ZIPRECRUITER, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
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 1 "Financial Statements" in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, 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 toZipRecruiter 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 byZipRecruiter'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 three months endedMarch 31, 2022 , our revenue was$227.3 million and we generated a net income of$8.4 million and Adjusted EBITDA of$37.2 million . For the three months endedMarch 31, 2021 , our revenue was$125.4 million , and we generated a net income of$13.4 million and Adjusted EBITDA of$20.0 million . Adjusted EBITDA is a financial measure not presented in accordance with GAAP. For a definition of Adjusted EBITDA, an explanation of our management's use of this measure and a reconciliation of net income to Adjusted EBITDA, see the section titled "Key Operating Metrics and Non-GAAP Financial Measures."
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 31, June 30, September 30, December 31,
2021 2021 2021 2021 March 31, 2022
Quarterly Paid Employers 114,705 169,191 169,535 147,081 150,233
Revenue per Paid Employer $ 1,093 $ 1,081 $ 1,254 $ 1,497 $ 1,513
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Three Months Ended
March 31,
2022 2021
(in thousands, except percentages)
Adjusted EBITDA $ 37,203 $ 19,994
Adjusted EBITDA margin 16 % 16 %
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 quarter ended March 31, 2022 , Quarterly Paid Employers increased when
compared to the quarter ended December 31, 2021 . The elevated levels of hiring
activity we saw throughout the year ended December 31, 2021 continued, 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 in-period sales and marketing efforts contributed
to a growing number of Paid Employers participating in our marketplace during
the first quarter of 2022.
Revenue per Paid Employer
We evaluate Revenue per Paid Employer as a key indicator of our efforts to
increase value provided to employers in our marketplace. We define Revenue per
Paid Employer as total company revenue in a given period divided by Quarterly
Paid Employers in the same period.
In the quarter ended March 31, 2022 , Revenue per Paid Employer increased
slightly when compared to the quarter ended December 31, 2021 . Employers'
willingness to pay continued to grow in the current quarter as demand for talent
remained high. Our products and services continue to improve, offering more
value for employers of all sizes. We expect the longstanding upward trend of
growing Revenue per Paid Employer to continue.
Adjusted EBITDA and Adjusted EBITDA margin
We define Adjusted EBITDA as our net income 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 anyU.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. 25
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The following table presents a reconciliation of net income and adjusted EBITDA for each of the periods indicated:
Three Months Ended
March 31,
2022 2021
(in thousands)
GAAP net income (1) $ 8,417 $ 13,398
Stock-based compensation 20,494 1,226
Depreciation and amortization 2,485 2,302
Total other (income) expense, net 6,310 (177) Income tax expense (benefit)
(503) 3,245 Adjusted EBITDA$ 37,203 $ 19,994
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(1)GAAP net income includes one-time general and administrative expenses related to accounting and legal expenses and other filing costs in connection with our Direct Listing totaling$0 and$2.1 million in the three months endedMarch 31, 2022 and 2021, respectively.
The following tables present the GAAP net income margin and the adjusted EBITDA margin for each of the periods indicated:
Three Months Ended
March 31,
2022 2021
(in thousands, except percentages)
Revenue $ 227,260 $ 125,372
Net income 8,417 13,398
GAAP net income margin 4 % 11 %
Three Months Ended
March 31,
2022 2021
(in thousands, except percentages)
Revenue $ 227,260 $ 125,372
Adjusted EBITDA 37,203 19,994
Adjusted EBITDA margin 16 % 16 %
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 year ended 2021 has driven
a significant and broadly distributed increase in demand for labor. In the
quarter ended March 31, 2022 , we delivered $227.3 million in revenue, a 81%
increase compared to the quarter ended March 31, 2021 , reflecting strong
execution across product, marketing and operations, and the continuation of an
economic recovery. We saw employers in our marketplace increase by 31% in the
quarter ended March 31, 2022 versus the quarter ended March 31, 2021 as
macroeconomic conditions improved and we increased our sales and marketing
investments to aid in bringing on more Paid Employers.
