All right. Thanks so much. I'm Justin Patterson. I lead the Internet team at KeyBanc. Really excited to have Tim Yarbrough, the CFO of ZipRecruiter, here with us this morning. Tim, welcome back to ETS.
Thank you very much. Happy to be here.
All right. So let's just dive into it. You know, 2023, obviously a very unique year for the job market. You're a job postings business, little economic sensitive within there, but you made some progress. So talk about just some of the key product initiatives you focused on and what was a pretty difficult year for job postings.
Yeah, absolutely. And, just to double down on that point and to back up a little bit, ZipRecruiter, we're a jobs marketplace bringing job seekers and employers together. We do that using matching technology. I've been in business since 2010, and, from back in those days, the company started out just looking at how to help employers get their jobs posted everywhere on the Internet, 'cause way back then, you would have to go to individual websites to do that. We solved that by bringing all of that together to one spot so employers didn't have to choose anymore. So, where we are today over the last couple of years, it's been an interesting ride. So 2023 was, macroeconomically different than the last couple of years. Whereas back in 2021 and early 2022, we saw employers hiring, like mad.
So job openings continued to escalate quite high, and the levels of job seekers also remained fairly low, and so we had really a job seeker market. That has been chilling substantially over the last year and a half. And so over the course of 2023, what we saw macroeconomically is that even if job openings, as advertised, remain somewhat high, employers are just not hiring as much. And so if you look at the BLS reported hires rate in November, that excluding the pandemic, early pandemic area, that was the lowest it's been since 2014. So employers are just simply not hiring nearly as much anymore. So that created a pretty significant macroeconomic headwind for us. But despite all of that, I feel really good about the initiatives that we delivered against in 2023.
Yeah. So let's unpack that a little bit more. So you've got one piece of the market that's soft, the employer side, but you're a two-sided marketplace.
Yes.
You've also got the job seekers in there. Talk a little bit about just what you're seeing from the job seekers in this very unique environment right now.
Yeah. So job seekers getting off the bench a little bit. So, we talked about in our earnings call, the Great Resignation of yesteryear is over now. And I'm not sure if we've coined this term, but we're now referring to it as kind of the Big Stay, where instead of about a year and a half or two years ago, job seekers could quit their job, and because of wage inflation, they can go trip over a job on their way to work and get another $20,000 in salary. Those days are gone. So with all the macroeconomic uncertainty going on and the decrease in hiring that employers are doing, job seekers are almost sheltering in place right now. And so, with job seekers not churning out of their workplaces as much, you see this evidenced in separations rate.
For example, that's a big driver of hiring overall. With that coming down, job seekers just aren't as interested in looking for that next opportunity.
So what do you think is going to unthaw the Big Stay right now? I know it's hard to put on the macro hat right now, but when you kind of step back and are looking for signs that the market's going to open up again, what are you really watching for on the employer side right now?
Yes. We are fond of saying that we do not have a crystal ball. And one of the honest truths is that while we don't have house views on macroeconomic patterns or changes, we are strategically different in that we can pivot very quickly and react to the reality that we see around us. We look at our own data, and that's the best data that we have. And so I think you've seen that evidenced back in the early days of COVID when all of the metrics, macroeconomically and, of course, even within our data, fell off a cliff. We responded very quickly by chopping operating expenses significantly and turning profitable very quickly as well. And then as the economy recovered through the back half of 2020 and into 2021, we invested heavily in that, and then you saw revenue grow by 77% in 2021.
Here we are on the other side of that, and I'm sure we'll get to financial results in a little bit, but even with the headwinds that we saw in 2023, where revenue went backwards by 29%, you saw 27% Adjusted EBITDA margins, which is higher than it had been in the last several years.
Yeah. No, very impressive results during that period. Definitely want to come back to the margin discussion, but let's stick with just the data side. On the last earnings call, you did talk about seeing some signs of improvement in the marketplace. Could you elaborate a little bit more what that was, whether that was isolated to some verticals versus others?
Yes. Good question. Yeah. So, for the first time in a while, we mentioned that we were seeing signs of stabilization within the hiring environment. And so, by that, we mean that in a normal seasonal year and I guess when we're talking about normal seasonality, you got to go way back to 2019 and before, because we haven't seen normal seasonality really since then. But in a normal seasonal year, if you look at the number of jobs just out there in our marketplace, it reaches a year annual low during Christmas, and I think that's intuitive why. And then you'd see a steady ramp-up through the first part of the quarter. And if you look back at last year, when we were still in kind of a chilly macro environment, the lift from that Christmas time to, say, Valentine's Day was not very impressive.
Contrast that with this year, we're seeing that the ramp-up from that period of time is looking much better. That said, this is early. This is, you know, we're not calling a bottom "so far." We have not seen any kind of return to normal seasonality. And so, we thought it's prudent to, communicate to everybody that we're seeing these early signs of stabilization, which is a cause for some optimism.
