver similar services at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.
Additionally, because our marketplace operates on a variety of third-party systems and platforms, we will need to continuously modify and enhance our offerings to keep pace with changes in internet-related hardware, operating systems, cloud computing infrastructure, and other software, communication, browser and open source technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market timely. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses. Parts of the technology stack supporting our marketplace may also become difficult to maintain and service as there become fewer software engineers who are skilled with respect to the programming languages used to build such pieces of software. Any failure of our marketplace to operate effectively with future network systems and technologies could reduce the demand for our marketplace, result in user dissatisfaction and adversely affect our business.
Our efforts to sell to a broad mix of businesses could adversely affect our operating results in a given period.
Our ability to increase revenue and maintain profitability depends, in part, on widespread acceptance of our marketplace by businesses of all sizes and types. Because our customers reflect a wide variety of businesses, we face a variety of challenges, including but not limited to, pricing pressure, cost variance depending on the business type and size, varying lengths of sales cycles and less predictability in completing some of our sales. For some of our larger prospective customers, the prospective customer’s decision to use our marketplace and services may be a company-wide decision and, therefore, these types of sales require us to provide greater levels of education regarding the use and benefits of our marketplace and services. In addition, because we are a relatively new company with a limited operating history when compared to some of our existing competitors, our target employers and job seekers may
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prefer to use offerings from more established competitors that are more tailored to their specific requirements.
Issues with the use of artificial intelligence (including machine learning) in our marketplace may result in reputational harm or liability.
Artificial intelligence, or AI, is enabled by or integrated into some of our marketplace and is a significant element of our business. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient, of poor quality, or contain biased information. Inappropriate or controversial data practices by data scientists, engineers, and end-users of our systems or elsewhere could impair the acceptance of AI solutions and could result in burdensome new regulations that may limit our ability to use existing or new AI technologies. If the recommendations, forecasts, or analyses that AI applications assist in producing are deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. Some AI scenarios present ethical issues. If we enable or offer AI solutions that are controversial because of their purported or real impact on human rights, privacy, employment, or other social issues, we may experience brand or reputational harm.
The forecasts of growth of online recruitment may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, we cannot assure you that our business will grow at a similar rate, if at all.
Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not ultimately be accurate and are not under our control. The forecasts relating to the expected growth of the online recruitment market may prove to be inaccurate. Even if the market experiences the growth we forecast, we may not grow our business at a similar rate, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.
The growth of our marketplace depends in part on the success of our strategic relationships with our Job Distribution Partners and Job Acquisition Partners.
To grow our business and the number of job seekers and employers in our marketplace, we anticipate that we will continue to depend, in part, on relationships with Job Distribution Partners and Job Acquisition Partners. Our competitors may be effective in providing incentives to these job boards and other similar third parties to favor their products or services or to prevent or reduce engagement with our marketplace. In addition, acquisitions of the Job Distribution Partners and Job Acquisition Partners that we partner with by our competitors could reduce the number of our current and potential employers and job seekers as well as the number of job postings accessible by our marketplace. We cannot guarantee that the Job Distribution Partners and Job Acquisition Partners with which we have strategic relationships will continue to offer the services for which we rely on them, devote the resources necessary to expand our reach, or support an increased number of employers and job seekers and associated use cases. Further, some of our Job Distribution Partners and Job Acquisition Partners offer, or could offer, competing products and services or also work with our competitors. They may also choose to develop alternative products and services in addition to, or in lieu of, our marketplace, either on their own or in collaboration with others, including our competitors.
While these relationships have not generated substantial revenue in recent periods and are not expected to generate substantial revenue in the future, they are strategically important in ensuring an appropriate balance of and interaction between jobs and job seekers in our marketplace. If we are unsuccessful in establishing or maintaining our relationships with our Job Distribution Partners and Job Acquisition Partners, or if such Job Distribution Partners or Job Acquisition Partners choose to end their
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relationships with us, our ability to compete with our competitors and grow our marketplace could be impaired and our operating results may be negatively impacted.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity, and teamwork fostered by our culture, and our business may be harmed.
We believe that our corporate culture has been a key contributor to our success. If we do not continue to develop our corporate culture as we grow and evolve, it could harm our ability to foster the innovation, creativity, and teamwork we believe that we need to support our growth. As our organization grows and we are required to implement more complex organizational structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture, which could negatively impact our future success.
Technological advances may significantly disrupt the labor market and weaken demand for human capital at a rapid rate.
Our success is directly dependent on our employers’ demands for talent. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, robotics, machine learning, artificial intelligence and other technological advances outside of our control. This trend poses a risk to the job posting and distribution industry as a whole, particularly in lower-skill job categories that may be more susceptible to such replacement.
Our business is seasonal.
Our business is seasonal, reflecting typical behavior in hiring markets, where hiring activity tends to decelerate in the fourth quarter. Such seasonality also causes our revenue to vary from quarter to quarter depending on the variability in the overall job market. This seasonality can make forecasting more difficult and may adversely affect our ability to predict financial results accurately.
We track certain performance metrics with internal tools and do not independently verify such metrics. Certain of our performance metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We track certain performance metrics, including quarterly Paid Employers and revenue per quarterly Paid Employer, which are not independently verified by any third party. Our internal tools have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we report. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies. If our performance metrics are not accurate representations of our business, user base, or traffic levels; if we discover material inaccuracies in our metrics; or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed, we may be subject to legal or regulatory actions, and our operating and financial results could be adversely affected.
We derive substantially all of our revenue from job advertisements.
We derive substantially all of our revenue from sales of products and services related to the distribution of job advertisements to job seekers across the internet. As such, any factor adversely affecting the sale of these products and services, including market acceptance, product competition, performance and reliability, reputation, price competition, intellectual property claims and economic and market conditions, could harm our business and operating results.
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Failure to effectively expand our sales and marketing capabilities could harm our ability to increase our user base and achieve broader market acceptance of our services.
Our ability to increase our Paid Employer base and achieve broader market acceptance of our marketplace will depend significantly on our ability to continue to expand our sales and marketing operations. We plan to expand our sales force and to dedicate significant and increasing resources to sales and marketing programs. We are expanding our sales and marketing capabilities to target additional potential Paid Employer, including some larger organizations, but there is no guarantee that we will be successful attracting and maintaining these businesses as users, and even if we are successful, these efforts may divert our resources away from and negatively impact our ability to attract and maintain our current Paid Employer base. All of these efforts will require us to invest significant financial and other resources. If we cannot find efficient ways to deploy our marketing spend or to hire, develop, and retain talented sales personnel in numbers required to maintain and support our growth, if our new sales personnel cannot achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to increase our Paid Employer base and achieve broader market acceptance of our services could be harmed.
Paid Employers may demand more configuration and integration services, or customized features and functions that we do not offer, which could adversely affect our business and operating results.
Our current and future Paid Employers may demand more configuration and integration services, which would increase our upfront investment in sales and deployment efforts, with no guarantee that these Paid Employers will increase their use of our services. As a result of these factors, we may need to devote a significant amount of sales support and professional services resources to individual Paid Employers, which may increase the cost and time required to complete sales. If prospective Paid Employers require customized features or functions that we do not offer, and that would be difficult for them to deploy themselves, then the market for our marketplace will be more limited and our business could suffer. As a result, we may need to devote resources to continue to develop features and technology which may impact our operating results.
Any failure to offer high-quality technical support services may adversely affect our relationships with our Paid Employers and our financial results.
Once our products and services are deployed, our Paid Employers depend on our technical support organization to assist Paid Employers with service support and optimization, and resolve technical issues. We may be unable to respond quickly enough to accommodate short-term increases in demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our services and business reputation and on positive recommendations from our existing Paid Employers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation, our ability to sell our services to existing and prospective Paid Employers, and our business, operating results and financial position.
We have a history of net losses, anticipate increasing our operating expenses in the future, and may not sustain profitability.
We have a history of incurring net losses. While we earned net income of $86.0 million for the year ended December 31, 2020, for the years ended December 31, 2019 and 2018, we incurred net losses of $6.3 million and $25.4 million, respectively. As of December 31, 2020, we had an accumulated deficit of $71.4 million. We expect to make significant future expenditures related to the development and expansion of our business, including investing in our technology to improve our marketplace; investing in sales and marketing channels to enhance our brand promotion efforts; and in connection with legal,
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accounting, and other administrative expenses related to operating as a public company. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. If our revenue declines or fails to grow at a rate faster than increases in our operating expenses, we will not be able to maintain profitability in future periods. As a result, we may generate losses. We cannot ensure that we will continue to achieve profitability in the future or that we can sustain profitability.
We rely on Amazon Web Services, or AWS, to host our marketplace, and any disruption of service from AWS or material change to our arrangement with AWS could adversely affect our business.
We currently host our marketplace and support most of our operations using AWS, a provider of cloud infrastructure services. We do not control the operations of AWS’s facilities. AWS’s facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures, and similar events or could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism, and other misconduct. The occurrence of any of these events, a decision to close the facilities or cease or limit providing services to us without adequate notice, or other unanticipated problems could result in interruptions to our marketplace, which may be lengthy. Our marketplace’s continuing and uninterrupted performance is critical to our success and employers and job seekers may become dissatisfied by service interruption. Sustained or repeated system failures could reduce the attractiveness of our marketplace to employers and job seekers, cause employers and job seekers to decrease their use of or stop using our marketplace, and adversely affect our business. Moreover, negative publicity from disruptions could damage our reputation.
AWS does not have an obligation to renew its agreements with us on commercially reasonable terms, or at all. If we cannot renew our agreement or are unable to renew on commercially reasonable terms, we may experience costs or downtime in connection with the transfer to, or the addition of, new cloud infrastructure or other data center. If these providers charge high costs for or increase the cost of their services, we will experience higher costs to operate our business and may have to increase the fees to use our marketplace and our operating results may be adversely impacted.
Upon expiration or termination of our agreement with AWS, we may not be able to replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. Switching our operations from AWS to another cloud or other data center provider would also be technically difficult, expensive, and time consuming.
Many people are using mobile devices to access the internet. If we cannot optimize our websites for mobile access or offer a compelling mobile app, we may not remain competitive and could lose employers and job seekers.
Many employers and job seekers access our marketplace through our mobile website and mobile app. We must ensure that the experience for our mobile offerings is optimized to ensure a positive experience. It requires us to develop and enhance our offerings to be specifically designed for mobile devices, such as social media job postings. If we cannot optimize our websites and apps cost effectively and improve the monetization capabilities of our mobile services, we may not remain competitive, which may negatively affect our business and results of operations.
Additionally, there is no guarantee that employers and job seekers will use our apps rather than competing marketplaces. We are dependent on the interoperability of our mobile apps with popular third-party mobile operating systems such as Google's Android and Apple's iOS, and their placement in popular app stores like the Google Play Store and the Apple App Store, and any changes in such systems that degrade our apps’ functionality or give preferential treatment or app store placement to competitive apps could adversely affect the access and usage of our apps on mobile devices. If it is more
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difficult for employers and job seekers to access and use our apps on their mobile devices, our growth and engagement levels could be harmed.
Legal and Regulatory Risks
If we or our third-party partners experience a security breach, such as a hacking or phishing attack, or other data privacy or security incident, our marketplace may be perceived as not being secure, our reputation may be harmed, demand for our marketplace may be reduced, our operations may be disrupted, we may incur significant legal costs or liabilities, and our business could be adversely affected.
Our business involves the storage, processing, and transmission of proprietary, confidential, and personal information as well as the use of third-party partners and vendors who also store, process, and transmit such user information. We also maintain certain other proprietary and confidential information relating to our business and personal information of our personnel. We have previously experienced multiple data security incidents involving the unauthorized access to personal information of job seekers utilizing our services as well as affecting our business clients’ accounts, some of which have required us to notify affected individuals and/or regulators. In addition, any future data security breach, such as a hacking or phishing attack, or other data privacy or security incident, whether intentionally or unintentionally caused by us or by third parties, that we experience could result in unauthorized access to, misuse of, or unauthorized acquisition of our, our personnel’s, or our users’ data; the loss, corruption, or alteration of this data; interruptions in our operations; or damage to our computers or systems or those of our users. Any of these could expose us to claims, litigation, fines, other potential liability, and reputational harm.
An increasing number of online services have also disclosed security breaches, some of which involved sophisticated and highly targeted attacks. Additionally, malware, viruses, social engineering (including business email compromise), and general hacking in our industry have become more prevalent and more complex. Further, due to the current COVID-19 pandemic, there is an increased risk that we may experience cybersecurity related incidents as a result of our employees, service providers, and third parties working remotely on less secure systems during government mandated shelter-in-place orders. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not foreseeable or recognized until launched against a target, we and our third-party partners and vendors may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our or our third party partners’ or vendors’ security or privacy or other data privacy or security incident occurs, public perception of the effectiveness of our security measures and brand could be harmed, and we could lose users and business.
Data security breaches and other data privacy and security incidents may also result from non-technical means, for example, through human error. Any such security compromise could result in a violation of applicable data privacy, security, breach notification and other laws, regulatory or other governmental investigations, enforcement actions, litigation, and legal and financial exposure, including potential contractual liability. We may need to expend significant resources to protect against, and to address issues created by, security breaches and other privacy and security incidents. These liabilities may exceed the amounts covered by our insurance or our insurance coverage may not extend to or be adequate for liabilities actually incurred, or our insurance may not continue to be available to us on economically reasonable terms, or at all. Any such compromise could also result in damage to our reputation and a loss of confidence in our security measures. Our systems, and the systems of our vendors and third-party partners, may also be vulnerable to computer viruses and other malicious software, physical or electronic break-ins, or weakness resulting from intentional or unintentional service provider actions, and similar disruptions that could make all or portions of our website or applications unavailable for periods of time. Any of these effects could adversely impact our business.