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Components of our operating results
Revenue
We generate revenue primarily from fees paid by employers to post and distribute jobs in our marketplace, as well as multiple sites managed byJob Distribution Partners , which are third-party sites who have a relationship with us and advertise from our marketplace, and includes job boards, newspaper classifieds, search engines, social networks, talent communities and resume services. 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 byZipRecruiter 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. These fluctuations may be influenced by our revenues, the timing and amount of investments to expand hosting capacity, our
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investments in our support teams and amortization expense associated with our capitalized internal-use software and development costs.
Operating costs and expenses
Sales and Marketing
Sales and marketing expense consists of personnel related costs (including salaries, sales commissions, bonuses, benefits, and stock-based compensation) for our sales and marketing employees, marketing activities, and related allocated overhead costs. Marketing activities include advertising, online lead generation, customer and industry events, and candidate acquisition. We allocate a portion of overhead costs, such as rent, IT costs, supplies, and depreciation and amortization, to sales and marketing expense based on headcount. We expect that sales and marketing expenses will increase on an absolute dollar basis and may vary from period to period as a percentage of revenue for the foreseeable future as we plan to continue to invest in sales and marketing to attract both employers and job seekers to our marketplace and to increase our brand awareness. We expect that these expenses will continue to be our largest operating expense category for the foreseeable future as we continue to expand on our sales and marketing efforts.
Research and development
Research and development expense consists of personnel related costs (including salaries, bonuses, benefits, and stock-based compensation) for our research and development employees, amortization of capitalized software costs associated with the development of the databases supporting our marketplace, and the cost of certain third-party service providers. We allocate a portion of overhead costs, such as rent, IT costs, supplies, and depreciation and amortization, to research and development expenses based on headcount. Research and development costs, other than software development costs qualifying for capitalization, are expensed as incurred. We believe continued investments in research and development are important to attain our strategic objectives, and expect research and development expense to increase in absolute dollars. This expense may vary as a percentage of total revenue for the foreseeable future as we continue to invest in research and development activities related to ongoing improvements to, and maintenance of, our marketplace, expansion of our services, as well as other research and development programs, including the hiring of engineering, product development, and design employees to support these efforts.
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 theSEC , 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, uncollected fees associated with our credit facility and amortization of issuance costs of our credit facility and senior unsecured notes.
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Sublease income
Sublease revenue includes revenue from a non-cancellable sublease agreement for one of our offices. The contract ended in
Other Income (Expense), Net Other income (expense) consists primarily of gains and losses from foreign currency exchange transactions. We have foreign currency exposure primarily related to personnel related expenses that are denominated in currencies other than theU.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 inthe United States , as well as several international jurisdictions. The effective tax rate for the three months endedMarch 31, 2022 differed from theU.S. federal statutory tax rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options and settlement of RSUs and from the tax benefits from research and development tax credits, partially offset by non-deductible expenses including certain stock-based compensation expenses and limitations on the amount of deductible officer compensation. The effective tax rate for the three months endedMarch 31, 2021 differed from theU.S. federal statutory tax rate of 21% primarily due to excess tax benefits relating to the exercise of non-qualified stock options and from the tax benefits from research and development tax credits, partially offset by non-deductible expenses including certain stock-based compensation expenses. 29 --------------------------------------------------------------------------------
Operating results
The following table sets forth our consolidated results of operations for each
of the periods presented:
Three Months Ended
March 31,
2022 2021
(in thousands)
Revenue(1) $ 227,260 $ 125,372
Cost of revenue(2) 21,606 15,961
