ZIPRECRUITER, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

You should read the following discussion and analysis of our financial condition
and results of operations together with the consolidated financial statements
and the related notes included in Item 8 "Financial Statements and Supplementary
Data" in this Annual Report on Form 10-K. Some of the information contained in
this discussion and analysis or set forth elsewhere in this Annual Report on
Form 10-K, 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 "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

Our mission is to actively connect people to their next big opportunity.


ZipRecruiter is a two-sided marketplace for work. 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
typically ranging from a day to a year, or performance-based pricing, such as
cost-per-click, to align with each 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,
which is a designation assigned by ZipRecruiter's technology to indicate a high
potential fit between a job seeker and a job. 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.

For the year ended December 31, 2021, our revenue was $741.1 million and we
generated net income of $3.6 million and Adjusted EBITDA of $108.3 million. For
the year ended December 31, 2020, our revenue was $418.1 million, and we
generated net income of $86.0 million and Adjusted EBITDA of $80.1 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 "Key Operating Metrics and Non-GAAP Financial Measures."


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KEY OPERATIONAL INDICATORS 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:

                                March             June            September           December            March             June       September           December
                                 31,              30,                30,                31,                31,               30,          30,                 31,
                                 2020             2020              2020                2020              2021              2021         2021                2021
Quarterly Paid Employers      98,456           76,867           89,810              89,636             114,705           169,191     169,535            

147,081

Revenue per Paid Employer     $1,151           $1,140           $1,145              $1,276             $1,093            $1,081      $1,254              $1,497



                                                                                Year Ended December
                                                                                        31,
                                                                                          2021                 2020
                                                                                     (in thousands, except percentages)
Adjusted EBITDA                                                                      $   108,329           $   80,133
Adjusted EBITDA margin                                                                        15   %               19  %


Quarterly Paid Employers

We quantify the revenue-generating customer base as the number of Paid Employers
in our marketplace. The Quarterly 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. Paid Employers excludes employers from our third-party
sites or other indirect channels, employers who are not actively recruiting and
employers on free-trials. This group of employers excluded from our Paid
Employer count does not contribute a significant amount of revenue.

In the year ended December 31, 2021, Quarterly Paid Employers increased when
compared to the year ended December 31, 2020. The elevated levels of hiring
activity we saw throughout the year ended December 31, 2021 were driven by the
strong demand from U.S. employers entering and returning to our marketplace, and
a robust and recovering economy. The longstanding investments in building our
brand among employers and sales and marketing efforts contributed to a record
number of Paid Employers participating in our marketplace during 2021.

Income by 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.

In the year ended December 31, 2021, Revenue per Paid Employer increased by 17%
when compared to the year ended December 31, 2020. We experienced a large influx
of new and reactivated Paid Employers during the first and second quarters of
2021. Periods in which we have a large influx of new and reactivated Paid
Employers generally result in downward pressure on Revenue per Paid Employer as
these Paid Employers only contribute revenue for a portion of such a quarter. As
these Paid Employers use our marketplace and see positive results, many will
choose to list more job postings in our marketplace. Paid Employers also
increasingly use enhancement products and services to increase their job
postings' visibility and reach, generating additional revenue for ZipRecruiter.

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Adjusted EBITDA and Adjusted EBITDA margin


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
is calculated by dividing Adjusted EBITDA for a period by 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.
Adjusted EBITDA is not intended to be a substitute for any U.S. GAAP financial
measure and, as calculated, may not be comparable to other similarly titled
measures of performance of other companies in other industries or within the
same industry.

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.

The following table presents a reconciliation of net income and adjusted EBITDA for each of the periods indicated:

                                           Year Ended December 31,
                                                              2021           2020
                                                                (in thousands)
GAAP net income (1)                                        $   3,600      $ 86,048
Stock-based compensation                                     107,258         5,752
Depreciation and amortization                                  9,463         9,949
Total other expense, net                                         884            95
Income tax benefit                                           (12,876)      (21,711)
Adjusted EBITDA                                            $ 108,329      $ 80,133


____________
(1)GAAP net income includes one-time general and administrative expenses related
to financial advisory services, accounting and legal expenses, the bonus earned
by our Chief Executive Officer, and other filing costs in connection with the
direct listing of our Class A common stock on the New York Stock Exchange, or
Direct Listing, totaling $34.0 million and $0 in the years ended December 31,
2021 and 2020, respectively.

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The following tables present the GAAP net income margin and the adjusted EBITDA margin for each of the periods indicated:

                                        Year Ended December 31,
                                                           2021                              2020
                                                           (in thousands, except percentages)
Revenue                                            $        741,141                      $ 418,142
Net income                                                    3,600                         86,048
GAAP net income margin                                            -   %                         21  %


                                         Year Ended December 31,
                                                            2021                              2020
                                                            (in thousands, except percentages)
Revenue                                             $        741,141                      $ 418,142
Adjusted EBITDA                                              108,329                         80,133
Adjusted EBITDA margin                                            15   %                         19  %

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 a broad universe of employers and job opportunities in our market is critical to the future of our business. 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 in
employer-specific marketing has driven a significant increase in brand
awareness. Our aided brand awareness among employers has grown to over 80% as of
January 2022. 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 initially
onboard and begin using ZipRecruiter. 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.

Create more value for employers


While our marketplace serves a wide variety of employers, all employers benefit
from finding the right candidate quickly. We actively measure when an employer
rates a Great Match candidate with a "thumbs

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up" as a means of monitoring our matching quality. Despite a tight labor market,
we delivered 55% more Great Match applications who received a "thumbs up" from
employers in the year ended December 31, 2021 compared to the year ended
December 31, 2020.