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We face payment and fraud risks that could adversely impact our business.
Requirements in our marketplace relating to user authentication and fraud detection are complex. If our user authentication and fraud detection measures are not effective, our marketplace may be perceived as not being secure, our reputation may be harmed, and our business may be adversely impacted. In addition, bad actors use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized or fraudulent use of another’s identity, payment information, or other information; misrepresentation of the user’s identity or skills, including using accounts that they have purchased, sold, or leased; and acquisition or use of credit or debit card details and bank account information. This conduct in our marketplace could result in any of the following, each of which could adversely impact our business:
bad actors may use our marketplace, including our payment processing and disbursement methods, to engage in unlawful or fraudulent conduct, such as identity theft, money laundering, terrorist financing, fraudulent sale of services, bribery, breaches of security, leakage of data, piracy or misuse of software and other copyrighted or trademarked content, and other misconduct;
we may be held liable for the unauthorized use of an account holder’s credit card or bank account number and required by card issuers or banks to return the funds at issue and pay a chargeback or return fee, and if our chargeback or return rate becomes excessive, credit card networks may also require us to pay fines or other fees and the California Department of Business Oversight may require us to hold cash reserves;
we may be subject to additional risk and liability exposure, including for negligence, fraud, or other claims, if employees or third-party service providers fraudulently misappropriate our banking or other information or user information;
employers and job seekers that are subjected or exposed to the unlawful or improper conduct of other employers and job seekers or other third parties, or law enforcement or administrative agencies, may seek to hold us responsible for the conduct of employers and job seekers, may lose confidence in our marketplace, decrease or cease use of our marketplace, seek to obtain damages and costs, or impose fines and penalties;
we may be subject to additional risk if employers in our marketplace cannot pay hired job seekers for services rendered, as such job seekers may seek to hold us responsible for the employers’ conduct and may lose confidence in our marketplace, may decrease or cease use of our marketplace, or seek to obtain damages and costs; and
we may suffer reputational damage as a result of the occurrence of any of the above.
Despite measures we have taken to detect, prevent, and mitigate these risks, we do not have control over the employers and job seekers in our marketplace and cannot ensure that any of our measures will stop or minimize the use of our marketplace for, or to further, illegal or improper purposes. We may receive complaints from employers, job seekers and other third parties concerning misuse of our marketplace and wrongful conduct of other employers and job seekers. We may also bring claims against employers and job seekers and other third parties for their misuse of our marketplace in the future. Even if these claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the attention and resources of our management and adversely affect our business and operating results.
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Changes in laws or regulations relating to data privacy or the protection, collection, storage, processing, transfer, or use of personal data, or any actual or perceived failure by us to comply with such laws and regulations or our privacy policies, could adversely affect our business.
We receive, collect, store, process, transfer, and use personal information and other user data. There are numerous federal, state, local, and international laws and regulations regarding data privacy, data protection, information security, and the collection, storing, sharing, use, processing, transfer, disclosure, and protection of personal information and other content. The scope of these laws and regulations is changing, subject to differing interpretations, and may be inconsistent among countries, or conflict with other laws and regulations.
We are also subject to the terms of our privacy policies and obligations to third parties related to privacy, data protection, and information security. The regulatory framework for privacy and data protection worldwide is uncertain and complex, and that these or other actual or alleged obligations may be interpreted and applied in ways we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Further, any significant change to applicable laws, regulations, or industry practices regarding the collection, use, retention, security, or disclosure of the data of our employers and job seekers, employees, contractors, or others, or their interpretation, or any changes regarding the manner in which the express or implied consent of employers and job seekers for the collection, use, retention, or disclosure of such data must be obtained, could increase our costs and require us to modify our services and features, which may be material or not cost-effective, and may limit our storage and processing of user data or develop new services and features.
We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions. For example, in 2018, European legislators adopted the General Data Protection Regulation, or the GDPR, which imposes more stringent European Union, or EU, data protection requirements, and provides for significant penalties for noncompliance. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR has been and will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and may subject us to governmental investigations or enforcement actions, fines and penalties, claims, litigation, and reputational harm in connection with any European activities. Further, the United Kingdom, or the UK, has enacted the UK GDPR, which, together with the amended UK Data Protection Act 2018, or DPA, retains the GDPR in UK national law. Fines for certain breaches of the GDPR and the UK data protection regime are significant e.g., fines for certain breaches of the GDPR or the UK GDPR are up to the greater of 20 million Euros (17.5 million GBP) or 4% of total global annual turnover. Additionally, the California Consumer Privacy Act, or the CCPA, which provides new data privacy rights for consumers and new operational requirements for companies, came into force in 2020, and also provides for fines for noncompliance. The costs of compliance with, and other burdens imposed by, the GDPR, the UK GDPR, the DPA and CCPA may limit the use and adoption of our products and services and could have an adverse impact on our business. As a result, we may need to modify the way we treat such information.
Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to employers and job seekers, employees, contractors, or other third parties, or any other legal obligations or regulatory requirements relating to privacy, data protection, or information security may result in governmental and regulatory investigations or enforcement and/or assessment notices (for a compulsory audit), orders to cease or change our processing of our data, litigation, claims (including representative actions and other class action type litigation, where individuals have suffered harm), or public statements against us by consumer advocacy groups or others and could result in significant liability, cause our employers and job seekers to lose trust in us, and otherwise have an adverse effect on our reputation and business. Furthermore, the costs of compliance with such laws, regulations and policies may limit the adoption and use of, and reduce the overall demand for, our marketplace.
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Failure to comply with anti-corruption and anti-money laundering laws, including the Foreign Corrupt Practices Act, or FCPA, and similar laws associated with our activities outside of the United States, could subject us to penalties and other adverse consequences.
We have voluntarily implemented policies and procedures designed to allow us to comply with U.S. economic sanctions laws and prevent our marketplace from being used to facilitate business in countries or with persons or entities included on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, and equivalent foreign authorities. We may be subject to fines or other penalties in one or more jurisdictions levied by federal, state or local regulators, in the event that we engage in any conduct, intentionally or not, that facilitates money laundering, terrorist financing, or other illicit activity, or that violates sanctions or otherwise constitutes sanctionable activity.
Regulators continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures that we use to verify the identity of our users and to monitor our marketplace for potential illegal activity. In addition, any policies and procedures that we implement to comply with OFAC regulations may not be effective, including in preventing users from using our services within the OFAC-sanctioned countries of North Korea, Syria, and Iran, and the Crimea region of Ukraine. Given the technical limitations in developing controls to prevent, among other things, the ability of users to publish in our marketplace false or deliberately misleading information or to develop sanctions-evasion methods, it is possible that we may inadvertently and without our knowledge provide services to individuals or entities that have been designated by OFAC or are located in a country subject to an embargo by the United States that may not be in compliance with the economic sanctions regulations administered by OFAC.
Consequences for failing to comply with applicable rules and regulations could include fines, criminal and civil lawsuits, forfeiture of significant assets, or other enforcement actions. We could also be required to make changes to our business practices or compliance programs as a result of regulatory scrutiny. In addition, any perceived or actual breach of compliance by us, our employers and job seekers, or payment partners with respect to applicable laws, rules, and regulations could have a significant impact on our reputation and could cause us to lose existing employers and job seekers, prevent us from obtaining new employers and job seekers, cause other payment partners to terminate or not renew their agreements with us, require us to expend significant funds to remedy problems caused by violations and to avert further violations, and expose us to legal risk and potential liability, all of which may adversely affect our business, operating results, and financial condition and may cause the price of our common stock to decline.
We are also subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, and the UK Bribery Act 2010, and may be subject to other anti-bribery, anti-money laundering, and sanctions laws in countries in which we conduct activities or have employers and job seekers. The FCPA prohibits providing, offering, promising, or authorizing, directly or indirectly, anything of value to government officials, political parties, or political candidates for the purposes of obtaining or retaining business or securing any improper business advantage. The provisions of the Bribery Act extend beyond bribery of government officials and create offenses in relation to commercial bribery including private sector recipients. The provisions of the Bribery Act also create offenses for accepting bribes in addition to bribing another person. We face significant risks if we cannot comply with the FCPA, the Bribery Act and other applicable anti-corruption laws. We have implemented an anti-corruption compliance policy, but we cannot ensure that all of our employees, employers and job seekers, and agents, as well as those contractors to which we outsource certain of our business operations, will not take actions in violation of our policies or agreements and applicable law, for which we may be ultimately held responsible.
Any violation of the FCPA, the Bribery Act, other applicable anti-corruption laws, and other laws could result in investigations and actions by federal or state attorneys general or foreign regulators, loss of export privileges, severe criminal or civil fines and penalties or other sanctions, forfeiture of significant assets, debarment from government contracts, whistleblower complaints, and adverse media coverage,
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which could have an adverse effect on our reputation, business, operating results, and prospects. In addition, responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
We are subject to a wide variety of foreign and domestic laws. As we look to expand our international footprint over time and as new domestic laws are implemented, we may become obligated to comply with additional laws and regulations of the countries or markets in which we operate or have employers and job seekers.
We and our employers and job seekers are subject to a wide variety of foreign and domestic laws. Laws, regulations, and standards governing issues that may affect us, such as employment, payments, whistleblowing and worker confidentiality obligations, intellectual property, consumer protection, taxation, privacy, data security, benefits, unionizing and collective action, arbitration agreements and class action waiver provisions, unfair competition, terms of service, website accessibility, background checks, and escheatment are often complex and subject to varying interpretations, and, as a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies. Many of these laws do not contemplate or address the unique issues of the internet, mobile, and related technologies. Other laws and regulations in response to internet, mobile, and related technologies may also be adopted, implemented, or interpreted to apply to us and other online services marketplaces or our users. Likewise, these laws affect our users, and their application, or uncertainty around their application, may affect demand for our marketplace.
New approaches to policymaking and legislation may also produce unintended harms for our business, which may impact our ability to operate our business in the manner in which we are accustomed. Any of these regulations could negatively impact our users, including perceptions regarding their use of our marketplace, or have a material adverse effect on the demand for job postings in our marketplace or on how we operate our marketplace.
As we look to expand our international footprint over time, we may become obligated to comply with additional laws and regulations of the countries or markets in which we operate or have customers or job seekers. We may be harmed if we are found to be subject to new or existing laws and regulations or if those laws are interpreted and applied to us in a manner that harms our business or is inconsistent with the application of U.S. laws, including with respect to those subjects mentioned above. In addition, contractual provisions that are designed to protect and mitigate against risks, including terms of service, arbitration and class action waiver provisions, disclaimers of warranties, limitations of liabilities, releases of claims, and indemnification provisions, could be deemed unenforceable as to the application of these laws and regulations by a court, arbitrator, or other decision-making body. If we cannot comply with these laws and regulations or manage the complexity of global operations and support an international user base successfully or cost effectively, or if these laws and regulations are deemed to apply to our users or cause a decline in demand for our marketplace, our business, operating results, and financial condition could be adversely affected.
We plan to expand our international operations which could subject us to additional costs and risks, and our continued expansion internationally may not be successful.
We plan to expand our operations internationally in the future. Outside of the United States, we currently have operations in the United Kingdom, Israel, and Canada. There are significant costs and risks inherent in conducting business in international markets, including:
establishing and maintaining effective controls at foreign locations and the associated costs;
adapting our marketplace to non-U.S. employers’ and job seekers’ preferences and customs;
increased competition from local providers;
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longer sales or collection cycles in some countries;
compliance with foreign laws and regulations, including data privacy frameworks like the GDPR;
adapting to doing business in other languages or cultures;
compliance with local tax regimes, including potential double taxation of our international earnings, and potentially adverse tax consequences due to U.S. and foreign tax laws as they relate to our international operations;
compliance with anti-bribery laws, such as the FCPA and the Bribery Act;
currency exchange rate fluctuations and related effects on our operating results;
economic and political instability in some countries;
the uncertainty of obtaining and protecting intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and
other costs of doing business internationally.
These factors and other factors could harm our international operations and, consequently, materially impact our business, operating results, and financial condition.
Further, we may incur significant operating expenses as a result of our international expansion, and it may not be successful. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in new markets. We also have more limited brand recognition in certain parts of the world, leading to delayed acceptance of our marketplace by international employers and job seekers. If we cannot continue to expand internationally and manage the complexity of our global operations successfully, our financial condition and operating results could be adversely affected.
Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our marketplace, disrupt our communication processes, and adversely affect our business.
In order to use our marketplace, employers, job seekers, and, to a lesser extent, other third parties including advertisers, partners, and our own employees, entrust us to collect, use, and store their personal information. Our ability to leverage this information and to effectively and efficiently provide our services, including by communicating electronically and otherwise with employers and job seekers of our marketplace is critical to our business. By way of example, our services may include the sending and receiving of emails, SMS/text messages and push notifications on mobile devices. Certain federal, state and foreign government bodies and agencies have adopted, and others are considering adopting, or may adopt in the future, laws and regulations regarding the collection, use, transfer, storage and disclosure of personal information obtained from consumers and individuals, and the conditions under which businesses may communicate with consumers and other third parties. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our employers and job seekers may limit the use of our marketplace and reduce overall demand, or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Moreover, third party gatekeepers and service providers and their interpretation and application of privacy and data protection laws, rules, regulations, and best practices, may limit, disrupt, or require alteration of our operations, service offerings, and ability to communicate with and among employers and job seekers, and may adversely affect our business.
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From time to time, we may be subject to legal proceedings, regulatory disputes, and governmental investigations that could cause us to incur significant expenses, divert our management’s attention, and materially harm our business, financial condition, and operating results.