Gross profit 205,654 109,411
Operating expenses
Sales and marketing(2) 137,590 63,476
Research and development(2) 29,644 17,015
General and administrative(2)(3) 24,196 12,454
Total operating expenses 191,430 92,945
Income from operations 14,224 16,466
Other income (expense)
Interest expense (6,285) (209)
Sublease income - 292
Other income (expense), net (25) 94
Total other income (expense), net (6,310) 177
Income before income taxes 7,914 16,643
Income tax expense (benefit) (503) 3,245
Net income $ 8,417 $ 13,398
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(1) Revenue breaks down as follows:
Three Months Ended
March 31,
2022 2021
(in thousands)
Subscription revenue $ 174,823 $ 100,504
Performance-based revenue 52,437 24,868
Total revenue $ 227,260 $ 125,372
(2)Includes stock-based compensation expense as follows:
Three Months Ended
March 31,
2022 2021
(in thousands)
Cost of revenue $ 216 $ 16
Sales and marketing 2,628 99
Research and development 8,670 825
General and administrative 8,980 286
Total stock-based compensation
(3)Includes one-time charges related to accounting and legal expenses and other filing costs in connection with our Direct Listing totaling$0 and$2.1 million in the three months endedMarch 31, 2022 and 2021, respectively. 30 --------------------------------------------------------------------------------
Comparison of the three months ended
Revenue
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
Total revenue $ 227,260 $ 125,372 $ 101,888 81 %
Revenue increased $101.9 million , or 81%, for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 . Subscription revenue
increased by $74.3 million , or 74%, for the same periods, which 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-19 pandemic. Performance-based revenue
increased $27.6 million , or 111%, for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 . 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
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
Cost of revenue $ 21,606 $ 15,961 $ 5,645 35 %
Gross margin 90 % 87 %
Cost of revenue increased $5.6 million , or 35%, for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021 , primarily due
to an increase of $2.2 million in credit card processing fees. Total gross
margin improved from 87% to 90% in the three months ended March 31, 2021 and
March 31, 2022 , respectively, and reflects our continued commitment to
operational efficiencies and maintaining costs proportionate to revenue growth.
Sales and Marketing
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
Sales and marketing $ 137,590 $ 63,476 $ 74,114 117 %
Percentage of revenue 61 % 51 %
Sales and marketing expenses grew $74.1 million , or 117%, for the three months
ended March 31, 2022 compared to the three months ended March 31, 2021 . The
increase was primarily attributable to an additional $60.6 million in marketing
and advertising versus the prior-year period reflecting our efforts in ramping
up advertising to both job seekers and employers to grow both sides of the
marketplace. Personnel related costs for our sales and marketing employees
increased by $9.7 million , largely due to an increase in headcount. Lastly,
stock-based compensation costs increased $2.5 million , primarily attributable to
the ongoing stock-based compensation expense related to the vesting of RSU
awards that was not applicable in the prior-year period.
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Research and Development
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
Research and development $ 29,644 $ 17,015 $ 12,629 74 %
Percentage of revenue 13 % 14 %
Research and development expenses increased $12.6 million , or 74%, for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021 .
The increase was primarily due to the ongoing stock-based compensation expense
of $7.9 million primarily related to the vesting of RSU awards that was not
applicable in the prior-year period. Personnel related costs for our research
and development employees increased by $4.3 million , primarily attributable to
an increase in headcount.
General and Administrative
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
General and administrative $ 24,196 $ 12,454 $ 11,742 94 %
Percentage of revenue 11 % 10 %
General and administrative expenses increased $11.7 million , or 94%, for the
three months ended March 31, 2022 compared to the three months ended March 31,
2021 . The increase was primarily due to the ongoing stock-based compensation
expense of $8.7 million related to the vesting of RSU awards that was not
applicable in the prior-year period. Personnel related expenses for our general
and administrative employees increased by $2.8 million due to an increase in
headcount.
Other income (expenses), net
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
Other income (expense), net $ (6,310) $ 177 $ (6,487) *
The increase in other income (expense) for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 is primarily due to the $5.8
million interest expense related to our senior unsecured notes in the aggregate
principal amount of $550.0 million that commenced in January 2022 .
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*Percentage not meaningful.