Average monthly income per paid employer by start year of cohort of employers

                     [[Image Removed: zip-20211231_g2.gif]]

Satisfied employers continue to expand their relationship with us in terms of
additional jobs and tenure in our marketplace. 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. We saw
increased Revenue per Paid Employer across every annual Cohort (Paid Employers
acquired during a particular year) in 2021. For example, Average Monthly Revenue
per Paid Employer in our 2020 Cohort grew from $378 to nearly $800, an 111%
increase compared to the prior 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 and our customers
willing to spend more with us. Year 1 Average Monthly Revenue per Paid Employer
among our 2021 Cohort is nearly 4 times that of the 2015 Cohort.

Attract more job seekers


For job seekers, we operate like a personal recruiter, presenting potential
candidates to employers before they have applied. Phil, our AI-powered personal
recruiter, engages job seekers on their journey and provides technology that
makes their job search and application process more efficient. 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 2021
alone we engaged with over 35 million Active Job Seekers. Historically, we have
largely focused our marketing spend on employers, and despite being the highest
rated job seeker app on iOS and Android3, we are not yet the most well-known. In
2021, we began investing in media campaigns focused on job seeker acquisition
and engagement. We are focused on becoming top of mind for job seekers by
increasing our brand awareness.

3 Based on job search app ratings, Jan 2021 for Jan 2022 from AppFollow for
ZipRecruiterCareerBuilder, Glassdoor, Indeed, LinkedIn and Monster.

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We will continue to invest in increasing the number of job seekers in our market who are actively or passively open to evaluating new opportunities through a variety of acquisition strategies.

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 2021 and
2020, we spent $110.5 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.

The COVID-19 pandemic interrupted the patterns we typically see in our quarterly
seasonality. In 2020, we experienced a decrease in sequential revenue of 23% in
the quarter ended June 30, 2020 as a result of the pandemic, but saw consecutive
quarters of revenue growth of 17% and 11% in the third and fourth quarters of
2020, respectively, as employers started to return to and join our marketplace.
In 2021, we saw sequential revenue growth in each quarter. However, growth from
third to fourth quarter decelerated to 4%, reflecting more typical seasonal
patterns.

Impact of COVID-19


COVID-19 has had, and continues to have, a significant impact on the U.S.
economy and hiring. The economic recovery during the twelve months of 2021 has
driven a significant and broadly distributed increase in demand for labor. In
the year ended December 31, 2021, we delivered $741.1 million in revenue, a 77%
increase compared to the year ended December 31, 2020, reflecting strong
execution across product, marketing and operations, and the continuation of an
economic recovery. We saw employers in our marketplace increase by 64% in the
quarter ended December 31, 2021 versus the quarter ended December 31, 2020 as
macroeconomic conditions improved and we increased our sales and marketing
investments to aid in bringing on more Paid Employers.


Components of our operating results

Income


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, which are third-party sites who have a relationship with us and
advertise from our marketplace, and include job boards, newspaper classifieds,
search engines, social networks, talent communities and resume services.

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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 typically 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 its job postings.

Resume Database Plans allow our customers to search and view resumes and revenue is pro-rated 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.

For a description of our revenue recognition policies, see the section entitled “Critical Accounting Policies and Estimates” below.

Revenue cost and gross profit

Revenue cost


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 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 expenses include personnel costs (including salaries, sales commissions, bonuses, benefits and stock-based compensation) for our sales and marketing employees, marketing costs and related allocated overhead. Marketing activities include advertising, online sales

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lead generation, customer and industry events, and candidate acquisition. We allocate a portion of overhead, such as rent, IT costs, supplies, and depreciation, to sales and marketing expenses 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.

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 expense 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.

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. General and administrative expense
also consists of non-recurring costs as part of our transition to a publicly
traded company and includes fees paid to our financial advisors in connection
with our Direct Listing. 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.

We expect to continue 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.

Interest charges

Interest expense includes interest expense associated with our outstanding borrowings, undrawn fees associated with our credit facility, in-kind payments of interest on our convertible notes with related parties and amortization of our credit facility. Our convertible bonds with related parties converted into ordinary shares under the direct listing in May 2021.

Sublease income

Sublease revenue includes revenue from a non-cancellable sublease agreement for one of our offices. The contract ended in March 2021.


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Other income (expenses), 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)


We are subject to federal and state income taxes in the United States. For the
year ended December 31, 2020, our effective tax rate of (34)% differed from the
U.S. federal statutory tax rate of 21% primarily due to the release of a
valuation allowance previously maintained against net U.S. federal and state
deferred tax assets. As a result of our 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 year ended
December 31, 2021, our effective tax rate of 139% differed from the U.S. federal
statutory tax rate of 21% primarily due to excess tax benefits relating to the
exercise of stock-based compensation, partially offset by other permanent items
such as our Direct Listing costs and officer compensation limitations.

Operating results


A discussion regarding our financial condition and results of operations for
fiscal year 2021 compared to fiscal year 2020 is presented below. A discussion
regarding our financial condition and results of operations for fiscal year 2020
compared to fiscal year 2019 can be found in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" within our prospectus
filed on May 26, 2021 pursuant to Rule 424(b)(4) dated May 14, 2021, under the
Securities Act relating to the Registration Statement on Form S-1, as amended
(File No. 333-255488), which is available free of charge on the SEC's website at
http://www.sec.gov.

