ZI Q2 Results

Investment Analysis Clubs Saul’s Investing Discussions
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Link to full press release: https://ir.zoominfo.com/news-releases/news-release-details/z…

ZoomInfo Announces Second Quarter 2021 Financial Results
Aug 02, 2021
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GAAP Revenue of $174.0 million Grows 57% year-over-year

GAAP Operating Margin of 24% and Adjusted Operating Income Margin of 43%

Cash Flow from Operations of $88.6 million and Unlevered Free Cash Flow of $91.8 million

VANCOUVER, Wash.–(BUSINESS WIRE)–Aug. 2, 2021-- ZoomInfo, (NASDAQ: ZI) a global leader in modern go-to-market software, data, and intelligence, today announced its financial results for the second quarter ended June 30, 2021.

"ZoomInfo delivered another record quarter, including the highest levels ever for both retention activity and customer engagement, and accelerating revenue growth, as customers in all industries continue to choose ZoomInfo to transform their go-to-market motion,” said Henry Schuck, ZoomInfo Founder and CEO. “ZoomInfo is the only company delivering a modern go-to-market platform that brings together best-in-class intelligence with comprehensive data management, workflow, and engagement software.”

Second Quarter 2021 Financial and Other Recent Highlights -

Financial Highlights:

Revenue of $174.0 million, an increase of 57% year-over-year.
Operating income of $40.9 million and Adjusted Operating Income of $75.8 million.
GAAP operating income margin of 24% and Adjusted Operating Income Margin of 43%.
Cash flow from operations of $88.6 million and Unlevered Free Cash Flow of $91.8 million.
Business and Operating Highlights:

Acquired Chorus.ai, a leader in Conversation Intelligence that enables insight-driven targeting, coaching, and decision-making for go-to-market teams, in July 2021.
Acquired Insent.ai, a solution that identifies website visitors in real time, uses artificial intelligence and advanced lead routing rules to initiate real-time conversations.
Launched the Business Contract Preference Registry (BCPR), a global database of opt-out requests processed by ZoomInfo available to other business-to-business (B2B) data providers. The BCPR is the latest in the company’s efforts to elevate privacy standards across the B2B data industry.
Announced that ZoomInfo joined the Snowflake Data Marketplace. Customers can use Snowflake’s platform to integrate ZoomInfo’s industry-leading company and business contact data into their technology stacks—with no additional integration or extract transform load required.
Appeared on a total of 43 G2 Grid Reports, with a ZoomInfo record 27 No. 1 rankings in G2’s Summer 2021 Grid Reports. ZoomInfo was named number one in Overall Sales Intelligence, Lead Capture, Lead Intelligence, Market Intelligence, Marketing Account Intelligence, and more.
Issued $300 million of 3.875% add-on senior notes due 2029 and $200 million of add-on Term Loan B at L+300 with a maturity of February 2026, in July 2021.
Closed the quarter with more than 1,100 customers with $100,000 or greater in annual contract value.

Lee

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Other numbers:

Gross Margin 82.6%, up from 81.6 sequentially and from 69.5 yoy (the covid quarter)

Free Cash Flow $92 million, 53% of total revenue

Adjusted EPS 14 cents.

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Other metrics:

Sequential quarterly growth: 14%
While revenue increased 57% over the year ago quarter, gross margin increased 86%
Beat their forecast by 7.4%
Raised full year guidance by 4.5%
GAAP net income positive

Looks to me to hit a billion dollar run rate in Q4.

Really impressive quarter and company.

Rob

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This company is also doing gang busters on their $100k ACV customer growth. Up 69% YoY and 16% sequentially!