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Income Tax Expense (Benefit)
Three Months Ended March 31,
2022 2021 $ Change % Change
(in thousands, except percentages)
Income tax expense (benefit) $ (503) $ 3,245 $ (3,748) (116) %
Effective tax rate (6) % 19 %
Income tax expense decreased $3.7 million for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 . The decrease in income
tax expense is primarily due to additional tax benefits related to the exercise
of non-qualified stock options and the vesting of RSUs, as well as the impact of
stock-based compensation to pretax income, both of which were not material when
the Company was not publicly traded during the three months ended March 31,
2021 . For the three months ended March 31, 2022 and 2021, our effective tax rate
of (6)% and 19%, respectively, differed from the U.S. federal statutory rate of
21% primarily due to excess tax benefits relating to the exercise of
non-qualified stock options and settlement of RSUs, partially offset by
permanent items such as our officer compensation limitations.
Cash and capital resources
As ofMarch 31, 2022 , we had cash totaling$745.4 million , and$244.1 million available in unused borrowing capacity under our current revolving credit facility. We have financed our operations and capital expenditures primarily through cash generated from operations, sales of shares of common and preferred stock and from our senior unsecured notes, bank loans, and convertible notes. As ofMarch 31, 2022 , we had no amounts outstanding under our revolving credit facility. We believe our existing cash, cash flow from operations, and amounts available for borrowing under our bank loan agreement 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.
Credit facility
InApril 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 new credit facility, and has a maturity date ofApril 30, 2026 . The amount available under the new credit facility is reduced by letters of credit outstanding, which totaled$5.9 million as ofMarch 31, 2022 . The letters of credit outstanding relate to various leased office spaces. The new credit facility 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$550.0 million , divided by the trailing twelve month of earnings, adjusted for items such as non-cash expenses and other nonrecurring transactions. 33
-------------------------------------------------------------------------------- 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 new credit facility at a rate between 0.25% to 0.35%, based upon our Net Leverage Ratio. The new credit facility is collateralized by security interests in substantially all of our assets. The new credit facility 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. OnNovember 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 thanU.S. Dollars are valued under the Credit Agreement. OnJanuary 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 increased 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.
We have no outstanding amounts under the new credit facility and are in compliance with our covenants as of
Issuance of senior unsecured notes
OnJanuary 12, 2022 , we issued an aggregate principal amount of$550.0 million senior unsecured notes due 2030 in a private placement. The senior unsecured notes were issued pursuant to an indenture dated as ofJanuary 12, 2022 , or the Indenture. Pursuant to the Indenture, the senior unsecured notes will mature onJanuary 15, 2030 and bear interest at a rate of 5% per year. Interest on the senior unsecured notes is payable semi-annually in arrears onJanuary 15 andJuly 15 of each year, beginning onJuly 15, 2022 . The Indenture contains certain customary negative covenants, including, but not limited to, limitations on the incurrence of debt, limitations on liens, limitations on consolidations or mergers, and limitations on asset sales. The Indenture also contains customary events of default. At any time prior toJanuary 15, 2030 , we have the option, at our sole discretion, to redeem all or a portion of our senior unsecured notes subject to the payment of certain premiums, make-whole provisions, and accrued and unpaid interest. Upon the occurrence of a change of control triggering event, we must offer to repurchase the senior unsecured notes at a repurchase price equal to 101% of the aggregate principal amount to be repurchased, and any accrued and unpaid interest.
For more information on senior unsecured notes, please refer to Note 6 “Debts” to our summary consolidated financial statements included in this report.
Share buyback program
In
34 -------------------------------------------------------------------------------- million shares of our Class A common stock through open market purchases at an aggregate cost of$12.3 million . Thereafter, we entered into an accelerated share repurchase agreement, or ASR, with Goldman Sachs to repurchase an aggregate of$50.0 million in shares of our Class A common stock. Approximately$37.7 million in shares of our Class A common stock remains available for future repurchases under our$100.0 million share repurchase program after completion of the ASR. For more information, see Note 9 "Share Repurchase Program" to our condensed consolidated financial statements included in this report.
Expected cash tax liability
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible thatCongress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we have analyzed the provision and worked with our advisors to evaluate its application to our business. If this provision is not deferred, modified, or repealed with retroactive effect toJanuary 1, 2022 , it would decrease our expected cash from operations in 2022. The actual impact on 2022 cash from operations will depend on if and when this provision is deferred, modified, or repealed byCongress , including if retroactively, and the amount of research and development expenses paid or incurred in 2022 among other factors.