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The following table sets forth our consolidated results of operations for each
of the periods presented:

                                              Year Ended December 31,
                                                                 2021           2020
                                                                    (in thousands)
Revenue(1)                                                    $ 741,141      $ 418,142
Cost of revenue(2)                                               79,614         54,163
Gross profit                                                    661,527        363,979
Operating expenses
Sales and marketing(2)                                          410,665        191,141
Research and development(2)                                     110,470         69,408
General and administrative(2)(3)                                148,784     

38,998

Total operating expenses                                        669,919     

299,547

Income (loss) from operations                                    (8,392)        64,432
Other income (expense)
Interest expense                                                   (916)        (1,037)
Sublease income                                                     151          1,051
Other income (expense), net                                        (119)          (109)
Total other income (expense), net                                  (884)    

(95)

Income (loss) before income taxes                                (9,276)        64,337
Income tax expense (benefit)                                    (12,876)       (21,711)
Net income                                                    $   3,600      $  86,048


____________

(1) Revenue breaks down as follows:

                                      Year Ended December 31,
                                                         2021           2020
                                                            (in thousands)
Subscription revenue                                  $ 600,090      $ 346,781
Performance-based revenue                               141,051         71,361
Total revenue                                         $ 741,141      $ 418,142

(2)Includes stock-based compensation expense as follows:

                                           Year Ended December 31,
                                                              2021          2020
                                                                (in thousands)
Cost of revenue                                            $   1,093      $    73
Sales and marketing                                           17,865          704
Research and development                                      34,230        3,050
General and administrative                                    54,070        1,925
Total stock-based compensation                             $ 107,258      $ 

5,752



(3)Includes one-time charges related to financial advisory services, accounting
and legal expenses, the bonus earned by our Chief Executive Officer, and other
filing costs in connection with our Direct Listing totaling $34.0 million and $0
in the years ended December 31, 2021 and 2020, respectively.

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Comparison of the years ended December 31, 2021 and 2020

Revenue

                                        Year Ended December 31,
                                                           2021           2020         $ Change       % Change
                                                                  (in thousands, except percentages)
Total revenue                                           $ 741,141      $ 418,142      $ 322,999           77  %


Revenue increased $323.0 million, or 77%, for the year ended December 31, 2021
compared to the year ended December 31, 2020. Subscription revenue increased by
$253.3 million, or 73%, while performance-based revenue increased $69.7 million,
or 98%, for the same period. The increase in subscription revenue was primarily
due to the number of Quarterly Paid Employers in our marketplace as we ramped up
our marketing spend and the macroeconomic environment continued to improve from
the economic downturn caused by the COVID pandemic. The increase in
performance-based revenue was primarily due to the onboarding of new customers
who run sophisticated recruitment marketing campaigns in addition to increased
budgets as employers' hiring needs ramped up as the economy continued to
recover.

Revenue Cost and Gross Margin


                                        Year Ended December 31,
                                                           2021           

2020 $ Change % Change

                                                                  (in thousands, except percentages)
Cost of revenue                                         $ 79,614       $ 54,163       $ 25,451           47  %
Gross margin                                                  89  %          87  %


Cost of revenue increased $25.5 million, or 47%, for the year ended December 31,
2021 compared to the year ended December 31, 2020, primarily due to an increase
of $8.9 million in job distribution costs from performance-based revenue, an
increase of $7.0 million in credit card processing fees and an increase of $6.0
million in partner revenue share amounts. Total gross margin improved from 87%
to 89% in the years ended December 31, 2020 and December 31, 2021, respectively,
and reflects our continued commitment to operational efficiencies and
maintaining costs proportionate to revenue growth.

Sales and Marketing

                                              Year Ended December 31,
                                                                 2021            2020         $ Change       % Change
                                                                        (in thousands, except percentages)
Sales and marketing                                          $ 410,665       $ 191,141       $ 219,524          115  %
Percentage of revenue                                               55  %           46  %



Sales and marketing expenses grew $219.5 million, or 115%, for the year ended
December 31, 2021 compared to the year ended December 31, 2020. The increase was
primarily due to an additional $182.3 million in marketing and advertising
versus the prior-year period. Personnel related costs for our sales and
marketing employees increased by $20.0 million, largely due to an increase in
headcount. Stock-based compensation costs increased $17.2 million, primarily
attributable to our RSUs which vested as a result of our board of directors'
waiver of the liquidity event-based vesting condition during the second quarter
of 2021, in addition to the ongoing stock-based compensation expense related to
our RSU awards over the remaining service period.

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Research and Development

                                                 Year Ended December 31,
                                                                    2021           2020         $ Change      % Change
                                                                          (in thousands, except percentages)
Research and development                                        $ 110,470       $ 69,408       $ 41,062           59  %
Percentage of revenue                                                  15  %          17  %



Research and development expenses increased $41.1 million, or 59%, for the year
ended December 31, 2021 compared to the year ended December 31, 2020 primarily
due to an increase in stock-based compensation of $31.0 million mostly
attributable to our RSUs which vested as a result of our board of directors'
waiver of the liquidity event-based vesting condition during the second quarter
of 2021, in addition to the ongoing stock-based compensation expense related to
our RSU awards over the remaining service period. Personnel related costs for
our research and development employees increased by $8.7 million, primarily
attributable to an increase in headcount.

