ZoomInfo Technologies Inc. — Form 10-Q Summary
Business context and reporting period
ZoomInfo provides a cloud-based go-to-market intelligence and engagement platform for sales, marketing, operations, and recruiting teams. Revenue is generated primarily from one- to three-year, generally non-cancelable subscriptions billed in advance. This unaudited filing covers the three and six months ended June 30, 2022, compared with the same periods in 2021. As of July 22, 2022, 403.4 million common shares were outstanding.
Financial performance and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $267.1 million | $174.0 million | $508.8 million | $327.3 million |
| Gross profit | $220.1 million | $143.7 million | $417.8 million | $268.9 million |
| Gross margin | 82.4% | 82.6% | 82.1% | 82.1% |
| Operating income | $39.5 million | $40.9 million | $71.9 million | $68.9 million |
| Operating margin | 14.8% | 23.5% | 14.1% | 21.1% |
| Net income | $15.9 million | $24.5 million | $22.1 million | $(9.4) million |
| Net income attributable to ZoomInfo | $15.9 million | $9.3 million | $22.1 million | $12.5 million |
| Diluted EPS | $0.04 | $0.05 | $0.05 | $0.07 |
| Adjusted operating income | $106.9 million | $75.8 million | $202.5 million | $141.9 million |
| Adjusted operating margin | 40% | 43% | 40% | 43% |
| Adjusted EBITDA | $111.5 million | $78.5 million | $210.6 million | $147.3 million |
Subscription revenue was $264.7 million in Q2 and $504.4 million for the first six months, representing approximately 99% of total revenue. The company reported 1,763 customers with more than $100,000 in annual contract value as of June 30, 2022. Net annual retention was 116% for 2021; the filing does not provide a more recent retention figure.
Equity-based compensation increased to $47.0 million in Q2 and $89.5 million for the first six months, compared with $17.1 million and $35.2 million, respectively, in the prior-year periods.
Cash flow, liquidity, debt, and balance sheet
- Cash flow from operations was $211.2 million for the six months ended June 30, 2022, up from $181.6 million.
- Investing cash flow was $(153.0) million, including $143.6 million of cash paid for acquisitions and $14.8 million for property and equipment and other assets.
- Financing cash flow was $(13.8) million, including $5.0 million of tax receivable agreement payments and $7.6 million of taxes paid on net share settlements.
- Cash, cash equivalents, and restricted cash totaled $358.5 million at June 30, 2022; cash and cash equivalents were $352.7 million and short-term investments were $12.9 million.
- Unearned revenue was $411.8 million, including $410.1 million expected to be recognized within 12 months. Remaining performance obligations totaled $984.7 million, of which $764.2 million was expected to be recognized within one year.
- Debt carrying value was $1.234 billion, consisting primarily of a $600.0 million first-lien term loan and $650.0 million of 3.875% senior notes due 2029. The term loan matures in February 2026.
- The company had $250.0 million available under its revolving credit facility and stated that it was in compliance with applicable debt covenants.
- Reported total net leverage was 2.3x adjusted EBITDA and 1.8x cash EBITDA. First-lien net leverage was 0.5x cash EBITDA.
Material changes versus the prior comparable period
- Revenue increased 54% in Q2 and 55% for the first six months, driven primarily by new customers and expansion within existing customers. Products acquired during the preceding 12 months contributed $19.9 million of Q2 revenue and $32.9 million of first-half revenue.
- Cost of service increased 55% in Q2 and 56% year to date, reflecting higher headcount, hosting costs, acquired-technology amortization, and equity compensation.
- Operating expenses increased 76% in Q2 and 73% year to date. Sales and marketing and research and development spending grew substantially as the company expanded its go-to-market capacity and product development.
- GAAP operating margin declined to approximately 15% from 24% in Q2 and to 14% from 21% year to date. Management attributed the decline in adjusted margin to increased investment in research and development, sales and marketing, and public-company infrastructure.
- Adjusted EBITDA increased 42% in Q2 and 43% year to date, but adjusted operating margin declined from 43% to 40%.
- Interest expense increased 16% in Q2 and 42% year to date, primarily because of additional debt issued in July 2021.
- The company acquired Comparably and Dogpatch in April 2022 for $150.5 million in cash and a $10.0 million convertible note receivable. Purchase accounting remained preliminary at quarter-end; the acquisitions added $3.4 million of Q2 revenue.
- The company completed the elimination of its multi-class voting structure and renamed Class A common stock as common stock effective May 23, 2022.
Guidance, outlook, commentary, and risks
The filing does not provide explicit quantitative full-year 2022 revenue or earnings guidance. Management expects continued investment in sales and marketing, research and development, customer service, acquisitions, and platform functionality. It expects cost of service as a percentage of revenue to remain consistent or modestly decline, while research and development spending as a percentage of revenue may modestly increase over the long term.
Management believes existing cash, operating cash flow, revolving availability, and other financing sources are adequate for at least the next 12 months and the foreseeable future. Future acquisitions could require additional debt or equity financing.
- Key operating risks include adverse economic conditions, reduced sales and marketing spending, declining demand for subscription platforms, competition, customer attrition, and challenges in acquiring new customers or expanding existing accounts.
- Data privacy regulation, public perception of data collection, accuracy and reliability of the platform, customer opt-outs, cybersecurity incidents, and third-party integrations could affect operations and demand.
- Variable-rate debt creates interest-rate exposure. The company has interest-rate caps and swaps; a hypothetical 1% rate increase or decrease was expected to have an immaterial effect on interest expense excluding derivative fair-value effects.
- The tax receivable agreement liability was $3.052 billion at June 30, 2022. The agreements generally require payment of 85% of realized or deemed tax benefits to eligible holders, and payments may be substantial.
- The company had $339.7 million of undiscounted payments for executed but not yet commenced office leases, in addition to $41.7 million of incremental non-cancelable purchase obligations with terms of at least 12 months.
- Two putative class actions allege violations of rights-of-publicity laws concerning use of Illinois and California residents’ names. The company intends to defend the matters, but the filing does not provide a reasonably estimable loss range.
Most important facts for investors to verify
- Whether the high revenue growth and 116% prior-year net retention are sustained as macroeconomic conditions affect customer budgets.
- The effect of increased sales, marketing, research and development, and equity-compensation spending on GAAP margins and cash generation.
- The final purchase accounting, integration performance, and incremental returns from Comparably and Dogpatch.
- Interest-rate exposure and refinancing capacity for the $600.0 million term loan due in 2026 and $650.0 million senior notes due in 2029.
- The timing and ultimate cash burden of the $3.052 billion tax receivable agreement liability.
- Potential costs or business effects from data-privacy matters, cybersecurity risks, legal proceedings, and the $339.7 million of future office lease commitments.