Got it. So given that, just you've got no magic crystal ball on the macro side. You're operating with data as you see it. How do you think about just the investments you need to make right now to position this to be a much larger business over time, take more of that offline, TAM?
Right. So, our investment priorities have not changed. So, our first priority has always been organic investment, and that is most, I think, directly expressed in our investment in research and development. Our product differentiation is very important to us, and also our data advantage is also very important. So that's why you see R&D, you know, hanging in there, and we're not pulling any punches there. Our second priority would be more along the lines of inorganic growth, so we're always, you know, sniffing around for good acquisition targets. We've not been terribly acquisitive, and in the grand scheme of things, we're not as interested in large transformational deals, but you know, that's certainly something that we look into. And lastly would be shareholder returns, so through repurchases and things like that.
So what you're seeing right now is our embedded in our guidance are Adjusted EBITDA margins coming down in Q1, and that is reflective of that priority number one. Given the signs of stabilization that we've seen, it seems the most prudent to us as operators of the business to be on our front foot. So that means we're leaning forward into our investments, specifically in research and development, and also continue to see the market in terms of sales marketing as well. So, it seems like that's the best decision to make in order to be able to optimally take advantage of the inevitable recovery in the economy.
Got it. Let's go a little bit deeper there. You mentioned product investments. You're one of the few companies that have been AI-first for a very long time in there. What do you think are just the next key steps to improve that matchmaking equation?
Right. So getting back to the mission of the company, finding a job is very hard, and it's a soul-sucking process. Many of those in this room and those listening to the call, you don't really know because you're getting emails from headhunters, you're talking to people, they love you, and that's great because you're wonderful. The average American doesn't have that experience. And so what we're doing is unveiling products like Phil, who is our friendly AI-powered personal recruiter that greets you at the front door of the job seeker's journey and gets to know you. It's a bot. In the earlier days, folks were confused and actually thought Phil's a real person and wanted to come and take Phil out to coffee. Actually happened a couple of times. But Phil is getting smarter and smarter.
So in the earlier days, Phil would just reply with emails and say, "Here's a couple of jobs that might be a good fit for you." Fast forward to where we are today, LLM, generative AI has been all the rage for very good reason. We've folded in generative AI into Phil to make him much more conversational. And so now a job seeker can come at the front door and have a conversation with Phil, and Phil listens, gets to know the job seeker, and then, can suggest jobs in real time. And we know that this is working well because, on average, Phil, those that onboard through Phil apply to jobs at nearly twice the rate as job seekers that come in the other way. So that's one example of the many things that we're doing to improve the job seeking process.
Although I've got to think, if Phil's getting more conversational, he's probably getting more coffee date invites too in there.
He's very winsome.
Yeah. Yeah. So high-class problem there. So shifting back toward other investments away from Phil, let's talk about the marketing side. So that was another piece that you said could be a swing factor in the year, and that's also one of the factors, I believe, that's driving that EBITDA margin target. It was a low to mid-teens in there. So talk about just what you're looking at to dial up marketing spend and, bigger picture, how you're thinking about returns from marketing.
Okay. So, for marketing spend, if you again look over the course of the last couple of years, you can see that is being highly, highly variable. That's intentional. We have very little of our marketing dollars committed to future periods so that we can maintain that flexibility. So even if you look at last year, over the course of 2023, we reduced sales and marketing spends by 45%, but then when you look at the impact that's had, pretty minimal. So if you look at job seeker, the job seeker side of our business as an example, the number of job seeker interactions, came down by roughly 3% from 60 million down to 58 million. So fairly, modest, decrease there. And then on top of that, despite that reduction in sales and marketing costs, the amount of organic traffic, increased by 40% year-over-year.
So, getting to the core of your question, what are we looking for within our sales and marketing bucket? There's a couple different variables or outputs that we're looking for. Number one would be a shorter-term return on investment. So we're measuring that in the matter of weeks. So because we are highly scientific when we're deploying marketing, we're looking at near real-time returns on our sales and marketing investments. Secondly, we're looking at a longer-term LTV over customer acquisition cost investment because we know that when we acquire an employer, they're going to be with us for the long haul. So if you've taken a look at our most recent documentation, we provide employer cohort information that looks at the revenue per employer, going back over time, over the last several years.
One of the things that you see there is that over time, the revenue per employer per month increases reliably over time. So when we're making that sales and marketing investment, we know that this is a long-term investment. And then getting back to the longest-term perspective, which is the hardest to measure admittedly, is brand awareness. And so after many years and over $1 billion invested, we enjoy 80% aided brand awareness on both sides of our marketplace, and that's something that has been to our benefit because of all the investments we've made over time.