General and administrative

                                                    Year Ended December 31,
                                                                       2021           2020         $ Change       % Change
                                                                              (in thousands, except percentages)
General and administrative                                         $ 148,784       $ 38,998       $ 109,786          282  %
Percentage of revenue                                                     20  %           9  %



General and administrative expenses increased $109.8 million, or 282%, for the
year ended December 31, 2021 compared to the year ended December 31, 2020
primarily due to an increase in stock-based compensation of $47.9 million
attributable to our RSUs which vested as a result of our board of directors'
waiver of the liquidity event-based vesting condition during the second quarter
of 2021, in addition to the ongoing stock-based compensation expense related to
the vesting of RSU awards that was not applicable in the prior-year period, and
to a lesser extent, the increase also related to the $4.2 million of stock-based
compensation expense in the current period related to the modification of RSUs
and options granted to a former executive. Additionally, we incurred
non-recurring fees for legal, accounting, and other costs related to the Direct
Listing for the year ended December 31, 2021 totaling $24.0 million, of which
$19.4 million was paid to our financial advisors. An additional $10.0 million
bonus was paid to our CEO in connection with the Direct Listing. An overall
increase in general professional consulting fees, directors' and officers'
insurance and general investor marketing fees totaling $3.5 million was incurred
as part of the transition to becoming a public company. Furthermore, we recorded
a non-income tax expense of $8.7 million in the year ended December 31, 2021. We
record non-income taxes that may result from examinations by, or any anticipated
negotiated agreements with, tax authorities when a loss is probable and
reasonably estimable. Lastly, personnel related expenses for our general and
administrative employees increased by $5.2 million, primarily attributable to an
increase in headcount.

Other Income (Expense), Net

                                                                          Year Ended December 31,
                                                                                       2021                 2020             $ Change             % Change
                                                                                                       (in thousands, except percentages)
Other income (expense), net                                                      $    (884)              $    (95)         $    (789)                    831  %


There were insignificant fluctuations in other income (expenses) for the year ended
December 31, 2021 compared to the year ended December 31, 2020.

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Income tax expense (benefit)

                                                       Year Ended December 31,
                                                                          2021            2020         $ Change      % Change
                                                                                 (in thousands, except percentages)
Income tax expense (benefit)                                          $ (12,876)      $ (21,711)      $  8,835          (41) %
Effective tax rate                                                          139  %          (34) %



For the year ended December 31, 2021, our tax benefit reduced by $8.8 million as
compared to the year ended December 31, 2020. Our effective tax rate in
December 31, 2021 and 2020 was 139% and (34)%, respectively. Our effective tax
rate for the year ended December 31, 2021 differed from the U.S federal
statutory rate of 21% primarily due to excess tax benefits relating to the
exercise of stock-based compensation, partially offset by permanent book-tax
differences such as limitations on the deductibility of executive compensation
and one time expenses related to our Direct Listing. Our effective tax rate for
the year ended December 31, 2020 differed from the U.S federal statutory rate of
21% primarily due the one-time release of a valuation allowance against deferred
tax assets.

Cash and capital resources


As of December 31, 2021, we had cash totaling $254.6 million and $244.2 million
available in unused borrowing capacity under our Current Revolving Line (as
defined below). We have financed our operations and capital expenditures
primarily through cash generated from operations, sales of shares of common and
preferred stock and from bank loans and convertible notes. As of December 31,
2021, we had no amounts outstanding under our Current Revolving Line.

Subsequent to December 31, 2021, in January 2022, we completed the previously
announced private offering of $550.0 million aggregate principal amount of
Senior Notes due 2030, or the Notes. The Notes mature on January 15, 2030 and
bear interest at a rate of 5% per year. We intend to use the net proceeds from
the offering for general corporate purposes, which may include capital
expenditures, investments, and working capital. We believe that these funds will
further enhance our financial flexibility and liquidity. The Notes are described
in more detail in Note 16 "Subsequent Events" to our consolidated financial
statements in this Annual Report on Form 10-K.

We believe our existing cash, cash flow from operations, and amounts available
for borrowing under our Current Revolving Line will be sufficient to meet our
working capital requirements for at least the next twelve months. To the extent
existing cash, cash from operations, and amounts available for borrowing are
insufficient to fund future activities, we may need to raise additional funds.
In the future, we may attempt to raise additional capital through the sale of
equity securities or through equity-linked or debt financing arrangements. If we
raise additional funds by issuing equity or equity-linked securities, the
ownership of our existing stockholders will be diluted. If we raise additional
financing by the incurrence of additional indebtedness, we may be subject to
increased fixed payment obligations and could also be subject to additional
restrictive covenants, such as limitations on our ability to incur additional
debt, and other operating restrictions that could adversely impact our ability
to conduct our business. Any future indebtedness we incur may result in terms
that could be unfavorable to equity investors. There can be no assurances that
we will be able to raise additional capital. The inability to raise capital
could adversely affect our ability to achieve our business objectives.

Prior Revolving Credit Facility

We previously entered into a loan and guarantee agreement with a financial institution that provided for a revolving credit facility, or the Prior Revolving Line of Credit. Our previous renewable line ended on April 30, 2021 when we entered into a new credit facility, as described below.

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Current revolving credit facility


In April 2021, we entered into a Credit Agreement with a syndicate of banks, or
the Credit Agreement. The Credit Agreement provides for a $250.0 million
revolving credit facility, or the Current Revolving Line, and has a maturity
date of April 30, 2026. The amount available under the Current Revolving Line is
reduced by letters of credit outstanding, which totaled $5.8 million as of
December 31, 2021. The letters of credit outstanding relate to various leased
office spaces.