From time to time, we may be subject to claims, lawsuits (including class actions), government investigations, arbitrations and other proceedings involving competition and antitrust, intellectual property, privacy, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect our business operations and financial condition. The outcome of any legal proceeding, regardless of its merits, is inherently uncertain. Regardless of the merits, pending or future legal proceedings could result in a diversion of management’s attention and resources and reputational harm, and we may be required to incur significant expenses defending against these claims or pursuing claims against third parties to protect our rights. If we do not prevail in litigation, we could incur substantial liabilities. We may also determine in certain instances that a settlement may be a more cost-effective and efficient resolution for a dispute.
Where we can make a reasonable estimate of the liability relating to pending litigation and determine that it is probable, we record a related liability. As additional information becomes available, we assess the potential liability and revise estimates as appropriate. However, because of uncertainties relating to litigation, the amount of our estimates could be wrong as determining reserves for pending legal proceedings is a complex, fact-intensive process that is subject to judgment calls. The results of legal and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business. Any adverse determination related to legal proceedings or a settlement agreement could require us to change our technology or our business practices in costly ways, prevent us from offering certain products or services, require us to pay monetary damages, fines, or penalties, or require us to enter into royalty or licensing arrangements, and could adversely affect our operating results and cash flows, harm our reputation, or otherwise negatively impact our business.
Our failure or inability to protect our intellectual property rights, or claims by others that we are infringing upon or unlawfully using their intellectual property could diminish the value of our brand and weaken our competitive position, and adversely affect our business, financial condition, operating results, and prospects.
Our success depends in large part on our proprietary technology and other intellectual property rights, or IPR. We currently rely on a combination of copyright, trademark, trade secret, and unfair competition laws, as well as confidentiality agreements and procedures and licensing arrangements, to establish and protect our IPR. We currently do not own any patents. We have devoted substantial resources to the development of our proprietary technologies and related processes. To protect our proprietary technologies and processes, we rely in part on trade secret laws and confidentiality agreements with our employees, licensees, independent contractors, commercial partners, and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We cannot be certain that the steps taken by us to protect our IPR will be adequate to prevent infringement of such rights by others. Additionally, the process of obtaining protection for trademarks and other IPR is expensive and time-consuming, and we may not be able to apply for all necessary or desirable trademark and other IPR applications at a reasonable cost or in a timely manner. Additionally, the process of obtaining patent or trademark protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications or apply for all necessary or desirable trademark applications at a reasonable cost or in a timely manner. Moreover, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our IPR as fully as in the United States, and it may be more difficult for us to successfully challenge the unauthorized use of our IPR by other parties in these countries. Costly and time-consuming litigation
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could be necessary to enforce and determine the scope of our IPR, and our failure or inability to obtain or maintain IPR protection or otherwise protect our IPR could adversely affect our business.
We may in the future be subject to patent infringement and trademark claims and lawsuits in various jurisdictions, and we cannot be certain that our products or activities do not violate the patents, trademarks, or other IPR of third-party claimants. Companies in the technology industry and other patent, copyright, and trademark holders seeking to profit from royalties in connection with grants of licenses own large numbers of patents, copyrights, trademarks, domain names, and trade secrets and frequently commence litigation based on allegations of infringement, misappropriation, or other violations of intellectual property or other rights. As we face increasing competition and gain an increasingly high profile, the likelihood of IPR claims against us has grown and will likely continue to grow.
Further, from time to time, we may receive letters from third parties alleging that we are infringing upon their IPR or inviting us to license their IPR. Successful infringement claims against us could result in significant monetary liability, prevent us from selling some of our products and services, or require us to change our branding. In addition, resolution of claims may require us to redesign our products, license rights from third parties at a significant expense, or cease using those rights altogether. We may in the future bring claims against third parties for infringing our IPR. Costs of supporting such litigation and disputes may be considerable, and there can be no assurances that a favorable outcome will be obtained. Patent infringement, trademark infringement, trade secret misappropriation, and other intellectual property claims and proceedings brought against us or brought by us, whether successful or not, could require significant attention of our management and resources and have in the past and could further result in substantial costs, harm to our brand, and have an adverse effect on our business.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our employers and job seekers, which could increase the costs of our services and adversely impact our business.
The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our employers and job seekers to pay additional tax amounts, as well as require us or our employers and job seekers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our employers and job seekers, we could be held liable for such costs, thereby adversely impacting our operating results and cash flows.
Other Risks Related to Our Business
Our business is subject to the risk of earthquakes, fire, power outages, floods, public health crises, including the current COVID-19 pandemic, and other catastrophic events, and to interruption by man-made problems such as terrorism.
Our business is vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins, public health crises, including the COVID-19 pandemic, and similar events. Additionally, the third-party systems and operations, such as the data centers and online services we use in our company operations, are subject to similar risks. Our insurance policies may not cover losses from these events or may provide insufficient compensation that does not cover our total losses. For example, the COVID-19 pandemic has resulted in a widespread global health crisis and adversely affected global economies and financial markets, and similar public health threats could do so in the future. Such events have impacted, and could in the future
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impact, demand for products sold in our marketplace, which in turn could adversely affect our revenue and results of operations. In addition, acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could also cause disruptions in our business or the economy as a whole. A significant portion of our technology team is located in Israel, which is located in a region of the world that historically has experienced elevated levels of geopolitical instability. Our corporate offices and our primary data center facilities are located in California, a state that frequently experiences earthquakes and wildfires. We may not have sufficient protection or recovery plans. As we rely heavily on our data center facilities, computer and communications systems, and the internet to conduct our business and provide high-quality user service, these disruptions could negatively impact our ability to run our business.
Covenants in our Credit Agreement may restrict our operations, and if we do not effectively manage our business to comply with these covenants, our financial condition could be adversely impacted.
We entered into a Credit Agreement with the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent, in April 2021, which provides for a $250.0 million secured revolving line of credit. The revolving credit facility contains various restrictive covenants, including, among other things, net leverage ratio requirements, restrictions on our ability to dispose of assets, make acquisitions or investments, incur debt or liens, make distributions to our stockholders, or enter into certain types of related party transactions. These restrictions may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry, or take future actions. Pursuant to the agreement, we granted the lenders thereto a security interest in substantially all of our assets. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for additional information.
Our ability to meet these restrictive covenants can be impacted by events beyond our control and we may be unable to do so. Our credit agreement provides that our breach or failure to satisfy certain covenants constitutes an event of default. Upon the occurrence of an event of default, the lender could elect to declare all amounts outstanding under its debt agreements to be immediately due and payable. In addition, the lender would have the right to proceed against the assets we provided as collateral pursuant to the credit agreement. If the debt under our credit agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and financial condition.
We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value, consume resources that are necessary to sustain our business, and adversely affect our operating results.
As part of our business strategy, we may make investments in other companies, products, or technologies. At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any acquisition, investment, or business relationship may result in unforeseen or additional operating difficulties, risks, and expenditures. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions in the future, we may not ultimately strengthen our competitive position or achieve our goals, and any acquisitions we complete could be viewed negatively by employers and job seekers. In addition, if we cannot successfully integrate such acquisitions, or the assets, technologies or personnel associated with such acquisitions, into our company, the anticipated benefits of any acquisition, investment, or business relationship may not be realized. Additionally, we may be exposed to unknown or additional risks and liabilities.
We may in the future seek to acquire or invest in additional businesses, products, technologies, or other assets. We also may enter into relationships with other businesses to expand our marketplace or our ability to provide our marketplace in foreign jurisdictions, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies.
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Negotiating these transactions can be time consuming, difficult, and expensive, and our ability to close these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if undertaken and announced, may not close. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities, dilute our corporate culture, subject us to additional liabilities, increase our expenses, and adversely impact our business, financial condition, operating results, and cash flows. We may not successfully evaluate or use the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, each of which could affect our financial condition, could result in dilution to our stockholders or increase our fixed obligations.
We may require additional capital to support business growth and objectives, and this capital might not be available to us on reasonable terms, if at all, and may result in stockholder dilution.
We expect that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for the foreseeable future. However, we intend to continue to make investments to support our business growth and may require additional capital to fund our business and to respond to competitive challenges, including the need to promote and enhance our marketplace, develop new products and services, enhance our operating infrastructure, and potentially to acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. There can be no assurance that such additional funding will be available on terms attractive to us, or at all. Our inability to obtain additional funding when needed could have an adverse effect on our business, financial condition, and operating results. If additional funds are raised through the issuance of equity or convertible debt securities, holders of our Class A common stock could suffer significant dilution, and any new shares we issue could have rights, preferences, and privileges superior to those of our Class A common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.
The requirements of being a public company, including maintaining adequate internal control over our financial and management systems, may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the rules subsequently implemented by the SEC, the rules and regulations of the listing standards of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs and strains our financial and management systems, internal controls, and employees.
The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. Moreover, the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures, and internal control over financial reporting. We will be required to make a formal assessment and provide an annual management report on the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ending December 31, 2022. We have not identified any material weaknesses in our internal control over financial reporting during 2019 and 2020. However, to maintain and, if required, improve our disclosure controls and procedures, and internal control over financial reporting to meet the standards of the Sarbanes-Oxley Act, additional and potentially significant resources and management oversight may be required.
Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any
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failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we may eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on our stock price.
The new rules and regulations applicable to public companies, and stockholder litigation brought against recently public companies, have made it more expensive for us to obtain and maintain director and officer liability insurance, and we may be required to incur substantially higher costs to obtain and maintain the same or similar coverage.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. We are subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and operating results.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and stockholders’ equity/deficit, and the amount of revenue and expenses that are not readily apparent from other sources. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the price of our Class A common stock.
Fluctuations in currency exchange rates could harm our operating results and financial condition.
Transactions generated in countries other than the United States as well as those incurred by our international subsidiaries are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. Our financial results are also subject to changes in exchange rates that impact the settlement of transactions in non-local currencies. To date, we have not engaged in currency hedging activities to limit the risk of exchange fluctuations and, as a result, our financial condition and operating results could be adversely affected by such fluctuations.
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Risks Related to the Ownership of Our Class A Common Stock
The registration and listing of our Class A common stock differs significantly from an underwritten initial public offering.
This listing is not an underwritten initial public offering of our Class A common stock. In addition, the registration and listing of our Class A common stock on the New York Stock Exchange differs from an underwritten initial public offering in several significant ways, which include the following:
There are no underwriters. Consequently, prior to the opening of trading of our Class A common stock on the New York Stock Exchange, there will be no book building process and no price at which underwriters initially sold shares to the public to help inform efficient and sufficient price discovery with respect to the opening trades on the New York Stock Exchange. Therefore, buy and sell orders submitted prior to and at the opening of trading of our Class A common stock on the New York Stock Exchange will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public, as would be the case in an underwritten initial public offering. Moreover, there will be no underwriters assuming risk in connection with resales of shares of our Class A common stock. Additionally, because there are no underwriters, there is no underwriters’ option to purchase additional shares to help stabilize, maintain, or affect the public price of our Class A common stock on the New York Stock Exchange immediately after the listing. In an underwritten initial public offering, the underwriters may engage in “covered” short sales in an amount of shares representing the underwriters’ option to purchase additional shares. To close a covered short position, the underwriters purchase shares in the open market or exercise the underwriters’ option to purchase additional shares. In determining the source of shares to close the covered short position, the underwriters typically consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. Purchases in the open market to cover short positions, as well as other purchases underwriters may undertake for their own accounts, may have the effect of preventing a decline in the market price of shares. Given that there will be no underwriters’ option to purchase additional shares and no underwriters engaging in stabilizing transactions, there could be greater volatility in the public price of our Class A common stock during the period immediately following the listing. See also “—Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.”
There is no fixed or determined number of shares of Class A common stock available for sale in connection with the registration and listing of the Class A common stock on the New York Stock Exchange, except we expect approximately 745,272 shares of our Class A common stock to be sold on our first trading day in order to fund the tax withholding and remittance obligations arising in connection with the RSUs that may settle on that day in the event that the board of directors waives the liquidity-based vesting condition of our outstanding RSUs. Therefore, there can be no assurance that any existing stockholders will sell any of their shares of Class A common stock and there may initially be a lack of supply of, or demand for, shares of Class A common stock on the New York Stock Exchange. Alternatively, we may have a large number of existing stockholders who choose to sell their shares of Class A common stock in the near term, including holders of RSUs that may settle on the first day of trading, resulting in potential oversupply of our Class A common stock, which could adversely impact the price of our Class A common stock. See the section titled “RSU Sales” for additional information.
None of our existing stockholders have entered into contractual lock-up agreements or other contractual restrictions on transfer. In an underwritten initial public offering, it is customary for an issuer’s officers, directors, and most or all of its other stockholders to enter into a 180-day contractual lock-up arrangement with the underwriters to help promote orderly trading immediately after such initial public offering. Consequently, any of our stockholders, including our directors, officers and other significant stockholders, may sell any or all of their shares of Class A
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common stock, including shares of Class B common stock convertible into Class A common stock at the time of sale (subject to any restrictions under applicable law), including immediately upon listing. If such sales were to occur in a significant volume in a short period of time, it may result in an oversupply of our Class A common stock in the market, which could adversely impact the price of our Class A common stock. See also “None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.”
We did not conduct a traditional “roadshow” with underwriters prior to the opening of trading of our Class A common stock on the New York Stock Exchange. Instead, we hosted an investor day and engaged in certain other investor education meetings. In advance of the investor day, we will announce the date for such day over financial news outlets in a manner consistent with typical corporate outreach to investors. We prepared an electronic presentation for this investor day, which included content similar to a traditional roadshow presentation, and made a version of the presentation publicly available, without restrictions, on our website. There can be no guarantee that the investor day and other investor education meetings will have the same impact on investor education as a traditional “roadshow” conducted in connection with an underwritten initial public offering. As a result, there may not be efficient or sufficient price discovery with respect to our Class A common stock or sufficient demand among potential investors immediately after our listing, which could result in a more volatile price of our Class A common stock.