+----------------------------------+------+------+------+------+-------+
|                                  | Q220 | Q320 | Q420 | Q121 | Q221  |
+----------------------------------+------+------+------+------+-------+
| $100,000+ Customers              | 650  | 720  | 850  | 950  | 1,100 |
+----------------------------------+------+------+------+------+-------+
| $100,000+ Customers Growth (YoY) |      |      |      |      | 69%   |
+----------------------------------+------+------+------+------+-------+
| $100,000+ Customers Growth (QoQ) |      | 11%  | 18%  | 12%  | 16%   |
+----------------------------------+------+------+------+------+-------+
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On other metric I think is worth calling out is ZoomInfo’s uFCF (in case you’re wondering what the “u” is https://www.investopedia.com/terms/u/unlevered-free-cash-flo…).

uFCF was up 76% YoY to $91.8 million in the quarter.

Slide 21 from their investor overview for Q2 highlights both their uFCF and uFCF conversion (ie. uFCF/Adj. Op Income) - https://www.investopedia.com/terms/u/unlevered-free-cash-flo…. As you can see they’ve been remarkably consistent at generating cash flow, while at the same time accelerating their revenue growth and continuing to raise their guidance.

I know the stock itself hasn’t performed like some others on the board, but I’ve kept growing my position over the course of the year and I added after hours.

I’m now LONG ZI 9% and I’m going to keep “following the numbers” with this company and let the stock price take care of itself.

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There are a couple of additional things worth pointing out relating to the KPI’s perhaps:

Revenue growth QoQ vs prior year Q2’s:

2019 Q2: 9% qoq
2020 Q2: 7% qoq
2021 Q2: 14% qoq

In addition, in 2019 and 2020 the second two quarters of the year were stronger than the first ito revenue growth, so if that pattern holds, revenue growth may tick up even further from here on in the next two quarters. Is hoping for 60%+ perhaps too much?

Guidance:

They are now guiding for 48% revenue growth for the year, up from 41%, and it seems reasonable to me to expect that they will beat and raise that guidance again next Q, so that will mean ZI moves from a low 40% grower to a 50%+ grower.

Cash flow:

FCF margin was 53% and Adj Op margin 43%; 120% of Op margin.

Previously I was wondering how sustainable the very high cash generation would be. But in the guidance the CFO was very bullish and guided for FCF to be 100% to 110% of Operating margin.

Given that they are guiding for around 42% operating margin for the full year, they are guiding to full year FCF margin of 42% to 46%.

Customer growth:

My previous gripe was that they were stingy with their total customer disclosure, and they again only said that they had “more than 20,000 customers”. That’s the same number for the last 3 quarters.

However when I posed this question to the IR team they guided to rather look at larger customers - with more than $100k in ACV - and this quarter they stuck to that narrative.

It would seem that they are telling us that they are targeting larger customers and therefore we should focus on that number as that is how they judge success.

And that was up 16% sequentially - impressive stuff.

They added some really impressive customers in the quarter, too: Andreessen Horowitz; HVAC provider, Comfort Systems; Sonesta Hotels; Bill.com; Staples; Office Depot; and Monster.

I really liked this quote by the CEO about why they are successful with larger Enterprises:

Our strength in the enterprise is driven by a number of reasons:

First, we have meaningfully expanded the breadth of company data, providing better reach and coverage, helping us take share against legacy vendors.

Second, our investment in technology, including our robust integrations and partnerships with firms like Microsoft and Snowflake and our enterprise-grade APIs, enable large organizations to enrich their customer data wherever it exists.

Third, our investment in people and processes with expanded enterprise sales leadership, larger and more specialized enterprise data solutions consulting, and delivery and data services teams that are focused exclusively on the enterprise allow us to provide an elevated level of service for these customers.

And finally, we are a great value proposition for enterprises as they can find everything they need in one place without worrying about switching key go-to-market infrastructure together through multiple vendors.

My take

ZI is a highly profitable 50%+ hypergrower, with growth accelerating. On top of that it is consistently generating tremendous operating margins and free cash flows - in excess of 40% of revenue. Comparing that to the likes of Asana, which I recently sold, where operating margin was minus 43% and growth is of a similar magnitude - Asana grew 58% last Q and ZI 56% - puts things in perspective for me. And this is pre their acquisition of chorus. ZI is the one to own.

I’ll be assessing adding to this position once the rest of my companies report.

-WSM
(Long ZI 6.5%)

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