The Current Revolving Line bears interest at a rate based upon our Net Leverage
Ratio. Our Net Leverage Ratio is defined as total debt less total cash and
permitted investments outstanding at period end, with a maximum total cash and
permitted investments adjustment of $100.0 million, divided by the trailing
twelve month of earnings, adjusted for items such as non-cash expenses and other
nonrecurring transactions. We are also obligated to pay other customary fees for
a credit facility of this size and type, including a commitment fee on a
quarterly basis based on amounts committed but unused under the revolving credit
facility at a rate between 0.25% to 0.35%, based upon our Net Leverage Ratio.

The Current Revolving Line is collateralized by security interests in
substantially all of our assets. The Current Revolving Line includes customary
events of default that include, among other things, non-payment of principal,
interest or fees, inaccuracy of representations and warranties, violation of
certain covenants, cross default to certain other indebtedness, bankruptcy and
insolvency events, material judgments against us, and a change of control. The
occurrence of an event of default could result in the acceleration of the
obligations under the Credit Agreement.

The Credit Agreement contains customary representations, warranties, affirmative
covenants, such as financial statement reporting requirements, negative
covenants, and financial covenants, such as maintenance of certain net leverage
ratio requirements, applicable to us. The negative covenants include
restrictions that, among other things, restrict our and our subsidiaries'
ability to incur liens and indebtedness, make certain investments, declare
dividends, dispose of, transfer or sell assets, make stock repurchases and
consummate certain other matters, all subject to certain exceptions.

On November 19, 2021, we entered into an amendment to the Credit Agreement with
a syndicate of banks and the lenders named therein, to amend certain other
provisions under the Credit Agreement relating to how letters of credit
denominated in currencies other than U.S. Dollars are valued under the Credit
Agreement.

We have no outstanding amounts under the current revolving line and are in compliance with our covenants at December 31, 2021.


On January 10, 2022, we entered into a second amendment to the Credit Agreement,
or the Second Amendment, with a syndicate of banks and the lenders named
therein. The Second Amendment increases the maximum amount of liquidity
(including cash and permitted investments) that may be netted against our total
indebtedness from $100.0 million to $550.0 million for purposes of calculating
our total net leverage ratio under the Credit Agreement.

Convertible securities with related parties


In June 2020, we issued subordinated secured convertible promissory notes, or
the Convertible Notes, to related parties who were then holders of our
Redeemable Convertible Preferred Stock. The Convertible Notes totaled $25.0
million and had a maturity date of June 22, 2023. In May 2021, the Convertible
Notes converted into shares of common stock in connection with the Direct
Listing and were no longer outstanding as of December 31, 2021.

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Cash flow


The following table summarizes our cash flows for the periods presented (in
thousands):

                                                            Year Ended December 31,
                                                              2021                2020

Net cash provided by operating activities             $     144,136            $ 88,013
Net cash used in investing activities                       (13,336)        

(7,373)

Net cash provided by (used in) financing activities           9,282              (1,630)
Net increase in cash                                  $     140,082            $ 79,010


Operating Activities

The primary source of operating cash inflows is cash collected from our
customers for our services. Our primary uses of cash from operating activities
are for personnel related expenditures, marketing costs and third-party costs
incurred to support our marketplace.

For the year ended December 31, 2021, cash provided by operating activities was
$144.1 million resulting from our net income of $3.6 million, adjusted by
non-cash charges of $109.2 million and a net increase of $31.4 million in our
operating assets and liabilities. The non-cash charges primarily resulted from
$107.3 million for stock-based compensation expense, $9.5 million pertaining to
amortization of intangible assets and depreciation, and $5.4 million pertaining
to non-cash lease expense, partially offset by $14.9 million related to the
change in our deferred tax assets primarily driven by current year pretax losses
and the tax related impact of stock-based compensation. The increase in our
operating assets and liabilities was primarily driven by an increase of $56.6
million in our accrued expenses and other liabilities and accounts payable as we
increased our marketing spend during the year ended December 31, 2021, partially
offset by an increase of $22.4 million in our accounts receivable associated
with an increase in revenue due to the number of Quarterly Paid Employers
compared to the prior year.

For the year ended December 31, 2020, cash provided by operating activities was
$88.0 million resulting from our net income of $86.0 million, adjusted by
non-cash charges of $1.9 million and a net decrease of $0.1 million in our
operating assets and liabilities. The non-cash charges primarily resulted from
$9.9 million pertaining to amortization of intangible assets and depreciation,
$5.8 million for stock-based compensation expense, $5.6 million pertaining to
non-cash lease expense, and $3.2 million related to provision for bad debts,
partially offset by $22.9 million related to the change of our deferred tax
assets driven by the release of our domestic valuation allowance.

Investing activities


For the year ended December 31, 2021, cash used in investing activities was
$13.3 million resulting from an increase of $7.3 million related to capitalized
software development costs and an increase in capital expenditures of $6.1
million primarily related to leasehold improvements for one of our operating
leases.

For the year ended December 31, 2020, cash used in investing activities was $7.4
million resulting from an increase in capitalized software development costs of
$6.0 million and an increase in capital expenditures of $1.4 million to purchase
property and equipment.

Financing Activities

For the year ended December 31, 2021, cash provided by financing activities was
$9.3 million which consisted of $18.5 million of proceeds from the exercise of
stock options partially offset by $5.2 million for the net settlement of taxes
on restricted stock units, $2.8 million for the repurchase of common stock, and
$1.3 million for the payment of the issuance costs related to our new credit
facility.