Since we are not conducting an underwritten initial public offering for our Class A common stock, the market price for our Class A common stock may be volatile and trading volume may be uncertain, which may adversely affect your ability to sell any Class A common stock that you may purchase. Because of the relatively novel listing process and the broad consumer awareness and brand recognition of our company, individual investors, retail, or otherwise, may have greater influence in setting the opening public price and subsequent public prices of our Class A common stock on the New York Stock Exchange and may participate more in our initial trading than is typical for an underwritten initial public offering. These factors could result in a public price of our Class A common stock that is higher than other investors (such as institutional investors) are willing to pay, which could cause volatility in the trading price of our Class A common stock and an unsustainable trading price if the price of our Class A common stock significantly rises upon listing and institutional investors believe our Class A common stock is worth less than retail investors, in which case the price of our Class A common stock may decline over time. Further, if the public price of our Class A common stock is above the level that investors determine is reasonable for our Class A common stock, some investors may attempt to short our Class A common stock after trading begins, which would create additional downward pressure on the public price of our Class A common stock.
An active, liquid, and orderly market for our Class A common stock may not develop or be sustained. You may be unable to sell your shares of Class A common stock at or above the price at which you purchased them.
We currently expect our Class A common stock to be listed and traded on the New York Stock Exchange. Prior to the listing of our Class A common stock on the New York Stock Exchange, there has been no public market for our Class A common stock. Moreover, consistent with Regulation M and other federal securities laws applicable to our listing, we have not consulted with our existing stockholders regarding their desire or plans to sell shares in the public market following the listing or discussed with potential investors their intentions to buy our Class A common stock in the open market. While our Class A common stock may be sold after our listing of the Class A common stock on the New York Stock Exchange by our existing stockholders in accordance with Rule 144 of the Securities Act, unlike an underwritten initial public offering, there can be no assurance that any of our existing stockholders will sell any of their shares of Class A common stock. As a result, there may initially be a lack of supply of, or
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demand for, Class A common stock on the New York Stock Exchange. Conversely, there can be no assurance that our existing stockholders will not sell all of their shares of Class A common stock, resulting in an oversupply of our Class A common stock on the New York Stock Exchange. In the case of a lack of supply of our Class A common stock, the trading price of our Class A common stock may rise to an unsustainable level. Further, institutional investors may be discouraged from purchasing our Class A common stock if they are unable to purchase a block of our Class A common stock in the open market due to a potential unwillingness of our existing stockholders to sell a sufficient amount of Class A common stock at the price offered by such institutional investors and the greater influence individual investors have in setting the trading price. If institutional investors are unable to purchase our Class A common stock, the market for our Class A common stock may be more volatile without the influence of long-term institutional investors holding significant amounts of our Class A common stock. In the case of a lack of demand for our Class A common stock, the trading price of our Class A common stock could decline significantly and rapidly after the listing of our Class A common stock on the New York Stock Exchange. Therefore, an active, liquid, and orderly trading market for our Class A common stock may not initially develop or be sustained, which could significantly depress and result in significant volatility in the price of our Class A common stock. This could affect your ability to sell your shares of Class A common stock.
The trading price of our Class A common stock, upon listing on the New York Stock Exchange, may have little or no relationship to the historical sales prices of our capital stock in private transactions, and such private transactions have been limited.
Prior to the registration and listing of our Class A common stock on the New York Stock Exchange, there has been no public market for our capital stock. The historical sales prices of our capital stock are primarily from sales of shares of our capital stock in private transactions. In the section titled “Sale Price History of our Capital Stock,” we have provided the historical sales prices of our capital stock in private transactions. However, given the limited history of sales, among other factors, this information may have little or no relation to broader market demand for our Class A common stock and thus the price of our Class A common stock. As a result, you should not place undue reliance on these historical sales prices as they may differ materially from the opening price of the Class A common stock and subsequent prices of our Class A common stock. For more information about how the initial listing price of the Class A common stock on the New York Stock Exchange will be determined, see the section titled “Plan of Distribution.”
None of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Following our listing, the sales or distribution of substantial amounts of our Class A common stock, or the perception that such sales or distributions might occur, could cause the market price of our Class A common stock to decline.
In addition to the supply and demand and volatility factors discussed above, the sale or distribution of a substantial number of shares of our Class A common stock, particularly sales by us or our directors, executive officers, and principal stockholders, could cause the market price of our Class A common stock to decline.
As of March 31, 2021, giving effect to the conversion and reclassification of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock, which occurred in connection with the effectiveness of the registration statement of which this prospectus forms a part, and giving effect to the conversion of our outstanding convertible promissory notes and interest due June 2023 into 3,073,594 shares of Class B common stock, the conversion of which will occur immediately following the first trading day of this listing, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible promissory notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), we have 107,278,454 shares of Class B common stock outstanding, all of which are “restricted securities” (as defined in Rule 144 under the Securities Act). This excludes 1,860,101 shares of Class B
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common stock related to the RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. Approximately 108,727,093 shares of Class B common stock may be converted to Class A common stock and then immediately sold either by (1) the registered stockholders pursuant to this prospectus, since such shares held by the registered stockholders are being registered pursuant to this prospectus, or (2) our other existing stockholders under Rule 144, since such shares held by such other existing stockholders will have been beneficially owned by non-affiliates for at least one year. Moreover, once we have been a reporting company subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for 90 days and assuming the availability of certain public information about us, (1) non-affiliates who have beneficially owned our common stock for at least six months may rely on Rule 144 to sell their shares of Class A common stock, and (2) our directors, executive officers, and other affiliates who have beneficially owned our common stock for at least six months, including certain of the shares of Class A common stock covered by this prospectus to the extent not sold hereunder, will be entitled to sell their shares of our Class A common stock subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
Further, as of March 31, 2021, we had outstanding options to purchase 17,620,556 shares of Class B common stock. Additionally, as of March 31, 2021, 6,870,569 shares of Class B common stock were issuable upon vesting of outstanding RSUs. All of the shares of Class A common stock and Class B common stock issuable upon the exercise of stock options, settlement of RSUs, and reserved for future issuance under our equity incentive plans, will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to applicable vesting requirements and compliance by affiliates with Rule 144.
Our board of directors has waived the liquidity event-based vesting condition on our RSUs effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. If our board of directors had waived the liquidity event-based condition as of March 31, 2021, it would have resulted in the vesting and settlement of approximately 1,860,101 RSUs held by our current and former employees and other service providers as of March 31, 2021. We expect approximately 1,865,726 shares of our Class A common stock from the vesting and settlement of RSUs (which assumes the sale of 745,272 shares of Class A common stock on our first trading day in order to fund the tax withholding and remittance obligations arising in connection with the vesting and settlement of RSUs) to be available for sale as early as the first day of trading. See the section titled “RSU Sales” for additional information. A potential oversupply of shares due to sales by holders of RSUs could also adversely impact the trading price of our Class A common stock.
None of our stockholders are subject to any contractual lock-up or other contractual restriction on the transfer or sale of their shares.
Following the effectiveness of the registration statement of which this prospectus forms a part, the holders of up to 27,275,796 shares of our Class B common stock have rights, subject to some conditions, to require us to file registration statements for the public resale of the Class A common stock issuable upon conversion of such shares or to include such shares in registration statements that we may file for us or other stockholders. Any registration statement we file to register additional shares, whether as a result of registration rights or otherwise, could cause the market price of our Class A common stock to decline or be volatile.
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Market volatility may affect the value of an investment in our Class A common stock and could subject us to litigation.
Technology stocks have historically experienced high levels of volatility. The price of our Class A common stock also could be subject to wide fluctuations in response to the risk factors described in this prospectus and others beyond our control, including:
the number of shares of our Class A common stock and Class B common stock publicly owned and available for trading;
actual or anticipated fluctuations in our financial condition, operating results and other operating and non-GAAP metrics;
our actual or anticipated operating performance and the operating performance of our competitors;
changes in the projected operational and financial results we provide to the public or our failure to meet those projections;
any major change in our board of directors, management, or key personnel;
the economy as a whole and market conditions in our industry;
rumors and market speculation involving us or other companies in our industry;
announcements by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments;
lawsuits threatened or filed against us;
other events or factors, including those resulting from the COVID-19 pandemic, war, incidents of terrorism, or responses to these events; and
sales or expected sales of our Class A common stock by us, and our officers, directors, and principal stockholders.
Moreover, to the extent the trading value of our Class A common stock diverge, holders of our Class A common stock may engage in hedging and other activities which could result in additional volatility in the price of our Class A common stock and could result in significant declines in the price of our Class A common stock.
Furthermore, the stock market has recently experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies and financial services and technology companies in particular. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations, may negatively impact the market price of our Class A common stock. These fluctuations may be even more pronounced in the trading market for our Class A common stock shortly following the listing of our Class A common stock on the New York Stock Exchange as a result of the supply and demand forces described above. If the market price of our Class A common stock after our listing does not exceed the opening public price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
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The dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our capital stock prior to our listing, including our directors, executive officers, and 5% stockholders who will hold in the aggregate 85.4% of the voting power of our capital stock following the registration and listing of our Class A common stock on the New York Stock Exchange, which will limit or preclude your ability to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Our Class B common stock has twenty votes per share and our Class A common stock has one vote per share. As of March 31, 2021, our directors, executive officers, and holders of more than 5% of our common stock, and their respective affiliates, held 85.4% of the voting power of our capital stock. Because of the twenty-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a substantial majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval until the earlier of (1) the first business day falling on or after 180 days after the date on which Ian Siegel beneficially owns less than 4,000,000 shares of Class B common stock, (2) the date which is (a) 90 days after the date of death or disability of Mr. Siegel or (b) such later date, not to exceed a total period of 180 days after the date of death or disability of Mr. Siegel, as may be approved prior to the date that is 90 days after the date of death or disability of Mr. Siegel by a majority of our independent directors then in office, and (3) the first business day falling on or after the date on which Mr. Siegel elects to convert all then-outstanding shares of Class B common stock into shares of Class A common stock. This concentrated control limits or precludes your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain permitted transfers, including certain transfers to family members, trusts solely for the benefit of the stockholder or their family members, affiliates under common control with the stockholder, and partnerships, corporations, and other entities exclusively owned by the stockholder or their family members, in each case as fully described in our restated certificate of incorporation to be in effect following the completion of this offering. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.
The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Certain stock index providers, such as S&P Dow Jones, exclude companies with multiple classes of shares of common stock from being added to certain stock indices, including the S&P 500. In addition, several stockholder advisory firms and large institutional investors oppose the use of multiple class structures. As a result, the dual class structure of our common stock may prevent the inclusion of our Class A common stock in such indices, may cause stockholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure, and may result in large institutional investors not purchasing shares of our Class A common stock. Any exclusion from stock indices could result in a less active trading market for our Class A common stock. Any actions or publications by stockholder advisory firms or institutional investors critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A common stock.
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If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common stock and trading volume could decline.
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business, our market, and our competitors. We do not have control over these securities analysts. If industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected. If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business, our Class A common stock price would likely decline. If one or more of these analysts cease coverage of us or cannot publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
We are an “emerging growth company” and intend to take advantage of the reduced disclosure requirements applicable to emerging growth companies which may make our Class A common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (2) the last day of the fiscal year ending December 31, 2026; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (4) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC. For so long as we remain an emerging growth company, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not “emerging growth companies,” including:
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We currently intend to take advantage of the available exemptions described above. We have taken advantage of reduced reporting burdens in this prospectus. We cannot predict if investors will find our Class A common stock less attractive if we rely on these exemptions. If some investors find our Class A common stock less attractive as a result of these decisions, there may be a less active trading market for our Class A common stock and the price of our Class A common stock may be more volatile.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by the restrictions under the terms of our credit agreement. We anticipate that for the foreseeable future we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
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Provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may limit attempts by our stockholders to replace or remove our current management.
Provisions in our restated certificate of incorporation and restated bylaws that are in effect upon the registration and listing of our Class A common stock on the New York Stock Exchange may have the effect of delaying or preventing a merger, acquisition, or other change of control of our company that the stockholders may consider favorable. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, our restated certificate of incorporation and restated bylaws include provisions that:
provide that our board of directors will be classified into three classes of directors with staggered three-year terms;
permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;
require super-majority voting to amend some provisions in our restated certificate of incorporation and restated bylaws, including provisions relating to the classified board, the size of the board, removal of directors, special meetings, actions by written consent, and designation of our preferred stock;
authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;
provide that only the chairman of our board of directors, our chief executive officer, or a majority of our board of directors will be authorized to call a special meeting of stockholders;
eliminate the ability of our stockholders to call special meetings of stockholders;
prohibit cumulative voting;
provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders;
provide for a dual class common stock structure in which holders of our Class B common stock may have the ability to control the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the outstanding shares of our common stock, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets;
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.
Moreover, Section 203 of the Delaware General Corporate Law, or DGCL, may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock. See the section titled “Description of Capital Stock” for additional information.
