Big Beat and Accelerating Revenue for ZoomInfo

ZoomInfo reported a great Q3:
https://ir.zoominfo.com/news-releases/news-release-details/z…

Revenue of $197.6 million, an increase of 60% year-over-year. (vs 57% last quarter)
Continued revenue acceleration: 14% sequential revenue growth
Raised guidance for F21 from $703 - $707 million to $731 - $733 million

Awaiting conference call for further details, but numbers look great!

Daws (long ZI)

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Some other nuggets I’m interested in on the call:

**Operating income
GAAP operating income margin was only 10% - a big drop off sequentially (Q4 2020 21% / Q1 2021 18% / Q2 2021 24%) and non-GAAP (adjusted) operating income margin of 39% was lower than the expected 43%. I DO NOT KNOW IF THERE IS A SEASONALITY FACTOR. Expect some questions about this on the call at 4:30.

**Free cash flow looks good: FY 2021 now guiding to $320-325M up from $305

**Closed quarter 1250 customer with an annual spend of at least $100k a 13.6% increase sequentially. Have over 25,000 total customers now.

Link for call if interested:
edge.media-server.com/mmc/p/kyhtt4zy

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Organic revenue growth was only 54% or 8.4% sequentially. The headline is 60% and 14% QoQ, but that includes their recent acquisitions that closed in September 2021 which contributed $8.91 M per their earnings slides.

2% beat vs. the top end of their expectations. Not the worst, but not as great as initially reported.

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GAAP operating income margin was only 10% - a big drop off sequentially

Gross margin was actually up year over year: 80.8% vs. 78.4%.

There was a fairly large $11 MM restructuring charge this quarter. No footnote was given in the earnings report but it’s likely due to one of the acquisitions. These are one-time in nature and I back them out. Operating margins would have been 15.8% this quarter backing the restructuring expense out, noticeably better than the 14.9% managed a year ago, though still lower sequentially.

Regarding seasonality, there are not a lot of years to go on but it does appear that Q3 of 2020 also had lower margins than surrounding quarters.

Mike

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Hey RG,

  1. I think this is less of a worry here given that the organic growth is so high

  2. Revenue growth rates last few quarters have been …

2021 Q2 57%
2021 Q1 50%
2020 Q4 53%

…so “only” 54% is still pretty lofty even comparatively speaking.

So setting aside the usual back-and-forth about organic-vs.-acquired growth over the usual reasons, I think this one is particularly a red herring (shrug)


"Organic revenue growth was only 54% or 8.4% sequentially. The headline is 60% and 14% QoQ, but that includes their recent acquisitions that closed in September 2021 which contributed $8.91 M per their earnings slides.

2% beat vs. the top end of their expectations. Not the worst, but not as great as initially reported".

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Organic revenue growth was only 54% or 8.4% sequentially. The headline is 60% and 14% QoQ, but that includes their recent acquisitions that closed in September 2021 which contributed $8.91 M per their earnings slides.

2% beat vs. the top end of their expectations. Not the worst, but not as great as initially reported.

Incorrect, you can not just deduct the 8,91m and say that it is only 8.4% sequential growth. In the prior quarter, some of the revenue was also inorganic, which you need to deduct as well from prior quarter result to compare organic revenue. Just wanted to correct before people use false information to make investing decisions.

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So if you subtract $8.1 M (sorry not $8.91) from $197.6 you get $189.5 and that is equal to 54% YoY (rounded). Is it just coincidence then that subtracting $8.1 M from $197.6 gets you 54%? I’d love to learn also if I made mistake, that’s how I always reconciled organic, so let me know what the appropriate method is?

So if you subtract $8.1 M (sorry not $8.91) from $197.6 you get $189.5 and that is equal to 54% YoY (rounded). Is it just coincidence then that subtracting $8.1 M from $197.6 gets you 54%? I’d love to learn also if I made mistake, that’s how I always reconciled organic, so let me know what the appropriate method is?

For the YoY growth rate, it’s the correct way. We know that 8.1M is the quarterly revenue from companies acquired in the last 12 months, so if you deduct this from Q3 2021 revenue and compare with Q3 2020 revenue (which is 12 months ago and does not include revenue from these companies), you get the organic growth rate.

However for QoQ growth, it’s a bit different. Part of the 8.1M in Q3 was from companies that were acquired before or during Q2 and therefore, these companies also contributed to revenue in Q2. You would have to deduct that revenue from the Q2 results to get the organic QoQ growth rate.

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I find it really interesting that Zoominfo posted a fantastic quarter, even if measured purely on “organic growth,” and yet some have issues with it. Per Saul’s recent post on NET, ZI has beaten NET’s revenue growth - again. Not to mention their great free cash flow and that they are already profitable.

The whole point of acquisitions is ultimately to juice growth - especially if the acquisitions fit nicely into the platform / other product lines. So the fact that their 60% included their acquisitions, but they were still 54% without them, made me love them even more because I see $$$s from the synergies still lie ahead.

IMO Zoominfo’s acquisitions are brilliant, they fit like a glove into their product line, and we should be seeing the fruits of this labor in the coming quarters. Of course I could be missing something…but until someone points it out to me… please do point it out to me if you see something I don’t.

I’ve been scratching my head for a while as to why Zoominfo can’t drum up the excitement - even on this board, aside from a small-ish subset of members, despite having great growth and executing so well in choosing the right acquisitions. They are targeting a space that if they can justify their ROI they can sell like refrigerators in the desert. Companies don’t want to buy cyber security products - they do it because they have to. But buying a product that enables you to sell more of your product? Oh, yea. That’s why they point out that they usually close their sales in 30 days. 30 days!

Here are some random conjectures as to why ZI is somewhat unloved:

  • The name has ZOOM in it and all things zoom have turned sour.

  • (More likely) - Boy, is this business boring compared to most of our other businesses. I mean, data gathering and cleansing to give to go-to-market teams? Zzzzzz…. Record a conversation so that you can learn from it? More zzzzz….However, I am reminded of the waste management companies of days gone by and how boring they were and how much they made for investors.

Checking their stock performance for the year, I see that they are up a bit over 60%, which about matches their revenue growth. While it might not be as sexy as UPST, and my position is sized accordingly, I’ll take 60% revenue growth and a 60% rise in the stock price a year, including acquisitions, even if it doesn’t go up from there as I believe it will.

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Just to add to the QoQ revenue growth rate debate. On the call CFO said that the acquisition of Chorus was supposed to add about 3mm revenue and ran a bit higher than that. They also mention that they were able to accelerate Chorus’ growth rate, which was 100%+ prior to acquisition. My take: They bought business that was expected to generate 3mm this quarter, they started selling it to their existing customers and got more than that. 197.6 - 3 gets you 194.6, 11.8% sequential revenue growth. Let’s not get lost in the bigger story, though. They grew their 100k customer count by 13.6% in q3 (15.8% in q2 and 11.8% in q1). These are great numbers overall.

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Thank you for the post. Any thoughts on the $3B TRA (Tax Receivable Agreement)liability that showed up on their balance sheet? Also, another $1B that’s showing on their cash flow statement? Are you concerned about debt?

Great interview with ZI CEO, Henry Shuck.

https://finance.yahoo.com/video/zoominfo-ceo-great-resignati…

I am perplexed by the market’s reaction to a great quarter.

DOM112

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Re tax liability, it was also discussed on the call. It is related to their recent shareholder class restructuring and offset by a corresponding asset.

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