ZoomInfo Technologies Inc. (ZI) Q3 2023 Earnings Call Oct. 30, 2023

Here is a summary of the ZI earnings call.

Henry Schuck - Founder and CEO

Opening statement:

• ZoomInfo delivered Q3 results exceeding guidance, with revenue of $314 million and an adjusted operating income of $126 million, achieving a margin of 40%.

• During the quarter, the company repurchased approximately 9 million shares of ZoomInfo stock for $160 million, demonstrating confidence in the long-term market opportunity and aiming to drive economic returns for shareholders.

• The challenging operating environment has presented obstacles such as fewer up-sells, increased seat down-sells, and elevated churn levels.
  These challenges have affected net revenue retention and overall growth rates, reflecting a broader market phenomenon impacting companies in the front office applications spectrum.

• Despite these challenges, ZoomInfo remains uniquely positioned to capitalize on the long-term market opportunity.
  As companies seek growth in a normalized environment, ZoomInfo can continue to assist them in achieving their goals.

• ZoomInfo is committed to prioritizing profitability while investing in customer success and long-term improvements.
  This includes doubling down on product excellence and customer engagement, resulting in a 20% increase in product engagement since the start of the year.

• Investments are directed towards enhancing ease-of-use, reducing time to value for customers, and focusing on AI, data-as-a-service, and marketing OS.
  Additionally, the company is expanding its data coverage and accuracy globally.

• ZoomInfo has introduced new pricing and packaging for the low-end market segment, aiming to capture more market share efficiently while growing its contributor base.

• Leadership changes have been implemented to flatten the organization and enhance customer-centric approaches.
  James Roth has been promoted to Chief Revenue Officer, Chris Hays transitioned to EVP of International Expansion, and Dave Justice assumed the role of Chief Growth Officer.

• These strategic moves and investments position ZoomInfo for long-term success and growth in a dynamic and challenging operating environment.

James Roth - Chief Revenue Officer

Welcome statement:

• We possess the capability to revolutionize businesses' go-to-market strategies by leveraging our top-tier data, AI-driven customer insights, and streamlined workflows.

• I have been a ZoomInfo customer for a decade prior to joining the leadership team.
  I have a profound understanding of our customers' desires and requirements for the platform.

• Since my arrival, I've witnessed the significant value we provide to some of the world's largest and most sophisticated enterprises, including Workday, Google, Amazon, Verizon, and others.
  Together, we've built the data and insight foundation that shapes the future of go-to-market strategies.

• I'm thrilled to extend this go-to-market technology to companies of all sizes globally, while also enhancing efficiency through e-commerce and product-led growth.

• Over the past two years, I've played a role in recruiting a substantial portion of our sales leadership, and I'm excited about the team's potential and our traction in the enterprise sector.

• My focus moving forward is to expand our success, especially with $1 million and $5 million plus accounts, as we continue to refine our go-to-market strategy.

Henry Schuck

Overview:

• In Q3, we successfully closed transactions with top-tier enterprises like Verizon, Walmart, Paramount CBS, Sage Hospitality, Steam Logistics, CDW, Tenet Health, The Washington Post, FranklinCovey, Lands’ End, and Magellan Health.

• We signed over 200 deals with more than $100,000 in ACV during the quarter, including multiple seven-figure deals and a significant $15 million TCV deal.

• While some verticals like software were impacted, we saw robust growth in financial services, with Wells Fargo expanding its relationship through a seven-figure subscription to our intent and company data cubes.

• Telecommunications witnessed substantial engagements, including a large global provider of mobility and 5G signing a nearly eight-figure five-year deal with us.
  Another mid-market telecom firm returned to us, expanding their engagement to multi seven-figures and consolidating providers.

• Our focus on customer success resulted in a 20% increase in product engagement since the start of the year, with NPS rising by 7 points YoY.

• We received market recognition, with Snowflake naming us an enrichment data category leader, AWS awarding us an AWS competency, and achieving 101 number one rankings in G2’s Fall Reports.

• Our investments in AI technologies have enabled us to extract valuable insights from earnings calls and public filings, enhancing the data we provide to sellers.

• We've expanded our international data offering, providing access to over 200 million business contacts outside North America, while tripling the number of global contacts and mobile phone numbers available.

• Our integration with Google Analytics Hub and Reltio enhances data accessibility and usability within modern cloud systems and master data management solutions.

• Our partnership with The Trade Desk facilitates reaching premium publishers and expanding MarketingOS capabilities.

• In the lower market segment, we've invested in self-service e-commerce capabilities, offering easier access to ZoomInfo data for companies of all sizes.

• Our focus on simplifying the user experience, streamlining transactions, and maintaining data quality positions us for long-term success and growth when the economic environment improves.

Cameron Hyzer - CFO

• Q3 revenue reached $314 million, marking a 9% YoY increase and a 0.6% sequential growth when adjusted for days of revenue recognition.

• Adjusted operating income amounted to $126 million, resulting in a 40% margin. GAAP net income was $30 million with GAAP EPS at $0.08 per share. Non-GAAP EPS stood at $0.26 per share.

• Renewals remain challenging with customers renewing at lower rates, while upselling has decreased, and downselling has increased.
  Elevated write-offs continued in the quarter.

• The challenging renewal cycle is expected to persist at least through Q1 2024, impacting revenue growth into the first half of the year.

• The greater than $100,000 ACV customer cohort declined slightly due to mid-market technology companies reducing spending below $100,000.
  However, non-software customers over $100,000 continued to grow, resulting in 1,869 customers with more than $100,000 in ACV.

• The $1 million-plus customer cohort grew YoY, with the signing of multiple seven-figure deals and a $15 million TCV deal in the quarter.

• Advanced functionality, including MarketingOS, enrichment, and DaaS offerings, contributed approximately a third of overall ACV and continued to grow.

• Operating cash flow for Q3 reached $81 million, including approximately $18 million in interest payments.
  Unlevered free cash flow for the quarter amounted to $95 million, representing 75% of adjusted operating income.

• The company ended Q3 with $568 million in cash, cash equivalents, and short-term investments, carrying $1.25 billion in gross debt.

• ZoomInfo aims to reduce its share count through share repurchases, having already repurchased 8.8 million shares in Q3.
  Have deployed $247 million of the $600 million share repurchase authorization, retiring over 3% of total diluted shares outstanding.

• The net leverage ratio decreased to 1.3 times trailing 12 months adjusted EBITDA and 1.2 times trailing 12 months cash EBITDA, down from 1.9 times & 1.6 times, respectively, as of September 30, 2022.

• Unearned revenue at the end of Q3 stood at $403 million, and remaining performance obligations (RPO) were $1.1 billion, with $795 million expected to be delivered in the next 12 months.

• Full-year 2023 guidance:
  Includes revenue in the range of $1.232 billion to $1.235 billion, adjusted operating income between $494 million to $496 million, non-GAAP net income in the range of $0.99 to $1 per share
  Unlevered free cash flow ranging from $445 million to $455 million.
  The guidance implies 12% revenue growth at the midpoint and an adjusted operating margin of 40%.

• Forward guidance:
  For Q4, revenue is expected to be in the range of $309 million to $312 million, with adjusted operating income in the range of $122 million to $124 million, and non-GAAP net income between $0.24 to $0.25 per share.

Q&A followed.

Anne Chapman

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