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Our restated certificate of incorporation and our restated bylaws contain exclusive forum provisions for certain claims, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our restated certificate of incorporation, to the fullest extent permitted by law, provide that the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our restated certificate of incorporation, or our restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
Moreover, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all claims brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder and our restated bylaws provide that the U.S. federal district courts will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or a Federal Forum Provision. Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all claims brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and neither the exclusive forum provision nor the Federal Forum Provision applies to suits brought to enforce any duty or liability created by the Exchange Act. Accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal court. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the regulations promulgated thereunder.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities will be deemed to have notice of and consented to our exclusive forum provisions, including the Federal Forum Provision. These provisions may limit our stockholders’ ability to bring a claim in a judicial forum they find favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation or restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements contained in this prospectus 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 prospectus include, but are not limited to, statements about:
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses including changes in research and development, sales and marketing, and general and administrative expenses (including any components of the foregoing), and our ability to maintain future profitability;
effects of the COVID-19 pandemic on our business, the employment market, and the economy generally;
our business plan and our ability to effectively manage our growth;
our ability to compete with well-established competitors and new entrants;
our ability to enhance our marketplace and introduce new and improved offerings;
our ability to increase the number of employers and job seekers in our marketplace;
our ability to strengthen our technology that underpins our marketplace;
our ability to attract and retain qualified employees and key personnel;
our ability to execute our strategy;
beliefs and objectives for future operations;
the effects of seasonal trends on our results of operations;
our ability to expand to new markets;
our ability to maintain, protect, and enhance our brand and intellectual property;
our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business;
economic and industry trends, projected growth, or trend analysis; and
increased expenses associated with being a public company.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.
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
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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 prospectus 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 prospectus or to conform these statements to actual results or revised expectations, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
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MARKET AND INDUSTRY DATA
This prospectus contains statistical data, estimates, and forecasts that are based on industry publications or reports generated by third-party providers, or other publicly available information, as well as other information based on internal estimates. Unless otherwise indicated, information contained in this prospectus concerning the employment market, our general expectations, and our opportunity, is based on information from publicly available sources as well as assumptions that we have made that are based on those data and other similar sources, and on our knowledge of our marketplace. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity, and market size information included in this prospectus is generally reliable, information of this sort is inherently imprecise.
Certain information included in this prospectus concerning aided brand awareness is based on our ZipRecruiter Brand Awareness Survey, 2020, an internal company-designed survey of 602 participants, which included (1) certain persons who had been involved in hiring processes and had used, or intended to use, online job posting websites within the preceding two years in connection with such hiring processes, (2) decision makers at hiring sites or systems, or influencers in the process of hiring candidates and (3) business owners, human resource managers, and non-human resource managers for various small, medium and large U.S.-based companies. The survey responses were used to measure brand health dimensions for us within the U.S. employer market and to explore how we benchmark against our competition. We designed the Brand Awareness Survey in accordance with what we believe are best practices for conducting a survey. Nevertheless, while we believe this survey is reliable, it involves a number of assumptions and limitations, and no independent sources have verified such survey.
In addition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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USE OF PROCEEDS
Registered stockholders may, or may not, elect to sell shares of our Class A common stock covered by this prospectus. To the extent any registered stockholder chooses to sell shares of our Class A common stock covered by this prospectus, we will not receive any proceeds from any such sales of our Class A common stock. See the section titled “Principal and Registered Stockholders” for additional information.
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RSU SALES
We have granted restricted stock units, or RSUs, that vest upon the satisfaction of both a service condition and a liquidity event condition. We determine the grant-date fair value of the RSUs based on the fair value of our common stock at the grant date.
The service-based vesting condition for the majority of the RSUs is satisfied over four years and the liquidity event-based vesting condition for the RSUs is satisfied upon the occurrence of a qualifying event, which is generally defined as a change in control event or a public offering. The liquidity event must occur before the expiration of the RSU award, which generally is no more than seven years from the grant date.
The listing and public trading of our Class A common stock on the New York Stock Exchange will not satisfy the liquidity event-based vesting condition. However, our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022. If such waiver had occurred as of March 31, 2021, it would have resulted in the vesting and settlement of approximately 1,860,101 RSUs held by our current and former employees and other service providers as of March 31, 2021, assuming the first day of trading of our Class A common stock occurred on or prior to March 31, 2021. To fund the personal tax withholding and remittance obligations arising in connection with the RSUs that will vest and settle on such day, we expect that current and former employees will use a broker or brokers to sell a portion of such shares into the market on the first trading day. The proceeds of such sales will be remitted either to us or directly to the relevant taxing authorities, in either case, to be applied towards such tax obligations. We expect that approximately 745,272 shares of our Class A common stock will be sold throughout the first trading day in order to fund such tax obligations, based on each RSU holder’s applicable tax rate. The actual number of shares to be sold to fund the personal tax withholding and remittance obligations will be determined based on the estimated weighted-average price for the shares of Class A common stock on the first day of trading on the New York Stock Exchange. Because that price will not be known until trading closes, the price per share for purposes of this estimate has been based on management’s estimate of fair value as of April 19, 2021 of $25.04 per share of our Class A common stock.
In order to meet our obligation to remit withholding taxes on behalf of certain of our employees and former employees on a timely basis, we may use our own cash reserves to satisfy such tax remittance obligations prior to receiving the proceeds from such market sales. We do not currently know the amount of cash that would be used to satisfy these tax withholding obligations because it would be dependent on a number of factors, including the share price at the time of settlement. After the first trading day, additional RSUs typically would vest and settle on the 15th day of the third month of each quarter and RSU holders will sell a portion of such shares into the market to fund the personal tax withholding and remittance obligations arising in connection with the RSUs that will vest and settle on such date. Based on the number of RSUs then outstanding and the vesting schedules then in effect, as of March 31, 2021, we expect that approximately 278,524, 691,206, and 470,814 RSUs will vest by June 15, 2021, September 15, 2021, and December 15, 2021, respectively. Shares of common stock received upon the vesting and settlement of RSUs will not be subject to lock-up agreements and may be sold at any time, subject to compliance with applicable securities laws and, if applicable, our insider trading policies.
If the market price of our Class A common stock on the New York Stock Exchange is volatile or if there is an oversupply of shares of Class A common stock and holders of RSUs are unable to sell their shares, holders of RSUs would still be responsible for funding the tax withholding and remittance obligations arising in connection with the vesting and settlement of their RSUs and could have to fund such amounts with their own cash.
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DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. Our obligation to pay a dividend on our Class A common stock or Class B common stock is subject to our board of directors declaring such a payment. We are not obligated to pay any dividends on our Class A common stock or Class B common stock and we currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. In addition, our credit agreement contains restrictions on our ability to pay cash dividends on our capital stock. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents, and our capitalization as of March 31, 2021 on:
an actual basis; and
a pro forma basis to give effect to (1) the redesignation of 80,002,658 shares of our outstanding common stock into 80,002,658 shares of Class B common stock outstanding as of March 31, 2021 as if such redesignation occurred on March 31, 2021, (2) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock as if such conversion occurred on March 31, 2021, (3) the conversion of the principal amount of the convertible notes and accrued interest outstanding as of March 31, 2021 into 3,073,594 shares of Class B common stock, assuming a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible notes are convertible by their terms, as further described within the section titled Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”), as if such conversion occurred on March 31, 2021, (4) the vesting and settlement of 1,860,101 RSUs into the same number of shares of Class B common stock, for which RSUs the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, (5) stock-based compensation expense of $46.6 million associated with RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity-based condition and such RSUs settled as of March 31, 2021, based on the estimated fair value of the RSUs on the date that the liquidity event-based vesting condition was waived and which is reflected as an increase to additional paid-in capital and accumulated deficit, (6) a cash payment of $10.0 million to Ian Siegel, our chief executive officer, as further described in the section titled “Executive Compensation—CEO Letter Agreement” which is reflected as a reduction in cash and a corresponding increase to accumulated deficit, and (7) approximately $21.6 million in transaction expenses related to the listing of our Class A Common Stock on the New York Stock Exchange.
You should read this table together with our consolidated financial statements and the accompanying notes, and the sections titled “Selected Consolidated Financial and Operating Data” and “Management’s
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Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.
As of March 31, 2021
ActualPro Forma
(dollars in thousands)
Cash and cash equivalents$135,065 $103,432 
Convertible notes, due June 202325,545 — 
Redeemable Convertible Preferred Stock, $0.00001 par value per share; 8,422,757 shares authorized, 8,302,143 shares issued, and outstanding, actual; 50,000,000 authorized, no shares issued and outstanding, pro forma
137,853 — 
Stockholders’ (deficit) equity:
Common stock, $0.00001 par value per share: 137,800,000 shares authorized, 80,197,991 shares issued and 80,002,658 outstanding, actual; no shares authorized, issued and outstanding, pro forma
— — 
Class A common stock, $0.00001 par value per share: no shares authorized, issued, and outstanding, actual; 700,000,000 shares authorized, and no shares issued and outstanding, pro forma
— — 
Class B common stock, $0.00001 par value per share: no shares authorized, issued, and outstanding, actual; 700,000,000 shares authorized and 109,333,888 shares issued and 109,138,555 outstanding, pro forma
— 
Additional paid-in capital25,235 235,209 
Accumulated deficit(57,986)(136,196)
Treasury stock, 195,333 shares outstanding, actual; 195,333 shares outstanding, pro forma(644)(644)
Total stockholders’ (deficit) equity:(33,395)98,370 
Total capitalization$130,003 $98,370 
The number of shares of our Class A common stock and Class B common stock outstanding as of March 31, 2021 excludes the following:
17,470,556 shares of our Class B common stock issuable upon the exercise of options outstanding as of March 31, 2021, with a weighted-average exercise price of $2.09 per share, including options to purchase shares issued pursuant to our 2012 Stock Plan, or the 2012 Plan, and 2014 Stock Incentive Plan, or the 2014 Plan;
150,000 shares of our Class B common stock issuable upon the exercise of options outstanding as of March 31, 2021, with a weighted-average exercise price of $3.70 per share, issued outside of the 2012 Plan and the 2014 Plan;
5,010,468 shares of our Class B common stock issuable upon the vesting and settlement of RSUs, for which the service condition was not satisfied, outstanding as of March 31, 2021, pursuant to the 2014 Plan;
1,430,500 shares of our Class B common stock issuable upon the vesting and settlement of RSUs, granted after March 31, 2021 through April 30, 2021, of which 1,398,000 were granted pursuant to the 2014 Plan and 32,500 were granted outside of our 2014 Plan; and
13,521,317 shares of our Class A common stock reserved for future issuance under our equity compensation plans, consisting of: (1) 1,523,782 shares of our Class A common stock reserved for future issuance under our 2014 Plan, as of March 31, 2021 (which reserve does not reflect the options to purchase shares of our Class B common stock and RSUs settleable for shares of our Class B common stock granted after March 31, 2021), (2) 10,664,476 shares of our Class A
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common stock reserved for future issuance under our 2021 Equity Incentive Plan, and (3) 1,333,059 shares of our Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan, each of which became effective on the date immediately prior to the date of this prospectus.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables represent selected consolidated financial and operating data for our business. The selected consolidated statements of operations data for the years ended December 31, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2020 and 2021 and selected consolidated balance sheet data as of March 31, 2021 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited financial statements which include, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for the fair statement of the interim condensed consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future and the results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.
You should read the following selected consolidated financial and operating data together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The selected consolidated financial and operating data in this section are not intended to replace our consolidated financial statements and the related notes and are qualified in their entirety by our consolidated financial statements and the related notes included elsewhere in this prospectus.
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Consolidated Statements of Operations Data
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands, except per share data)
Revenue $429,559 $418,142 $113,292 $125,372 
Cost of revenue(1)
54,778 54,163 14,472 15,961 
Gross profit374,781 363,979 98,820 109,411 
Operating expenses:
Sales and marketing(1)
276,197 191,141 78,880 63,476 
Research and development(1)
65,410 69,408 19,226 17,015 
General and administrative(1)
39,492 38,998 11,488 12,454 
Total operating expenses381,099 299,547 109,594 92,945 
Income (loss) from operations(6,318)64,432 (10,774)16,466 
Other income (expense):
Interest expense(575)(1,037)(279)(209)
Sublease income1,170 1,051 282 292 
Other income (expense), net(38)(109)(144)94 
Total other income (expense), net557 (95)(141)177 
Income (loss) before income taxes(5,761)64,337 (10,915)16,643 
Income tax expense (benefit)588 (21,711)167 3,245 
Net income (loss)(6,349)86,048 (11,082)13,398 
Less: Accretion of redeemable convertible preferred stock(3,722)(3,883)(955)(997)
Less: Undistributed earnings attributable to participating securities— (19,148)— (2,913)
Net income (loss) attributable to common stockholders$(10,071)$63,017 $(12,037)$9,488 
Net income (loss) per share(2)
Basic$(0.13)$0.79 $(0.15)$0.12 
Diluted$(0.13)$0.70 $(0.15)$0.10 
Weighted-average shares used in computing net income (loss) per share(3)
Basic79,337 79,651 79,423 78,834 
Diluted79,337 94,156 79,423 98,435 
Pro forma net income per share (unaudited)(2)
Basic$0.23 $0.03 
Diluted$0.21 $0.03 
Weighted-average shares used in computing pro forma net income per share (unaudited)(2)
Basic106,085 107,590 
Diluted118,591 123,364 
Other Financial Information:
Adjusted EBITDA (3)
$9,366 $80,133 $(6,382)$19,994 
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________________
(1)Includes stock-based compensation expense as follows:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands)
Cost of revenue$119 $73 $24 $16 
Sales and marketing1,031 704 306 99 
Research and development3,159 3,050 861 825 
General and administrative2,431 1,925 767 286 
Total stock-based compensation$6,740 $5,752 $1,958 $1,226 
________________
(2)See Note 3 in our audited consolidated financial statements and Note 2 in our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net income (loss) per share, pro forma net income per share, and the weighted-average number of shares used in the computation of the per share amounts.
(3)Adjusted EBITDA is not a measure of our financial performance under GAAP and should not be considered as an alternative to net income (loss), income (loss) from operations, or any other measures derived in accordance with GAAP. For a definition of Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA, see "Non-GAAP Financial Measures."
