ZoomInfo Technologies Inc. (ZI) Q2 2023 Earnings Call Jul. 31, 2023

Henry Schuck - Founder and CEO

• ZoomInfo's Q2 financial results included $309 million in revenue and adjusted operating income of $126 million with a margin of 41%.

• Challenges in the quarter included reduced customer spending due to a lower growth environment and expectations for increased profitability among investors.
  This resulted in substantial cuts that significantly impacted ZoomInfo's ability to expand.

• Examples of companies affected by these budgetary pressures were cited, including a SaaS company that went from 100 to 20 sales reps, greatly affecting ZoomInfo's renewal rate.

• The new full-year revenue growth prediction is now 12%, reflecting these customer budgetary pressures.
  The CEO acknowledged that the company should have done a better job in demonstrating value to customers during these challenging times.

• Several initiatives are underway to improve performance, including

  • focusing on providing the most accurate data,

  • improving platform stability and performance,

  • allocating sales resources to focus on larger contract values,

  • investing in post-sales for retention rates, and

  • increasing focus on customer adoption and engagement.

• Staffing levels were adjusted in June to streamline the organization and improve efficiency.

• A focus on core advantages includes

  • growth among clients outside of the software vertical (which is growing 20% YoY),

  • an expansion in the $1 million customer cohort (increased 40% YoY), and

  • belief that every AI initiative starts with data, with ZoomInfo's platform serving as the foundation.

• New customers closed in the quarter include

  • Cox Communications, Principal Financial Group, See’s Candies, Singapore Telecom, Snapchat, TikTok, UScellular, and the Boston Celtics.

• Strong growth was seen among transportation and logistics customers (37% YoY growth), with examples of a global logistics company leveraging ZoomInfo's deep contact data to improve various aspects of their business operations.

  • Other notable expansions outside of the software sector include Hitachi and a Fortune 50 financial services company.

  • These examples highlight the value of accurate, continuously enriched data.

• Due to increased demand, a dedicated intent data cube has been added to complement the existing firmographic, technographic, and contact data cubes.

• ZI Labs is launching an AI-focused practice in response to the growing demand for AI solutions.

• The company leverages generative AI to drive frontline efficiencies, and has released functionality powered by Gen-AI to improve customer experiences.

• Despite challenges, the company remains committed to maintaining a 40% margin while investing in product excellence, AI leadership, data and platform expansion, and adding more sales capacity.

• The CEO remains confident in the value proposition of the platform and its ability to drive ROI for customers.
  They are aiming to position the company to capitalize on the demand rebound as conditions in their customer base stabilize.

Cameron Hyzer - CFO

• In Q2, the company delivered revenue of $309 million, a 16% YoY growth, and 1.5% sequential growth.
  Adjusted operating income was $126 million with a 41% margin.

• Net retention faced pressure as software customers reduced spending more than expected due to economic challenges.
  This affected renewals especially of those contracts that had been negotiated last year, resulting in more reduced spending this year.

• With the expectation of a challenging renewal cycle for the rest of the year, full-year guidance has been adjusted to 12% revenue growth, down from 17% previously.

• The software vertical now contributes 35% of the business, down from 40% a year ago, while non-software ACV grew by 20% YoY.
  The number of $1 million plus customers increased by 40%.

• Revenue from advanced functionality comprises one-third of total revenue.
  Fewer upsells and more downsells were observed in Q2, especially in the mid-market.

• Operating cash flow in Q2 was $117 million.
  Unlevered free cash flow was $122 million, representing a 39% margin and 97% of adjusted operating income.

• For the full year, the company expects unlevered free cash flow conversion in the 90% range as a percentage of adjusted operating income.

• At the end of Q2, the company had $660 million in cash and short-term investments and approximately $1.25 billion in gross debt.

• The company repurchased 2.8 million shares at an average price of $21.99 per share and has a new $500 million share repurchase program authorized by the Board.

• Unearned revenue at the end of Q2 was $443 million and RPO was $1.1 billion, with $849 million expected to be delivered in the next 12 months.

• Outlook for Q3

  • the company expects revenue in the range of $309 million to $312 million, adjusted operating income between $124 million to $126 million, and non-GAAP net income in the range of $0.24 to $0.25 per share.

• Full-year guidance includes

  • revenue in the range of $1.225 billion to $1.235 billion, adjusted operating income in the range of $493 million to $498 million, non-GAAP net income in the range of $0.99 to $1 per share, and unlevered free cash flow in the range of $445 million to $455 million.

  • The full-year guidance implies 12% revenue growth at the midpoint and an adjusted operating margin of 40%.

Anne Chapman

Dynamic Trader Twitter
Dynamic Trader LinkedIn

Let's go trade!