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 primarily generated from non-cancelable, one- to three-year subscription contracts, generally billed in advance and recognized ratably.
This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Financial performance and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $308.6 million | $267.1 million | $609.3 million | $508.8 million |
| Gross profit | $265.4 million | $220.1 million | $520.6 million | $417.8 million |
| Gross margin | 86.0% | 82.4% | 85.4% | 82.1% |
| Income from operations | $59.6 million | $39.5 million | $125.9 million | $71.9 million |
| Operating margin | 19.3% | 14.8% | 20.7% | 14.1% |
| Net income | $38.1 million | $15.9 million | $82.6 million | $22.1 million |
| Net margin | 12.3% | 6.0% | 13.6% | 4.3% |
| Diluted earnings per share | $0.09 | $0.04 | $0.21 | $0.05 |
| Adjusted EBITDA | $130.4 million | $111.5 million | $255.5 million | $210.6 million |
- Q2 revenue increased 16%; six-month revenue increased 20%, primarily from new customers, partially offset by cancellations among existing customers.
- Q2 adjusted operating income increased 17% to $125.6 million, with adjusted operating margin of 41%, compared with 40% in Q2 2022. Six-month adjusted operating margin remained 40%.
- Equity-based compensation was $46.3 million in Q2 and $84.0 million for the six-month period, compared with $47.0 million and $89.5 million, respectively, in the prior-year periods.
- Net cash provided by operating activities was $225.2 million for the six months ended June 30, 2023, compared with $211.2 million in 2022.
- Investing cash flow was negative $33.0 million, primarily reflecting net purchases of short-term investments and $12.6 million of capital expenditures and other asset purchases. Financing cash flow was negative $96.9 million, primarily due to $87.0 million of share repurchases.
- Cash, cash equivalents, and restricted cash totaled $519.4 million at June 30, 2023. Cash and cash equivalents were $509.7 million, and short-term investments were $150.6 million.
- Unearned revenue was $443.1 million, including $438.1 million expected to be recognized within 12 months. Remaining performance obligations totaled $1.11 billion, including $848.7 million expected within one year.
Debt, liquidity, and balance sheet
- Total debt carrying value was $1.234 billion at June 30, 2023, consisting primarily of approximately $593.1 million of first-lien term debt and $640.9 million of senior notes. The first-lien revolving facility had no outstanding borrowings and $250.0 million of availability.
- The first-lien term loan bears interest at SOFR plus the applicable margin, had an effective interest rate of 7.36%, and matures February 28, 2030. The $650.0 million of 3.875% senior notes mature February 1, 2029.
- Management stated that operating cash flow, cash and cash equivalents, and available financing are expected to fund operating and capital needs for at least the next 12 months. The Company reported compliance with its debt covenants.
- Total net leverage was 1.1x trailing twelve-month Adjusted EBITDA, while first-lien net leverage was negative 0.1x based on the Company’s covenant calculations.
- The tax receivable agreement liability was $2.967 billion. The agreements generally require payment of 85% of realized or deemed realized tax benefits to specified pre-IPO holders.
Material changes versus the prior comparable period
- Revenue growth accelerated the operating base, while cost of service declined 8% in Q2 and 3% for the six-month period, primarily because certain acquired-technology amortization had been completed.
- Operating expenses increased 14% in both the reported Q2 and six-month comparisons. Excluding equity-based compensation, six-month operating expenses increased 20%, driven by higher sales and marketing, research and development, and general and administrative costs.
- General and administrative expense increased substantially, including higher bad-debt accruals. The Company recorded $11.3 million of bad-debt provision for the first six months.
- Q2 restructuring and transaction-related expense increased to $4.7 million from $1.1 million, primarily reflecting costs associated with a June 2023 reduction in force.
- Other income was $7.1 million in Q2 and $21.1 million for the six-month period, compared with other expense in the prior-year periods. The improvement primarily reflected investment income and tax receivable agreement remeasurement gains.
- The effective tax rate declined to 30.3% in Q2 and 32.8% for the six-month period, compared with 39.8% and 51.6%, respectively, primarily due to lower nondeductible equity-based compensation.
- The Company repurchased 3.9 million shares for $87.0 million during the first six months under a $100.0 million program; $13.0 million remained available at June 30, 2023.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide a clear quantitative revenue or earnings guidance outlook.
- Management expects near-term net revenue retention to be adversely affected by macroeconomic conditions. Annual net revenue retention was 104% for 2022, and the Company had 1,893 customers with more than $100,000 of annual contract value at June 30, 2023.
- Management expects continued investment in sales and marketing, research and development, infrastructure, and potential acquisitions. It expects cost of service and general and administrative expense to benefit from operating leverage over time, although research and development expense may increase modestly as a percentage of revenue in the short term.
- Principal risks include weaker customer spending, competition, customer acquisition and retention, data accuracy and availability, privacy and other regulatory changes, third-party system dependence, cybersecurity and intellectual property risks, acquisition integration, macroeconomic conditions, variable interest rates, and leverage.
- Outstanding legal matters include putative class actions alleging violations of state right-of-publicity laws involving the use of residents’ names. The filing states that potential losses cannot currently be estimated.
- Additional contractual commitments include $315.2 million of anticipated undiscounted payments for office leases that had not yet commenced at June 30, 2023.
- On July 28, 2023, the Board authorized an additional $500 million share repurchase program.
- The Company uses substantial non-GAAP adjustments, including equity-based compensation, acquired-intangible amortization, restructuring costs, and other items. Q2 equity-based compensation alone was $46.3 million.
Important facts for investors to verify
- Whether macroeconomic pressure leads to further declines in net revenue retention, renewals, expansion, or new-customer additions.
- The sustainability of reported margin expansion after excluding substantial equity-based compensation and acquired-intangible amortization.
- The effect of higher bad-debt expense and customer payment behavior on future cash flow.
- Exposure to SOFR-based debt and the effectiveness and maturity profile of the Company’s interest-rate hedges.
- The timing and ultimate amount of payments under the $2.967 billion tax receivable agreement liability.
- Cash requirements for share repurchases, lease commitments, restructuring, legal matters, acquisitions, and required debt amortization.
- The outcomes and potential exposure associated with the pending right-of-publicity lawsuits and other contingencies.