Selected Consolidated Balance Sheet Data
As of December 31,As of March 31,
2019202020212021
ActualActualActual
Pro Forma (1)
(in thousands)
Cash$35,529 $114,539 $135,065 $103,432 
Working capital (deficit)(2)
(5,518)73,309 92,255 60,622 
Total assets117,724 212,129 237,808 206,175 
Long-term borrowing10,000 — — — 
Convertible notes and accrued interest with related parties— 25,371 25,545 — 
Total liabilities107,062 125,569 133,350 107,805 
Redeemable convertible preferred stock132,973 136,856 137,853 — 
Total stockholders' equity (deficit)$(122,311)$(50,296)$(33,395)$98,370 
________________
(1)The pro forma column reflects (a) the redesignation of 80,002,658 shares of our outstanding common stock into 80,002,658 shares of Class B common stock outstanding as of March 31, 2021 as if such redesignation occurred on March 31, 2021, (b) the conversion of 2,271,437 shares of our Series A convertible preferred stock and 6,030,706 shares of our Series B convertible preferred stock outstanding as of March 31, 2021 into 24,202,202 shares of our Class B common stock as if such conversion occurred on March 31, 2021, (c) the conversion of the principal amount of the convertible notes and accrued interest thereon with related parties outstanding as of March 31, 2021 into 3,073,594 shares of Class B common stock at a conversion price of $8.2909 per share (which is the maximum price per share at which the convertible notes are convertible by their terms, as further described within the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Convertible Notes with Related Parties”) as if such conversion occurred on March 31, 2021; provided that to the extent that the volume-weighted average price on the first day of trading following our Direct Listing is less than $11.05 per share, then the convertible notes and contractual accrued interest will convert at 75% of the volume weighted average price, which would result in the issuance of additional shares of Class B common stock upon conversion, (d) vesting and settlement of 1,860,101 RSUs, into the same number of shares of Class B common stock, for which the service-based vesting condition was satisfied as of March 31, 2021 and for which RSUs our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022 as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, (e) stock-based compensation expense of $46.6 million associated with RSUs for which the service-based vesting condition was satisfied as of March 31, 2021 and for which our board of directors has waived the liquidity event-based vesting condition effective as of the earlier of the first day of trading of our Class A common stock on the New York Stock Exchange and March 15, 2022, as if our board of directors had waived the liquidity event-based condition and such RSUs settled as of March 31, 2021, based on the estimated fair value of the RSUs on the date that the liquidity event-based event condition was waived and which stock-based compensation expense is reflected as an increase to additional paid-in capital and accumulated deficit, (f) a cash payment of $10.0 million to Ian Siegel, our chief
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executive officer, as further described in the section titled “Executive Compensation—CEO Letter Agreement” which is reflected as a reduction in cash, working capital and total assets and a corresponding increase to stockholders’ deficit and (g) approximately $21.6 million in transaction expenses related to the listing of our Class A Common Stock on the New York Stock Exchange.
(2)Working capital (deficit) is defined as current assets less current liabilities. See our consolidated financial statements and the accompanying notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
Key Operating Metrics
Three Months Ended
December 31,
Three Months Ended
March 31,
2019202020202021
Quarterly Paid Employers(1)
102,541 89,636 98,456 114,705 
Revenue per Paid Employer(1)
$1,098 $1,276 $1,151 $1,093 
____________
(1)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics and Non-GAAP Financial Measures“ included elsewhere in this prospectus for definitions of these metrics.
Non-GAAP Financial Measures
We collect and analyze operating and financial data to evaluate the health of our business and assess our performance. In addition to revenue, net income (loss), income (loss) from operations, and other results under GAAP, we use Adjusted EBITDA and Adjusted EBITDA margin to evaluate our business. We have included these non-GAAP financial measures in this prospectus because they are key measures used by our management to evaluate our operating performance. Accordingly, we believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors. Our calculation of these non-GAAP financial measures may differ from similarly-titled non-GAAP measures, if any, reported by our peer companies. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
We define Adjusted EBITDA as our net income (loss) before total other income (expense), net, income tax expense (benefit) and depreciation and amortization, adjusted to eliminate stock-based compensation expense. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of 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.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands, except percentages)
GAAP net income (loss)$(6,349)$86,048 $(11,082)$13,398 
Stock-based compensation6,740 5,752 1,958 1,226 
Depreciation and amortization8,944 9,949 2,434 2,302 
Total other (income) expense, net(557)95 141 (177)
Income tax expense (benefit)588 (21,711)167 3,245 
Adjusted EBITDA$9,366 $80,133 $(6,382)$19,994 
Adjusted EBITDA margin%19 %(6)%16 %
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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 section titled “Selected Consolidated Financial and Operating Data” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, 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 “Special 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. Since the founding of our company in 2010, over 2.8 million businesses and 110 million job seekers have come to ZipRecruiter for their hiring and job search needs. Employers spend more than $205 billion per year in the United States alone to recruit talent.11 Online recruitment alone represents over $13 billion of this opportunity.12 The online segment of the U.S. recruiting market is expected to grow at a compound annual growth rate, or CAGR, of 14.1% from 2016 to 2025 compared to a CAGR of 0.2% for the rest of the recruiting market during that same period. The online segment of the recruiting market in the U.S. is expected to continue expanding its share of the recruiting market, with online share increasing from 3% in 2016 to 6% in 2020 and to 8% in 2025.13
Our Mission. To actively connect people to their next great opportunity.
The Problem. Twenty years after moving online, the job market remains painfully inefficient. Job seekers are required to navigate on their own in order to find the right jobs to apply to, usually across multiple sites, and without effective tools for monitoring new opportunities. Employers in turn are overwhelmed by the complexity of modern recruiting given the abundance of job boards, search engines, and social networks to source talent from. Neither side is an expert at their role. Neither side enjoys the process.
Our Business. We founded ZipRecruiter to simplify the job market for both job seekers and employers. Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employers.
Creating Value for Job Seekers. For job seekers across all industries and levels of seniority, we operate like a dedicated recruiter. That means presenting strong fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their
11 According to the following reports published by IBISWorld: Office Staffing & Temp Agencies in the US - Market Size 2001–2026, Updated December 28, 2020, https://www.ibisworld.com/industry-statistics/market-size/office-staffing-temp-agencies-united-states/ and Employment & Recruiting Agencies in the US - Market Size 2005–2026, Updated March 23, 2021, https://www.ibisworld.com/industry-statistics/market-size/employment-recruiting-agencies-united-states/ (each last visited April 21, 2021).
12 According to the following report published by IBISWorld: Online Recruitment Sites in the US - Market Size 2005–2027, Updated March 23, 2021, https://www.ibisworld.com/industry-statistics/market-size/online-recruitment-sites-united-states/ (last visited April 21, 2021).
13 Based on the following published reports: (1) IBISWorld Inc., Office Staffing & Temp Agencies in the US, December 2020, (2) IBISWorld Inc., Employment & Recruiting Agencies in the US, March 2021, and (3) IBISWorld Inc., Online Recruitment Sites, March 2021.
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applications. This makes job seekers feel supported while searching for work. That’s why ZipRecruiter has been the #1 rated job seeker app on iOS and Android for the past four years.14
Creating Value for Employers. For employers, we focus on building technology to rapidly deliver quality candidates to companies of all sizes and across all industries. Our algorithms alert the best job seekers in our marketplace when a job goes live. Employers posting jobs often get their first quality candidate before they can get up from their chair. 80% of employers posting in our marketplace receive a quality candidate within the first 24 hours. That’s why ZipRecruiter is the #1 rated employment marketplace by G2.15
Unique Data and Artificial Intelligence Provide Better Outcomes for Employers and Job Seekers. With a relevant data pipeline created from billions of interactions between job seekers and employers, we are uniquely positioned to harness that data to fuel the advanced artificial intelligence behind our matching, recommendation, and marketplace optimization capabilities. Through our deep learning based natural language processing, we understand job seekers’ and employers’ nuanced needs. We model and analyze clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in our marketplace. Our advanced technology stack processes the data generated by our highly engaged user base to continuously improve our matchmaking. Our climbing satisfaction metrics on both sides of our marketplace over the past few years give us confidence that these technology investments are yielding results for employers and job seekers alike. The Thumbs Up Rate on candidates has increased from 39% in December 2017 to 56% as of December 2020, highlighting the improved quality of our matching algorithms over time.
Accelerating Network Effects. Increasing the number of jobs in our marketplace attracts more job seekers. A greater number of job seekers attracts more employers who in turn post more job opportunities in our marketplace. These natural, self-perpetuating network effects increase our data and thereby accelerate the rate at which our matching technology gets smarter over time.
Compelling Financial Results. The combination of the scale on both sides of our marketplace, our efficient go-to-market strategy, and intelligent use of technology has resulted in compelling financial results. For the year ended December 31, 2019, our revenue was $429.6 million, and we generated a net loss of $6.3 million and Adjusted EBITDA of $9.4 million. For the year ended December 31, 2020, our revenue was $418.1 million and we generated a net income of $86.0 million and Adjusted EBITDA of $80.1 million. For the three months ended March 31, 2020, our revenue was $113.3 million and we generated a net loss of $11.1 million and Adjusted EBITDA of $(6.4) million. For the three months ended March 31, 2021, our revenue was $125.4 million, and we generated a net income of $13.4 million and Adjusted EBITDA of $20.0 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 “Summary Consolidated Financial and Operating Data.”
14 Based on ratings information for the Google Play Store and Apple Store from the AppFollow platform during the period of March 2017 to March 2021 for the job seeker apps of ZipRecruiter, CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, and Monster.
15 Based on G2 satisfaction ratings as set forth in G2, Best Job Boards Software, https://www.g2.com/categories/job-boards?utf8=%E2%9C%93&order=top_shelf (last visited January 25, 2021).
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OUR BUSINESS MODEL
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 ranging from a day to a year, or performance-based pricing, such as cost-per-click, to align with the 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. 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.
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:
Three Months Ended
March
31,
2019
June
30,
2019
September
30,
2019
December
31,
2019
March
31,
2020
June
30,
2020
September
30,
2020
December
31,
2020
March
31,
2021
Quarterly Paid Employers101,671 110,445 112,655 102,541 98,456 76,867 89,810 89,636 114,705 
Revenue per Paid Employer$942 $983 $1,000 $1,098 $1,151 $1,140 $1,145 $1,276 $1,093 
Three Months Ended
March
31,
2019
June
30,
2019
September
30,
2019
December 31,
2019
March
31,
2020
June
30,
2020
September
30,
2020
December 31,
2020
March
31,
2021
Adjusted EBITDA$(4,138)$6,837 $1,976 $4,691 $(6,382)$25,601 $26,653 $34,261 $19,994 
Adjusted EBITDA margin(4%)6%2%4%(6%)29%26%30%16%
Quarterly Paid Employers
We quantify the revenue-generating customer base as the number of Paid Employers in our marketplace. The Paid Employer metric includes all actively recruiting employers (or entities acting on behalf of employers), on a paying subscription plan or performance marketing campaign for at least one day in a given calendar quarter. In the quarters ended December 31, 2020 and March 31, 2021, we had 89,636 and 114,705 Paid Employers, respectively, in our marketplace. Paid Employers excludes employers from our Job Distribution Partners or other indirect channels, employers who are not actively recruiting, employers on free-trials, and employers with jobs not in our marketplace. This group of employers excluded from our Paid Employer count does not contribute a significant amount of revenue and consisted of 27,975 and 30,019 employers in the quarters ended December 31, 2020 and March 31, 2021, respectively. The following table shows the number of Quarterly Paid Employers in our marketplace for the first quarter of 2018 through the first quarter of 2021:
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We typically experience a decline in the Paid Employers in our marketplace during the fourth quarter as a result of seasonal hiring dynamics. For example, the number of Quarterly Paid Employers in the quarter ended December 31, 2019 declined by 9% as compared to the quarter ended September 30, 2019. Notably, we did not experience this seasonal decline in 2020. We believe the continued improvement in macroeconomic factors in the fourth quarter of 2020 helped offset the typical seasonal decline and was a factor in driving the 28% increase in Paid Employers in the first quarter of 2021.
Revenue per Paid Employer
We evaluate Revenue per Paid Employer as a key indicator of our efforts to increase value provided to employers in our marketplace. We define Revenue per Paid Employer as total company revenue in a given period divided by Quarterly Paid Employers in the same period. For the quarters ended December 31, 2020 and March 31, 2021, our Revenue per Paid Employer was approximately $1,276 and $1,093, respectively. The following table shows the Revenue per Paid Employer in our marketplace for the first quarter of 2018 through the first quarter of 2021:
arpe.jpg
Except for the second quarter of 2020, which was significantly impacted by the COVID-19 pandemic, Revenue per Paid Employer increased every quarter from the quarter ended March 31, 2018 to the quarter ended December 31, 2020. As employers use our marketplace and see positive results first-hand, many will choose to list an increasing number of job postings in our marketplace. Employers also often sign up for enhancement products and services to increase their job posting’s visibility and reach, generating additional revenue for ZipRecruiter. Revenue per Paid Employer declined in the first quarter of 2021 due to the significant increase in the number of Quarterly Paid Employers. These new and returning Paid Employers joined our marketplace over the course of the quarter and, therefore, contributed less revenue during their initial quarter than we expect they will in future quarters.
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA as our net income (loss) before total other income, net, income tax expense 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.
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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.
See the section titled “Selected Consolidated Financial and Operating Data—Non-GAAP Financial Measures” for information regarding the limitations of using Adjusted EBITDA and Adjusted EBITDA margin as financial measures and for a reconciliation of net income (loss), the most directly comparable financial measure calculated in accordance with GAAP, to Adjusted EBITDA.