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For the year ended December 31, 2020, cash used in financing activities was $1.6
million, which primarily consisted of $19.0 million for the repurchase of common
stock from some of the founders, and $10.0 million of net repayment on our term
loan, partially offset by net proceeds of $25.0 million in proceeds from our
convertible notes with related parties, and $2.4 million of proceeds from the
exercise of stock options.

Obligations and other commitments


See Note 11 of the audited consolidated financial statements and related notes
included in this Annual Report on Form 10-K for our future minimum commitments
related to certain software service agreements. Through December 31, 2021, we
did not have any relationships with unconsolidated organizations or financial
partnerships, such as structured finance or special purpose entities that have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.


Significant Accounting Policies and Estimates


Critical accounting policies and estimates are both the most important to the
portrayal of our net assets and results of operations and require difficult,
subjective, or complex judgments. We often need to make estimates about the
effect of matters that are inherently uncertain and these estimates are
developed based on historical experience and various other assumptions that we
believe to be reasonable under the circumstances.

Critical accounting estimates are accounting estimates where the nature of the
estimates are material due to the levels of subjectivity and judgment necessary
to account for highly uncertain matters or the susceptibility of such matters to
change and the impact of the estimates on financial condition or operating
performance is material.

The significant accounting policies and estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue recognition


We derive our revenue primarily from fees for subscription services and
performance-based job posting activities. Revenue is recognized when control of
the promised goods or services is transferred to our customers, in an amount
that reflects the consideration we expect to be entitled to in exchange for
those goods or services.

We determine revenue recognition through the following steps:

• Identification of the contract(s) with a customer

• Identification of all performance obligations in the contract

• Determination of the transaction price

• Allocation of the transaction price to the performance obligations in the contract

• Revenue recognition when, or over time, the performance obligation(s) are satisfied


We identify enforceable revenue contracts when the terms are agreed to by the
customer. Some of our contracts with customers contain multiple performance
obligations. For these contracts, we account for performance obligations
separately if they are distinct. The transaction price is allocated to the
separate performance obligations on a relative standalone selling price basis.
We determine the standalone selling prices based on our overall pricing
objectives, taking into consideration market

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terms and other factors, including the value of our contracts, the products sold, and the number and types of users under our contracts.

Revenue is recognized when performance obligations are satisfied and is presented net of sales rebates.

We derive our income from the following sources:

Subscription revenue


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. Plans are priced at a flat rate based on plan size and depending
on the length of the term. Customer contracts are typically subject to renewal
at the end of the subscription term and are nonrefundable.

Time-based job posting plans: Job posting plans provide customers access to
cloud-based software services, where they may create job postings that are
posted to our marketplace in addition to numerous other job sites or partner
networks with job seeker communities. Customers may also access our software to
review job applications and manage job postings. We recognize revenue from job
posting plans ratably over the term of the agreement beginning on the date the
subscription service is made available to the customer. Once a customer requests
a cancellation of their subscription, the open job postings are closed at the
end of the term; however, the customer may still access the software to review
past job postings or prior applications received under a separate upsell
subscription. Job posting plans are billed in advance of the subscription
period, which typically ranges from one to twelve months, except for daily
subscription plans, which are billed in arrears based on how many days the
customer uses the services.

Upsell services: Additional features to complement or expand visibility to job
posting plans may be purchased as an upsell service. For these services, we bill
the customers in advance and recognize revenue ratably over the term of the
agreement beginning on the date the upsell services are made available to the
customer, which typically ranges from one to twelve months.

Upsell services also include job posting enhancements which are applied to
individual job postings, and provide customers with a temporary boost in the
prominence of their open jobs. Individual job posting enhancements may be
purchased by a customer when needed, or in recurring monthly prepaid bundles to
complement their job posting subscription plan, and are billed in advance of
use. Typically these prepaid bundles can be used over a period ranging from one
to twelve months. Revenue from job posting enhancements is recognized as the
customer uses the enhancement on their job postings. Unused prepaid job
enhancements are not refundable, and we recognize revenue for the estimated
portion of prepaid job enhancements that are expected to expire unused, or
breakage, based on estimates considering historical breakage levels for
similarly sized customers and upsell plans. Breakage is recognized as revenue in
proportion to the pattern of actual usage by customers.

Resume database plans: Access to our resume database is purchased on a
subscription basis and allows a customer to search for and view resumes. Resume
database plans are priced based on how many resumes the customer would like to
view in a month and may be purchased independent of, or in addition to, a job
posting plan. Resume database plans are billed in advance of the subscription
period, which typically ranges from one to twelve months. Revenue is recognized
ratably over the subscription period.

Performance based income


Performance-based revenue consists of customers who pay on a per click by job
applicant or per job application basis for the job postings customers wish to
distribute through our software. Customers pay an amount per click or per
application that is usually capped at a contractual maximum per recruitment
campaign, with campaigns typically lasting from one to three months. Customers
on this pricing model do not have access to our applicant tracking software for
subscription customers though they may purchase

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resume database subscription plans separately. Customers using a performance-based revenue plan are typically companies with ongoing hiring needs and sophisticated recruiting campaigns where they manage incoming applications and job postings on their own ATS.

Performance-based revenue is typically billed monthly, in arrears, and revenue is recognized when candidates click on or apply to advertised job openings, up to the contractual maximum per recruiting campaign.

Sales Allowance


We establish a sales allowance to estimate refunds and credits that we may grant
to customers in the future for cancellations of subscriptions and concessions to
customers who are not satisfied with services received. While subscriptions are
noncancelable once the contract term has commenced, we may at times allow
customers who miss their cancellation window prior to an autorenewal to cancel
their contract, and we may issue refunds or credits to maintain overall customer
satisfaction. The sales allowance is estimated by considering historical results
and trends and is accounted for as a reduction to revenue or deferred revenue
for contracts where payments are received upfront and revenue is recognized over
time.