Got it. Just unpacking that cohort curve a little bit more, you know, you've got a growing mix of enterprise coming in there. As you shift from SMB toward enterprise, just how do the unit economics change for the business?
Yeah. So, if you look at the two main KPIs that we disclose, it's paid employers, which is just the raw count of employers that are active within our marketplace over a given period, and then the revenue per paid employer, which is simply revenue divided by the paid employer metric I just gave. So, over time, the revenue per paid employer number has reliably gone up and to the right, and there's a couple of reasons why that is. One is that, to your point, over time, we've seen a mix shift from small, medium-sized businesses to larger enterprises. And, you know, the funny thing about the paid employer number, you can have, you know, the corner convenience store count as one paid employer, and then you can have a large, online retail business also count as one. And all of that sits in the denominator.
A big driver of the revenue per paid employer number is going to be our mixed shift towards enterprise, which we see the market as being 50/50 over time. Right now, as of this last year, we were, roughly 21% enterprise and 79% SMB. We think that's going to be a big tailwind to revenue per paid employer over time.
Got it. Stepping back a little bit in there too, when we think about just the Paid Employers that have come out of the business over the past year or so within there, where have you typically seen that churn happening?
Yeah. So the raw count of Paid Employers, again, the vast majority of them are from SMBs, and they tend to be a bit more transactional in nature. And so they might have just one, two, three hires to make, and when they make them, they're done. We love them because we know that if they have a great experience, they're going to come back. And so to getting back to your early question about the Revenue per Paid Employer training up over time, that is another driver of that upward into the right trend because as employers get to know us more, they tend to spend more over time. And so even for that SMB, those cohort curves remain very much the same up and to the right.
But that also means that you'll see the paid employer number be a little bit bumpier and much more driven by the macroeconomic winds that have been blowing pretty strong for the last couple of years.
Got it. Let's pretend we've got the crystal ball, say things improve right now. When we think about ZipRecruiter in the arc of a recovery, should this be Paid Employer-led, pricing-led, or potentially even both inflecting at once?
I think both. So if it's anything like what we've seen in the past, and for that, I'll refer to 2020 and 2021. And granted, that was a white-hot hiring market that came back roaring. You saw Paid Employers really take off, and that's because typically SMBs are pretty quick to react, which I think is intuitive. They're nimble. They can move much more quickly than a large, bulky enterprise. And so we saw Paid Employers really rip and increase substantially, and then Revenue per Paid Employer rose as well, but it was slower to follow. And some of that is because of a mix shift. When you have an influx of smaller SMBs into your mix, it's going to drive down your Revenue per Paid Employer.
But I think if you zoom out over time, when we're talking about ZipRecruiter in five years, I think both of those metrics will be meaningfully up.
Got it. So from Big Stay to Zip going to rip.
That's right.
Makes sense.
Great to hear, folks.
Makes sense. So let's talk about margins within there too. So you did mention you'll lean into marketing spend a bit during a recovery scenario, but big picture, that's an investment side of things, but not indicative of the longer-term margins. You just mentioned 27% margin the past year with 30%+ the back half of 2023. So where do you just see the margin ceiling as the business over time?
That's a good question. Yeah. And even when we were announcing Q3 and Q4 earnings, I think I might have told you at some point, like, "This is not the new low watermark. So this is not necessarily our resting heart rate right now," because we still see ourselves as very early stage in a very large opportunity in front of us. We're talking about a $250 billion-plus TAM out there. We are a small, but growing part of that. So we have a long way to go. But the distance between where we are today and where we think we'll end up, we think this business pencils out to roughly a 30% Adjusted EBITDA margin. And then over time, I think the real leverage that you see coming out of the business comes from that sales and marketing bucket. Over time, we're going to have to ramp up again.
We're happy with our aided brand awareness, but we're not done yet. So we think over time, the absolute dollar amount of sales and marketing will probably flatten out with revenue continuing to scale over that. So we'll see us landing at something like a 30% Adjusted EBITDA.
Got it. So maybe two more for me before I open it up to the floor. Talk about international within there. That always seems like a big long-term opportunity, but not one that you've dove too much into today. So what are the factors you look at to consider when to go more deep abroad?
Yeah. We don't have a meaningful amount of business out internationally right now, single-digit% of revenue. In our opinion, for better or for worse, I think for better, we are a very focused company, and that means that keeping our eye on the US ball is the best path to success in the near and mid-term. International is not a 2024 or 2025 opportunity for us, but absolutely a longer-term opportunity, especially as you look at some of our competitors who have meaningful footprints internationally. We think that the U.S. opportunity, being as big as it is, like I said, about $250 billion. We don't want to take our eye off that ball.