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. For the year ended December 31, 2019, we had Adjusted EBITDA of approximately $9.4 million with an Adjusted EBITDA margin of 2%. For the year ended December 31, 2020, Adjusted EBITDA improved to $80.1 million with an Adjusted EBITDA margin of 19%. For the three months ended March 31, 2020, we had Adjusted EBITDA of $(6.4) million with an Adjusted EBITDA margin of (6)%, compared to the three months ended March 31, 2021, where Adjusted EBITDA improved to $20.0 million with an Adjusted EBITDA margin of 16%.
FACTORS AFFECTING OUR PERFORMANCE
We believe that the growth and future success of our business depends on many factors. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to sustain our growth, improve our results of operations, and maintain or increase profitability.
Attract More Employers
Our ability to maintain and grow an expansive universe of employers and job opportunities in our marketplace is critical to our business’s future. We acquire new employers primarily through marketing programs and our sales teams.
Our ability to cost effectively attract both employers and job seekers is critical to our success. Given that our marketplace remains free for job seekers, employers’ spending funds our continued investment in matching technology. The majority of our marketing efforts to date have been toward reaching employers. Our investment over the last several years of over $600 million in employer-specific marketing has driven a significant increase in brand awareness. Our aided brand awareness among employers has grown to 82% as of December 31, 2020. We believe scaling our brand has a positive impact on our ability to attract both employers and job seekers to our marketplace. We plan to continue to invest in the sales and marketing channels that we believe will drive further brand awareness and preference amongst both employers and job seekers. We are focused on the effectiveness of our sales and marketing spend and will continue to be disciplined in how we measure and re-invest in growing both sides of our marketplace.
Most of the employers in our marketplace use our self-serve tools to gain access to our marketplace and do not require a salesperson to help them. Other employers have more sophisticated needs or require greater assistance from our sales team. As a result, despite our expectation that our sales team will continue to use technology to become more efficient over time, we expect to grow our sales team significantly over several years in order to be able to cover every business that requires individualized assistance with their hiring needs. Additionally, we expect our sales and marketing expense will continue to grow but is likely to decline as a percentage of total revenue over time.
While our Payback Period will vary among Cohorts, our 2016 to 2020 Cohorts’ Payback Period averaged less than 16 months, meaning that the Cohort’s Employer Acquisition Expense was, on average, recovered by the end of April in the following calendar year. Additionally, even with COVID-19’s negative impact on revenue in 2020, our Payback Period for the 2019 Cohort was 19 months, meaning
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the 2019 Cohort’s cumulative revenue had equaled the Cohort’s Employer Acquisition Expense by July 31, 2020. In response to COVID-19, we reduced our Employer Acquisition Expense in 2020 by 29% compared to 2019. By focusing our spend on high-performing marketing channels our Cohort Payback Period dropped to just over 14 months, meaning the 2020 Cohort's cumulative revenue had exceeded the Cohort's Employer Acquisition Expense by March 31, 2021. Our Employer Acquisition Expense represented 61% and 63% of total sales and marketing expenses in 2019 and 2020, respectively. The attractive and consistent Payback Periods of our Cohorts give us confidence to continue investing in employer acquisition and scale our marketplace.
To the extent that we successfully speed up the hiring process for employers, this may naturally decrease both the average duration a job stays posted in our marketplace as well as the average time an employer may stay in our marketplace. This, in turn, could have an adverse effect on our revenue, all other things being equal. However, we believe that by delivering faster results, higher-quality candidates, increased reach, and greater confidence in the hiring process, we will increase our Revenue per Paid Employer over time through greater customer loyalty, which we believe over the long-term will offset the financial impact of any decrease in Quarterly Paid Employers.
Create More Value for Employers
While our marketplace serves a wide variety of employers, all employers benefit from finding the right candidate quickly. Our employers rate the value of candidates we deliver to them, and positive ratings have increased over time. Our Employer Thumbs Up Rate and our Average Monthly Revenue per Paid Employer have both increased over time while the average duration that jobs remain posted has decreased over time.
Employer Thumbs Up Rate
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We actively measure the frequency with which an employer gives a “thumbs up” to a potential job seeker. This allows us to highlight our ability to serve the employer with high quality job seekers. The Thumbs Up Rate on candidates has increased from 39% in December 2017 to 56% as of December 2020, demonstrating the improved quality of our matching algorithms over time.
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Quarterly Average Number of Days Job Stays Posted

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In the quarter ended December 31, 2020, the Average Number of Days a Job Stays Posted in our marketplace was 16 days, a 59% decrease since the quarter ended December 31, 2016. This trend, coupled with the increasing Thumbs Up Rate by employers, shows that our marketplace is driving faster and better results. We believe we will continue to see the quarterly Average Number of Days a Job Stays Posted go down as our matching technology gets smarter.
Average Monthly Revenue per Paid Employer by Employer Cohort Start Year
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Employers reward us for the value we create. Those with recurring hiring needs remain active in our marketplace over time and tend to increase their spend each year, posting additional jobs and purchasing job enhancement products. For example, the Average Monthly Revenue per Paid Employer in Year 1 among our 2014 Cohort has increased by over 7.0 times at Year 7, with increases in each consecutive year. Additionally, we have seen an increase in Year 1 Average Monthly Revenue per Paid Employer in each calendar year shown above, which we believe is attributable to improvements in our marketplace over the years. Year 1 Average Monthly Revenue per Paid Employer among our 2020 Cohort is nearly 3.0 times that of the 2014 Cohort.
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Revenue per Annual Paid Employer Cohort by Calendar Year
($ in millions with Percent of Total for 2020)
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We have grown revenue by both engaging our existing employers as well as bringing on new employers to our marketplace. Our employers’ needs vary greatly by their industry, size and geographic footprint. While some of these companies hire consistently and may be more isolated from macroeconomic changes, others tend to hire intermittently. Moreover, various businesses have dramatically different spend profiles over time. Despite this fact, when we evaluate the performance of our annual Cohorts, we see consistent revenue contributions for years after they initially use our marketplace. In 2019 and 2020, 74% and 76% of revenue, respectively, was generated by employers that had started using our marketplace in prior years. This trend provides us with a high degree of predictability over time.
Cohorts joining prior to 2016 have contributed consistent revenue for years 2 and beyond. In 2016, we increased the subscription prices of our service to better align with the increasing value we were providing to our customers. The effective price increase more than offset the decline in new employer signups. These improved unit economics allowed us to increase our marketing spend through the second half of 2016, driving disproportionately more new employers toward the end of the year and, thus, strong growth in 2017 when compared to revenue generated by that same Cohort of employers in 2016. Since 2017, product improvements have continued to accelerate positive results for our employers. Our monetization strategies have evolved to better align with the value we create, resulting in more of a given Cohort’s lifetime revenue being earned during the earlier years of its long lifetime.
Attract More Job Seekers
For job seekers, we operate like a personal recruiter going as far as presenting potential candidates to employers before they have applied. Our ability to cost effectively grow the number of job seekers and increase their engagement in our marketplace is critical to strengthen our marketplace. We compete for job seekers on many fronts, including our ability to surface unique and attractive jobs, our ability to simplify the hiring process, the transparent feedback job seekers receive on the status of their applications, and our trusted brand. We believe our offering to job seekers compares favorably versus alternatives due to the combination of our large and unique set of jobs to choose from, plus our proven matching technology that continues to get smarter over time. In 2020 alone we engaged with over 36 million Active Job Seekers. Historically, we have largely focused our marketing spend on employers, and despite being the highest rated mobile app for job seekers, we are not yet the most well-known.
We will continue to invest in growing the number of job seekers in our marketplace that are either actively or passively open to evaluating new opportunities.
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Investments in Technology
The technology that drives high quality matches between our job seekers and employers remains a significant investment priority. We are continuously improving our data science models, leveraging the billions of interactions taking place in our marketplace to drive meaningful improvements in the quality of matches we share with our users. Our continued improvement of the technology underpinning our marketplace and product experience is paramount to our user experience, driving our ability to attract and retain employers and job seekers, improve the rate at which we make Great Matches, and generate revenue. As such, we will continue to invest in our technology to continue to evolve our marketplace to provide improved experiences and impact for both employers and job seekers.
We have invested in research and development to improve our matching technology and deliver a high-quality experience to employers and job seekers. In 2019 and 2020, we spent $65.4 million and $69.4 million, or 15% and 17% of total revenue, respectively, on research and development. We believe the return on these investments will create operating leverage over time while continuing to drive top-line growth.
Seasonality
Our business is seasonal, reflecting typical behavior in hiring markets. Hiring activity tends to decelerate in the fourth quarter. In 2019, for example, sequential revenue growth was 13% and 4% for the quarters ended June 30 and September 30, respectively. Sequential growth decelerated to 0% in the quarter ended December 31, 2019. In 2020, we experienced a decrease in sequential revenue of 23% in the quarter ended June 30, 2020 as a result of the COVID-19 pandemic, but saw consecutive quarters of revenue growth of 17% and 11% in the third and fourth quarters of 2020 as employers started to return to and join our marketplace. Revenue in the second half of the year represented 52% of total annual revenue in 2018, 2019 and 2020.
Impact of COVID-19
The COVID-19 pandemic has had, and continues to have, a significant impact on the U.S. economy and hiring. The onset of the COVID-19 pandemic began to impact our business starting in March 2020. The adverse economic impact on businesses, and the resulting rise of unemployment in the United States, led to a decrease in Quarterly Paid Employers, a decrease in open job opportunities in our marketplace, and a decrease in Active Job Seekers. We anticipated and experienced a decrease in sequential revenue of 23% in the quarter ended June 30, 2020 and, in response, we reduced our operating expenses, such as personnel, marketing and general and administrative expenses, by 51% in the quarter ended June 30, 2020 compared to the quarter ended March 31, 2020. This included downsizing our workforce by approximately 40% to 791 employees as of March 31, 2020.
In the quarter ended September 30, 2020, we delivered $102.9 million in revenue, a 17% increase compared to the quarter ended June 30, 2020 reflecting strong execution across product, marketing and operations, and the beginning of an economic recovery. Revenue in the quarter ended September 30, 2020 reflects a 9% decrease from the quarter ended September 30, 2019, indicating the lingering macroeconomic effect of COVID-19. We saw employers in our marketplace increase by 17% in the quarter ended September 30, 2020 versus the quarter ended June 30, 2020 as macroeconomic conditions improved and we increased our marketing investments.
While the nature of the COVID-19 pandemic has reduced the number of people searching for work in the short term, we believe there will be an increase in job seeking activity once the economy fully reopens. We believe we will be a significant beneficiary of this anticipated increase in job seeking activity.
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Components of Our Results of Operations
Revenue
We generate revenue primarily from fees paid by employers to post and distribute jobs in our marketplace, as well as multiple sites managed by Job Distribution Partners, including job boards, classifieds, search engines and social networks.
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 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 their 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.
We may distribute jobs to candidates from sources who have job seeker or candidate databases. When a job seeker from a candidate source clicks on or applies to a job posting, we pay the candidate source a percentage of the revenue we earn from our customer for the click or application according to the terms of the revenue share agreement. In these arrangements, we have the responsibility for advertising the customer’s job postings, discretion in how and where we choose to advertise the customer’s job postings, and discretion in establishing the price paid by the customer. We recognize the fees we receive from our customers as revenue and the revenue share due is recorded in cost of revenue in the Consolidated Statements of Operations.
For a description of our revenue accounting policies, see the section titled Critical Accounting Policies and Estimates” below.
Cost of Revenue and Gross Profit
Cost of Revenue
Cost of revenue consists of third-party hosting, credit card processing fees, personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for customer support employees, partner revenue share amounts, job distribution costs from performance-based revenue, and amortization of capitalized software costs associated with our marketplace technology to provide services for our customers. In addition, we allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to cost of revenue based on headcount.
We expect cost of revenue to increase in absolute dollars in future periods due to payment processing fees, third-party hosting fees, personnel related costs to support additional transaction volume, and amortization expense associated with our capitalized internal-use software and development
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cost. Our cost of revenue may fluctuate in absolute dollars from period to period based on the amount and timing of all of these items.
Gross Profit and Gross Margin
Our gross profit and gross margin may fluctuate from period to period. Such fluctuations may be influenced by our revenue, timing and amount of investments to expand hosting capacity, our continued investments in our support teams, and the amortization expense associated with our capitalized internal-use software and development cost.
Costs and Operating Expenses
Sales and Marketing
Sales and marketing expense consists of personnel related costs (including salaries, sales commissions, bonuses, benefits, and stock-based compensation) for our sales and marketing employees, marketing activities, and related allocated overhead costs. Marketing activities include advertising, online lead generation, customer and industry events, and candidate acquisition. We allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to sales and marketing expense based on headcount.
We expect that sales and marketing expenses will increase on an absolute dollar basis and may vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in sales and marketing to attract both employers and job seekers to our marketplace and to increase our brand awareness. We expect that these expenses will continue to be our largest operating expense category for the foreseeable future as we continue to expand on our sales and marketing efforts. Our marketing expense will continue to grow, but is likely to decline as a percentage of total revenue over time.
Research and Development
Research and development expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for our research and development employees, amortization of capitalized software costs associated with the development of the databases supporting our marketplace, and the cost of certain third-party service providers. We allocate a portion of overhead costs, such as rent, IT costs, supplies and depreciation and amortization to research and development expenses based on headcount. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred.
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. Our research and development expense will continue to grow, but is likely to decline as a percentage of total revenue over time.
General and Administrative
General and administrative expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees in our executive, finance, human resource and administrative departments, and fees for third party professional services, including consulting, legal and accounting services. 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.
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We expect to invest in corporate infrastructure and incur additional expenses associated with transitioning to and operating as a public company, including expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and higher expenses for investor relations costs, professional services, and director and officer insurance. As a result, we expect general and administrative expense to increase in absolute dollars in future periods, but this expense may vary as a percentage of total revenue.