Stock-Based Compensation

Compensation expense related to stock-based awards is measured and recognized in
the financial statements based on the fair value of the awards granted. The fair
value of each option award and employee stock purchase right associated with its
employee share purchase program (ESPP) is estimated on the grant date using the
Black-Scholes option-pricing model. We have elected to treat stock-based awards
with graded vesting schedules and time-based service conditions as a single
award and recognize stock-based compensation expense on a straight-line basis
over the requisite service period.

For awards that contain both performance and service vesting conditions, the
grant date fair value is recognized as compensation expense using a graded
vesting attribution model. No expense is recognized for awards with performance
conditions until the performance condition is probable of being met.

The Black-Scholes option pricing model requires us to make certain assumptions, including:

Fair value of our common shares. See the section entitled “- Determination of the Fair Value of Common Shares at Grant Dates” below.


Expected Term. Given that we do not have sufficient exercise history to develop
reasonable expectations about future exercise patterns and post-vesting
employment termination behavior, we determine the expected term for our "plain
vanilla" stock options using the simplified method, which is calculated as the
midpoint of the stock option vesting term and the expiration date of the stock
option. For stock options that contain a performance condition, we are using the
contractual term as the expected term as those awards were only granted to
nonemployees.

Expected Volatility. Because our common stock has limited trading history, we
estimate the expected volatility of the awards from the historical volatility of
selected public companies that represent similar but alternative investment
opportunities to an investment in us. Characteristics considered in identifying
guideline public companies include similarity in size, lines of business, market
capitalization, revenue and financial leverage. We determined the expected
volatility assumption using the frequency of daily historical prices of
comparable public company common stock for a period equal to the expected term
of the option. We periodically assess the comparable companies and other
relevant factors used to measure expected volatility for stock option grants.

Risk-free Rate. The risk-free interest rate assumption is based upon observed
interest rates on the U.S. government securities appropriate for the expected
term of our employee stock options.

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Dividend yield. The dividend yield assumption is based on our history and expectations for dividend payments. We have never declared or paid any cash dividends on our common stock and we do not expect to pay any cash dividends in the foreseeable future.

The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions that require the exercise of judgment. Had we made different assumptions, our stock-based compensation expense and results of operations for the years ended December 31, 20212020 and 2019 may have been very different.

Determination of the fair value of ordinary shares at the grant dates


Prior to the completion of our Direct Listing on May 26, 2021, our common stock
was not publicly traded, and therefore, our board of directors exercised
significant judgment in determining the fair value of our common stock on the
date of each stock-based grant, with input from management and the assistance
from an independent third-party valuation firm based on several objective and
subjective factors. The valuations of our common stock were determined in
accordance with the guidelines outlined in the American Institute of Certified
Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity
Securities Issued as Compensation. In determining the fair market value of our
common stock prior to the Direct Listing, the board of directors considered the
following:

•the prices of our redeemable convertible preferred stock sold to outside investors in arm’s length transactions;

•the rights, preferences and privileges of our redeemable convertible preferred stock over our common stock;

•our operational and financial performance;

•the present value of our anticipated future cash flows;

• our stage of development and current business conditions and projections affecting our business, including the introduction of new products and services;


•the likelihood of achieving a liquidity event for the shares of common stock
underlying these stock options, such as an initial public offering or sale of
our company, in light of prevailing market conditions;

•any adjustments necessary to recognize the lack of a liquid trading market for our common stock;

•the stock market performance of comparable listed companies; and

•all we economic, regulatory and capital market conditions.

In valuing our common stock, our Board of Directors determined the equity value of our business using various valuation methods, including market and income approaches with management input.


The market approaches we used prior to the Direct Listing were the Guideline
Public Company Method and the Guideline Transaction Method. The Guideline Public
Company Method estimated our equity value by applying a representative market
value multiple from comparable companies to our financial forecasts. The
Guideline Transaction Method estimated our equity value by using pricing
multiples derived from sales of companies with similar characteristics to us.
Under the income approach, a Discounted Cash Flow, or DCF, model was used, where
net cash flows attributable to our business and an assumed terminal value were
discounted to present value using a discount rate, based on our estimated
weighted average cost of capital that reflected the risks inherent in the cash
flows.

After determining our equity value, we then allocated the equity value to our
classes of stock using either an Option Pricing Method, or OPM, or a hybrid of
OPM and Probability Weighted Expected Return Method, or PWERM.

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The OPM allocated values to each equity class by creating a series of call
options on our equity value, with exercise prices based on the liquidation
preferences, participation rights, and strike prices of the equity instruments.
In determining the estimated fair value of our common stock, we considered the
fact that our stockholders could not freely trade our common stock in the public
markets. Accordingly, we also applied a discount for lack of marketability to
the equity value.

Under the hybrid OPM and PWERM, the allocation was based on the likelihood of a
near-term liquidity exit or an alternative exit scenario. For a near-term
liquidity scenario, the allocation was based on the expected pricing and timing
of the liquidity event. For the alternative exit scenario, an OPM with an
appropriate time to liquidity was used to estimate the fair value of the share
classes assuming the near-term liquidity scenario does not occur, with the
resulting share values under each scenario weighted by management's estimate of
their respective probabilities. We also applied a discount for lack of
marketability.