Got it. And that disciplined focus you mentioned feeds into the next question, capital allocation. You've been good stewards of capital since coming public, usually managed toward profitability throughout a cycle, been big repurchasers of your stock. As you look at just cash deployment right now, what are you thinking about for the top priorities?
Yeah. I think what we're doing in our top priorities is what you see embedded in our guidance right now. We are very excited about 2024, and we see this opportunity as massive. And given, like I said earlier, the early signs of potential stabilization, we want to remain on our front foot, even if that means margins come down a little bit. That said, we have a history of being free cash flow positive, and so we've got to be smart about the cash that we are generating. And therefore, we've been opportunistic buyers of our own stock. As we see a good deal, we want to avail ourselves of that, but that is by no means opportunity number one for us.
Got it. So yeah, I will open it up for the audience. Any questions?
How about, so I think five years out is the next phase for what you're doing. Is it new, unique products that no one even thought about knowing to your company before in the past, or is it just getting a lot better about results that you can say were the best source if you're looking for your hiring?
That's a good question. Five years out is a long time. So I will not make any prediction about what roadmap is going to look like right now, but knowing the company as I do and seeing the roadmap that we have in front of us right now, it's going to be a combination of both. The fun thing about the AI work that we've been doing for a long time is that it's very iterative. By that, I mean that small improvements in the design of the product can elicit more data points for algorithms to feed on. So we talk about Phil a lot, but there's a good reason why. Because as Phil gets more conversational, that means that job seekers interact with Phil more.
All of that creates more of a data advantage for us upon which our matching algorithms feed to drive better matches and so on and so forth. So it creates this virtuous cycle. That's a lot of hard work that builds upon itself over time. So we're very excited about that trajectory. But that said, there's still plenty of opportunity to remove the friction out of the job seeking and the employment process. It's still very manual. And by that, I can even point to the fact that the vast majority of the addressable market still is made up from the more offline traditional recruiting process, which is difficult, and there's a lot of opportunity out there. So I think eliminating a lot of the friction out of the process is going to help us eat market share out of that offline portion of the market over time as well.
Last summer, you said job listings were down 30%, kind of on the go for you. Do you think the market is declining or is it stable up?
So like I said before, we're seeing signs of stabilization for sure. The job openings number, that can be a little difficult to benchmark against just because you can have a job opening that is posted, but there's no payment behind it, so free versus a paid job opening. So I think when we're looking at the macro overall, to us, it's more informative to kind of look at how employers are actually hiring, to what extent they are. And so that remains at a low level, but then when you look at the overall signs of life or job openings within our own marketplace, we're seeing some stabilization there.
So it's not declining 30% anymore?
Yeah. We're seeing that flatten out. Yeah.
Is it the first time it's flat in two years or how long ago?
It has flattened on a sequential basis over shorter periods of time in the past. Even in Q1 2023, we saw signs of potential flattening, but that was much shorter in duration, so hence the cause for some optimism right now.
Last one, if I can squeeze in. So on the VC panel downstairs, they talked about sales and marketing, about tech and hiring across a lot of their portfolio companies. You talked about, separate from what you've done internally, but just on the job posting side, you see a pickup in that category. Is there anything in it that you don't believe is that specific category across your listing?
Within the VC community, kind of higher tech, are you saying?
Well, more on the sales and market. Just pick up in sales.
Yeah. I would say it's modest, though. If you look at 2023, the real direction of job growth overall has really been constrained. About 80% of net new jobs have been constrained to just government and leisure and healthcare. That's basically it. And so in the grand scheme of things, that's what we've been seeing. Our marketplace basically looks like the U.S. economy. So we don't have any real skew into one vertical versus the other. So any meaningful growth in a very small subset of jobs, it's not going to meaningfully impact us.
You mentioned taking friction out. When you look at just taking friction out of the whole job recruiting process, where do you see the biggest opportunities to execute against that right now?
It depends on which side of the marketplace you're talking about. One of the interesting things about the employer side is the thing that human recruiters are really good at is being compelled to action. And so as an example, if you're an employer, you have five different applicants, there's always that desire to sit there and wait for that sixth because you never know. The magic employee might be right there. And interestingly, the same idea is true for the job seeker side as well. So should I keep applying, or should I really double down and really move in on this employer? So one of the things that humans are good at is compelling action. And that's really how hires are made and how that's what we're all looking for when we're hoping to connect people to their next great opportunity.
Phil is already helping people do that by shining a light on good jobs and saying, "This is perfect for you. There's only been five applicants. The earlier you are in the process, the better it is for you." We know this because we have millions of jobs and millions of job seekers. We see the data, so we can inform both sides of the equation with that data to compel action. So that's one example of a pretty major friction point in the hiring process that we can help eliminate.
Got it. I think we just run down the clock right there. So Tim, it was a pleasure.
Thank you.