Cash flow
The following table summarizes our cash flows for the periods presented (in
thousands):
Three Months Ended
March 31,
2022 2021
Net cash flow generated by operating activities
Net cash used in investing activities
(3,516) (3,255) Net cash provided by financing activities 479,855 1,627 Net increase in cash$ 490,772 $ 20,526 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 three months endedMarch 31, 2022 , cash provided by operating activities was$14.4 million resulting from our net income of$8.4 million , adjusted by non-cash charges of$21.3 million and a net decrease of$15.3 million in our operating assets and liabilities. The non-cash charges primarily resulted from$20.5 million for stock-based compensation expense,$2.5 million pertaining to amortization of intangible assets and depreciation, and$1.3 million pertaining to non-cash lease expense, partially offset by$5.4 million related to the change in our deferred tax assets driven by our current year capitalization of research costs from a tax perspective and the tax related impact of stock-based compensation. The decrease of$15.3 million related to changes in our operating assets and liabilities, which was primarily driven by a$12.2 million decrease in our accrued expenses and other liabilities and accounts payable and a$10.8 million increase in accounts receivable associated with an increase in revenue due to the number of Quarterly Paid Employers compared to the prior-year period, partially offset by a$6.0 million increase in accrued interest associated with our senior unsecured notes. For the three months endedMarch 31, 2021 , cash provided by operating activities was$22.2 million resulting from our net income of$13.4 million , adjusted by non-cash charges of$8.4 million and a net increase of$0.4 million in our operating assets and liabilities. The non-cash charges primarily resulted 35 -------------------------------------------------------------------------------- from$3.2 million related to the change of our deferred tax assets,$2.3 million pertaining to depreciation and amortization of intangible assets, capitalized software development costs and property and equipment,$1.5 million pertaining to non-cash lease expense and$1.2 million for stock-based compensation expense.
Investing activities
For the three months endedMarch 31, 2022 , cash used in investing activities was$3.5 million resulting from an increase in capitalized software development costs of$2.5 million and an increase in capital expenditures of$1.0 million primarily related to purchases of computer supplies and equipment. For the three months endedMarch 31, 2021 , cash used in investing activities was$3.3 million resulting from an increase in capitalized software development costs of$2.1 million and an increase in capital expenditures of$1.1 million to leasehold improvements for one of our operating leases.
Fundraising activities
For the three months endedMarch 31, 2022 , cash provided by financing activities was$479.9 million which consisted of$550.0 million of proceeds from the issuance of our senior unsecured notes,$5.3 million of proceeds from the issuance of stock under the employee stock purchase plan, and$2.2 million of proceeds from the exercise of stock options, partially offset by$62.3 million for the repurchase of common stock,$9.4 million for the payment of the issuance costs related to the issuance of our senior unsecured notes, and$5.9 million for the net settlement of taxes on RSUs. For the three months endedMarch 31, 2021 , cash provided by financing activities was$1.6 million , which primarily consisted of$2.1 million of proceeds from the exercise of stock options, partially offset by$0.5 million for the repurchase of common stock.
Obligations and other commitments
See our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , or the 2021 Form 10-K, for our future minimum commitments related to certain software service agreements. ThroughMarch 31, 2022 , 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
Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to revenue recognition, stock-based compensation, and income taxes. We base our estimates on historical experience and on various other estimates and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and assumptions. Our significant accounting policies are discussed in Note 2 "Basis of Presentation, Principles of Consolidation, and Summary of Significant Accounting Policies" to our condensed consolidated financial statements included in this report. There have been no changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in the 2021 Form 10-K. 36 --------------------------------------------------------------------------------
Accounting election of the JOBS law
We meet the definition of an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or 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 “Basis of presentation, principles of consolidation and summary of significant accounting policies” to our condensed consolidated financial statements included in this report for more information.
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