In valuing our common stock at various dates in 2019 through September 30, 2020,
our board of directors determined the equity value of our business using the
Guideline Public Company Method and the equity value was then allocated to our
classes of stock using an OPM given the uncertainty with regards to the timing
and type of future exit scenario.

In valuing our common stock as of December 31, 2020 and March 31, 2021, our
board of directors determined the equity value of our business using the
Guideline Public Company Method, the Guideline Transaction Method, and a DCF.
The equity value was then allocated to our classes of stock using the hybrid OPM
and PWERM based on management's estimate of the likelihood of a near-term
liquidity event or an alternative exit scenario.

Application of these approaches involves the use of estimates, judgment, and
assumptions that are highly complex and subjective, such as those regarding our
expected future revenue and costs, future cash flows, discount rates, market
multiples, the selection of comparable companies, and the probability of
possible future exit events. Changes in any or all of these estimates and
assumptions or the relationships between those assumptions impact our valuations
as of each valuation date and may have a material impact on the valuation of our
common stock.

For stock awards granted after the completion of our Direct Listing on May 26,
2021, our board of directors determined the fair value of each share of
underlying common stock based on the New York Stock Exchange, or NYSE, closing
price on the date prior to the date of grant.

We have granted RSUs to certain of our employees and directors. The granted RSUs
vest upon the satisfaction of both a time-based service condition and a
liquidity event requirement. The time-based service condition for these awards
is generally satisfied over four years. The liquidity event requirement is
satisfied upon the earliest to occur of a qualifying event, defined as a change
of control transaction or after a set period of time following the effective
date of our initial public offering pursuant to an effective registration
statement under the Securities Act for the offer and sale of shares by
ZipRecruiter. A direct listing in which we did not sell our equity securities
would not have satisfied the liquidity event performance condition; however, on
April 19, 2021, our board of directors waived the liquidity event performance
condition for the 6.9 million RSUs then outstanding so those that had satisfied
the service condition would vest upon the earlier of the first day of trading of
our common stock on the NYSE, or March 15, 2022. As the satisfaction of the
performance condition was not probable for accounting purposes prior to the
waiver, the waiver of the liquidity event-based performance condition resulted
in the remeasurement of the modified awards at fair value on the date of the
waiver, which management estimated to be $25.04 per share or approximately
$172.6 million.

Stock-based compensation for awards with a market condition

In April 2021, we awarded an RSU award (the “CEO Performance Award”), which included vesting conditions based on service, market and performance. The fair value of the award is determined using a Monte Carlo simulation model. The related stock-based compensation expense is recognized on the

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requisite service period, using a graded attribution method. The requisite
service period is the longer of the service period derived from the Monte Carlo
simulation model and the explicit service period the CEO is required to remain
employed to vest in the award. The market condition is satisfied upon achieving
certain stock price targets for a period following the completion of our Direct
Listing. The CEO Performance Award also contains an implied performance-based
vesting condition as the CEO's ability to earn the award was contingent upon the
completion of the Direct Listing. Accordingly, no expense was recognized prior
to the completion of our Direct Listing on May 26, 2021, as vesting was not
considered probable for accounting purposes until the Direct Listing occurred.
Provided that Ian Siegel continues to be the CEO of ZipRecruiter, stock-based
compensation expense is recognized over the requisite service period, regardless
of whether the stock price targets are achieved. If the stock price targets are
met sooner than the derived service period, we will accelerate the recognition
of stock-based compensation expense to reflect the cumulative expense associated
with the vested shares.

Income Taxes

We account for income taxes in accordance with Accounting Standards Codification
740, Income Taxes. Current tax liabilities and assets are recognized for the
estimated taxes payable or refundable, respectively, on the tax returns for the
current year. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

We record valuation allowances against our deferred tax assets, when necessary.
Realization of deferred tax assets (such as net operating loss carry-forwards)
is dependent upon future taxable earnings and is therefore uncertain. At least
quarterly, we assess the likelihood that our deferred tax asset balance will be
realized against future taxable income. To the extent we believe that
realization is not likely, we establish a valuation allowance against our net
deferred tax asset, which increases our income tax expense in the period when
such determination is made. During the fourth quarter of 2020, based on the
current earnings and forecasted taxable income, we determined that it was more
likely than not that those assets will be realized. Accordingly, we released the
valuation allowance of $37.7 million against our deferred tax assets. Although
we incurred a current year pretax loss due to various expenses associated with
our Direct Listing, we have a recent history of cumulative earnings, and we
expect to return to profitability in subsequent years to generate sufficient
taxable income to utilize our deferred tax assets. Thus, no valuation allowance
has been recorded as of the date of the Consolidated Balance Sheets.

On a quarterly basis, we evaluate the probability a tax position will be
effectively sustained, and the appropriateness of the amount recognized for
uncertain tax positions based on factors including changes in facts or
circumstances, changes in tax law, settled audit issues and new audit activity.
Changes in our assessment may result in the recognition of a tax benefit or an
additional charge to the tax provision in the period our assessment changes. We
recognize interest and penalties related to income tax matters in income tax
expense.

JOBS Act Accounting Election

We meet the definition of an emerging growth company under the JOBS Act, which
permits us to take advantage of an extended transition period to comply with new
or revised accounting standards applicable to public companies. We have elected
to use this extended transition period until we are no longer an emerging growth
company or until we affirmatively and irrevocably opt out of the extended
transition period. As a result, our consolidated financial statements may not be
comparable to companies that comply with new or revised accounting
pronouncements applicable to public companies.

Recent accounting pronouncements

See Note 2 of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for more information.

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