Direct Listing Related Expenses
In connection with this listing, we expect to incur certain non-recurring costs as part of our transition to a publicly-traded company, consisting of professional fees and other expenses. These fees are being expensed in the period incurred in general and administrative expenses. We expect to incur $21.6 million in legal, accounting and other costs relating to this offering in the quarter of the listing of our Class A common stock on the New York Stock Exchange, which includes approximately $19.4 million in fees payable to our financial advisors.
Additionally, commencing in the second quarter of 2021, we will recognize stock-based compensation expense in cost of revenue, research and development, sales and marketing and general and administrative expenses related to our RSUs which vest as a result of our board of directors’ waiver of the liquidity event-based vesting condition. In addition, we will recognize additional on-going stock-based compensation expense related to our RSU awards over the remaining service period. For further information, see the section titled Critical Accounting Policies and Estimates.” Immediately following the completion of this offering, we expect to record a bonus due to Ian Siegel, our chief executive officer of $10.0 million in general and administrative expense.
Interest Expense
Interest expense consists of interest costs associated with our outstanding borrowings, undrawn fees associated with our credit facility, and payment-in-kind interest on our convertible notes with related parties.
Sublease Income
Sublease income consists of income earned from a noncancelable sublease agreement for one of our office facilities. The agreement terminated in March 2021.
Other Expense, net
Other income (expense) consists primarily of gains and losses from foreign currency exchange transactions. We have foreign currency exposure primarily related to personnel related expenses that are denominated in currencies other than the U.S. Dollar, principally the Canadian Dollar, British Pound, and the Israeli New Shekel.
Income Tax Expense (Benefit)
For 2019, we had a full valuation allowance for net U.S. deferred tax assets, including net operating loss carryforwards and tax credits related primarily to research and development. Accordingly, our income tax expense primarily related to income taxes in certain foreign jurisdictions in which we conduct business. As a result of our current earnings in 2020 and forecasted taxable income, we released our valuation allowance against our net deferred tax assets, which resulted in an income tax benefit for 2020. For the three months ended March 31, 2021, our effective tax rate of 19% differed from the U.S. federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options, partially offset by other permanent items.
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Results of Operations
The following table sets forth our consolidated results of operations for each of the periods presented and as a percentage of revenue for those periods:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands)
Revenue (1)
$429,559 $418,142 $113,292 $125,372 
Cost of revenue(2)
54,778 54,163 14,472 15,961 
Gross profit374,781 363,979 98,820 109,411 
Operating expenses:
Sales and marketing(2)
276,197 191,141 78,880 63,476 
Research and development(2)
65,410 69,408 19,226 17,015 
General and administrative(2)
39,492 38,998 11,488 12,454 
Total operating expenses381,099 299,547 109,594 92,945 
Income (loss) from operations(6,318)64,432 (10,774)16,466 
Other income (expense):
Interest expense(575)(1,037)(279)(209)
Sublease income1,170 1,051 282 292 
Other expense, net(38)(109)(144)94 
Total other income (expense), net557 (95)(141)177 
Income (loss) before income taxes(5,761)64,337 (10,915)16,643 
Income tax expense (benefit)588 (21,711)167 3,245 
Net income (loss)$(6,349)$86,048 $(11,082)$13,398 
____________
(1)Revenue comprised as follows:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands)
Subscription revenue$373,863 $346,781 $95,365 $100,504 
Performance-based revenue55,696 71,361 17,927 24,868 
Total revenue $429,559 $418,142 $113,292 $125,372 
(2)Includes stock-based compensation expense as follows:
Year Ended December 31,Three Months Ended March 31,
2019202020202021
(in thousands)
Cost of revenue$119 $73 $24 $16 
Sales and marketing1,031 704 306 99 
Research and development3,159 3,050 861 825 
General and administrative2,431 1,925 767 286 
Total stock-based compensation$6,740 $5,752 $1,958 $1,226 
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Year Ended December 31,Three Months Ended March 31,
2019202020202021
Revenue100 %100 %100 %100 %
Cost of revenue13 13 13 13 
Gross profit87 87 87 87 
Operating expenses:
Sales and marketing64 46 70 51 
Research and development15 17 17 14 
General and administrative10 10 
Total operating expenses89 72 97 74 
Income (loss) from operations(1)15 (10)13 
Other income (expense):
Interest expense****
Sublease income****
Other income (expense)****
Total other income, net****
Income (loss) before income taxes(1)15 (10)13 
Income tax expense (benefit)*(5)*
Net income (loss)**(1)%21 %(10)%11 %
_____________
*Percentage is less than 0.5% of revenue.
**    Percentages may not sum due to rounding.
Comparison of the Three Months Ended March 31, 2020 and 2021
Revenue
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
Total revenue$113,292 $125,372 $12,080 11 %
Revenue increased $12.1 million, or 11%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Subscription revenue increased by $5.1 million, or 5%, for the same periods and was driven by the reopening of the economy as employers started to post more open job opportunities within our marketplace. Performance-based revenue increased $6.9 million, or 39%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to increases in both the number of paid engagements and revenue per paid engagement. These increases were driven by the onboarding of new customers and increased spend from existing customers who run sophisticated recruitment marketing campaigns.
Cost of Revenue and Gross Margin
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
Cost of revenue$14,472 $15,961 $1,489 10 %
Total gross margin87 %87 %
Cost of revenue increased $1.5 million, or 10%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to an increase of $2.5 million in job
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distribution costs from performance-based revenue, partially offset by $1.0 million of lower personnel related costs for customer support employees. Total gross margin remained flat at 87% in the three months ended March 31, 2021 and March 31, 2020 and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth.
Sales and Marketing
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
Sales and marketing$78,880 $63,476 $(15,404)(20)%
Percentage of revenue70 %51 %
Sales and marketing expenses decreased $15.4 million, or 20%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily attributable to a decrease of $10.4 million in advertising and online lead generation related to employer-specific marketing efforts, partially offset by increases in marketing spend targeted at jobseekers of $4.5 million. Personnel related costs for our sales and marketing employees decreased by $7.8 million, largely due to one-time restructuring costs related to our reduction in force of $3.7 million recorded in the first quarter of 2020 and decreased headcount. Additionally, non-essential travel and entertainment expenses decreased $1.0 million as we implemented virtual meetings and continue to work remotely as a result of the COVID-19 pandemic.
Research and Development
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
Research and development$19,226 $17,015 $(2,211)(12)%
Percentage of revenue17 %14 %
Research and development expenses decreased $2.2 million, or 12%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The decrease was primarily due to a decrease of $1.3 million in personnel costs for our research and development employees, largely due to $1.0 million of one-time severance costs in connection with our reduction in force recorded in the first quarter of 2020, and a decrease of $0.4 million related to non-essential travel and entertainment.
General and Administrative
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
General and administrative$11,488 $12,454 $966 %
Percentage of revenue10 %10 %
General and administrative expenses increased $1.0 million, or 8%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase was primarily due to an increase of $2.0 million of non-recurring legal and accounting fees related to the direct listing. This was partially offset by a decrease of $1.5 million in personnel related costs as the first quarter of 2020 including a one-time restructuring charge of $1.0 million related to our reduction in force.
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Other Income (Expense), Net
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
Other income (expense), net$(141)$177 $318 (226)%

There were immaterial fluctuations in other income (expense) for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.
Income Tax Expense (Benefit)
Three Months Ended March 31,
20202021$ Change% Change
(dollars in thousands)
Income tax expense (benefit)$167 $3,245$3,078 1843 %
Effective tax rate(2)%19 %

Income tax expense increased $3.1 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. For the three months ended March 31, 2020, our tax expense primarily related to taxes for our foreign operations as we maintained a full valuation allowance against our federal and state deferred tax assets. We released the valuation allowance during the fourth quarter of 2020. For the three months ended March 31, 2021, our effective tax rate of 19% differed from the U.S federal statutory rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options, partially offset by other permanent items.
Comparison of the Years Ended December 31, 2019 and 2020
Revenue
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
Total revenue$429,559 $418,142 $(11,417)(3)%
Revenue decreased by $11.4 million, or 3%, in 2020 compared to 2019. The decrease was primarily driven by the impacts of the COVID-19 pandemic as both total Paid Employers and the number of open job opportunities in our marketplace declined. Throughout each of the quarters in 2020, Quarterly Paid Employers was between 3% and 30% lower than the Quarterly Paid Employers for the same quarters in 2019. However, the decline in the volume of employers in our marketplace was offset by higher Revenue per Paid Employer in each of the quarters in 2020 as compared to the same quarters in 2019.
Our subscription revenue decreased by $27.1 million in 2020 compared to 2019 primarily due to the adverse economic impact of COVID-19 on our business. This was partially offset by our performance-based revenue, which increased $15.7 million, or 28%, in 2020 compared to 2019. The increase in performance-based revenue was primarily due to a 24% increase in the number of paid engagements (paid clicks and paid applications) attributable to the onboarding of new customers who run sophisticated recruitment marketing campaigns with consistent budgets throughout the full year. The number of paid engagements for which we recognized performance-based revenue was approximately 132 million and 164 million in 2019 and 2020, respectively. The corresponding revenue per paid engagement was $0.42 and $0.44 in 2019 and 2020, respectively.
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Cost of Revenue and Gross Margin
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
Cost of revenue$54,778 $54,163 $(615)(1)%
Total gross margin87 %87 %
Cost of revenue decreased by $0.6 million, or 1%, in 2020 compared to 2019. The decrease was primarily due to lower third-party hosting services costs, driven by the decline in marketplace engagement starting in March 2020, and decreases in personnel related costs for customer support employees.
Total gross margin remained flat at 87% in 2019 and 2020 and reflects our continued commitment to operational efficiencies and maintaining costs proportionate to revenue growth.
Sales and Marketing
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
Sales and marketing$276,197 $191,141 $(85,056)(31)%
Percentage of revenue64 %46 %
Sales and marketing expenses decreased by $85.1 million, or 31%, in 2020 compared to 2019. The decrease was primarily attributable to a decrease of $71.4 million in advertising, online lead generation, customer and industry events and candidate acquisition expenses, a decrease of $10.0 million in personnel related costs for our sales and marketing employees and a decrease of $4.5 million in non-essential travel and entertainment expenses as we implemented virtual meetings and other cost-saving measures directly as a result of the COVID-19 pandemic. These decreases were partially offset by one-time restructuring costs related to our reduction in force of $3.7 million.
Research and Development
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
Research and development$65,410 $69,408 $3,998 %
Percentage of revenue15 %17 %
Research and development expenses increased by $4.0 million, or 6%, in 2020 compared to 2019. The increase was primarily due to an increase of $2.4 million in amortization of capitalized software costs associated with the development of the databases supporting our marketplace and $1.0 million of severance costs in connection with our reduction in force.
General and Administrative
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
General and administrative$39,492 $38,998 $(494)(1)%
Percentage of revenue%%
General and administrative expenses decreased by $0.5 million, or 1%, in 2020 compared to 2019. The decrease was primarily due to decreases of $1.8 million of personnel related costs, partially offset by
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one-time restructuring costs of $1.0 million related to our reduction in force and an increase of $0.2 million in legal and accounting related costs.
Other Income (Expense), Net
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
Other income (expense), net$557 $(95)$(652)(117)%
Percentage of revenue— %*
______________
*Percentage not meaningful.
Other income decreased by $0.7 million, or 117% in 2020 as compared to 2019. The decrease is primarily attributable to an increase in interest expense of $0.5 million due to a higher amount of outstanding borrowings from our lines of credit and convertible notes in 2020 as compared to 2019.
Income Tax Expense (Benefit)
Year Ended December 31,
20192020$ Change% Change
(dollars in thousands)
Income tax expense (benefit)$588 $(21,711)$(22,299)*
Effective tax rate(10)%(34)%
______________
*Percentage not meaningful.
Income tax expense decreased by $22.3 million in 2020, as compared to 2019 primarily due to the release during the fourth quarter of 2020 of our valuation allowance against our net U.S. deferred tax assets. Based on our current earnings in 2020 and forecasted taxable income, we determined that it was more likely than not that those assets will be realized.
For the year ended December 31, 2020, our annual effective tax rate of (34)% differed from the U.S. federal statutory rate of 21% primarily because of the release of our valuation allowance and research and development tax credits, offset partially by an increase in estimated state taxes. For the year ended December 31, 2019, our annual effective tax rate of (10)% differed from the U.S. federal statutory rate of 21% primarily because of our deferred tax valuation allowance and research and development tax credits.
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Quarterly Results of Operations
The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the quarterly periods for the years ended December 31, 2019 and 2020 and the quarter ended March 31, 2021. The unaudited quarterly statements of operations data have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this prospectus and includes all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the results of operations for these periods. Our historical results are not necessarily indicative of the results that may be expected in the future and the results of a particular quarter or other interim period are not necessarily indicative of the results for a full year. The following unaudited quarterly consolidated results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.
Three Months Ended
March
31,
2019
June
30,
2019
September
30,
2019
December
31,
2019
March
31,
2020
June
30,
2020
September
30,
2020
December
31,
2020
March
31,
2021
(in thousands)
Revenue (1)
$95,769 $108,528 $112,693 $112,569 $113,292 $87,655 $102,851 $114,344 $125,372 
Cost of revenue(2)
12,327 13,322 14,251 14,878 14,472 11,840 12,949 14,902 15,961 
Gross profit83,442 95,206 98,442 97,691 98,820 75,815 89,902 99,442 109,411 
Operating expenses:
Sales and marketing(2)
67,187 67,101 73,044 68,865 78,880 28,069 41,713 42,479 63,476 
Research and development(2)
14,784 15,311 17,340 17,975 19,226 16,306 16,863 17,013 17,015 
General and administrative(2)
9,315 9,857 10,065