Zoominfo Q3 | My thoughts and notes

Prezzo: https://ir.zoominfo.com/static-files/8a9ae383-5e32-4b9b-8270…

PR: https://ir.zoominfo.com/news-releases/news-release-details/z…


This company is executing exceptionally well and this is coming through in great numbers. Revenue was up 60% yoy / 54% on an organic basis, and 14% qoq for the second quarter in a row (which annualises to 69% yoy - so accelerating). RPO grew by 56% yoy. They are scaling at hyper-growth rates into a huge TAM which they estimate at $70bn and are already very profitable. Their acquisitions are great, incremental and growing much faster than the core business, so as those scale they will add multiple engines of growth. International is growing at 80% and accelerating; their newly acquired product Chorus is growing at 100%+ (faster than expected) and accelerating; their recruiter product is still small but doubled qoq. They are continually investing in their core product; NRR is ticking up and probably going to come in close to 120% when they next report it for the year, up from 108% for last year - I’m guessing here but wouldn’t be at all surprised to see it clock in there or there abouts. Gross margins are fantastic at 88%. They are targeting larger customers and having huge success - customers with >$100k ACV is growing at an accelerating pace; it grew by 150 customers in absolute numbers and 74% yoy, whereas revenue from this cohort of customers grew much faster than the business overall, at 80% yoy vs 75% yoy just a quarter ago. Total customers now total more than 25,000 and they will be cross-selling the newly acquired chorus product into this entire base. Adj net operating margin is 39% - a low point as they pressed on the gas to invest in R&D, adj net income is 25%! and FCF is 37%!

The founder CEO is a born salesman, leading a sales machine of a company, the company is getting recognition as a great place to work for millennials, they are growing headcount like crazy - from 2000 to 2500 in the last quarter alone, are on track to add more than 30% sales capacity this year and have just raised guidance, which they will almost certainly outperform.

They have transitioned from a 40%-ish grower a year ago to a 50%+, and possibly touching 60% grower with increasing NRR in ever larger customers, with more, and complementary products. They are the category leader/crusher in their space playing into a white space of opportunity and still have a lot of room to grow at a sub $30bn market cap.



They only publish this once a year, and the last time they published this number, for 2020, it was 108%.

I argued before that ZI’s NRR is actually already much higher in this post:
https://discussion.fool.com/a-few-quick-notes-about-my-watch-lis… That was just confirmed by the CEO:

“the leading indicators are pointing to meaningfully higher annual net dollar retention rates with expected improvements across customers of all sizes”


More than 25,000 customers.Looks like they are only updating this every 5k customers.
1,250 customers have greater than $100,000 in ACV up 70% year-over-year. This represents 40% of subscription revenue and that cohort’s revenue grew 85% yoy


Now contributing 11% of total : $80m in the quarter, up 80% yoy. This is up from 75% yoy last Q.


Great hiring: ended with 2,500, up from 2000 a quarter ago and up from 1,300 in May 2020. Continue to invest esp in R&D.


Intelligence layer:
Grew data asset for Europe, Health Care and Privacy.

Europe - grew data coverage by 80% ytd, now covers all companies with more than 100 employees
Health care - added 500k new contacts and enhanced 750k others
Privacy - exclude data from certain geo’s, public presence flag, opt-outs.

Engagement layer:
2000 now customers using Engage - sales automation solution

Plan to grow headcount aggressively

Still early, but customers doubled qoq.

Op margin:

Adj Op Income Margin decreased to 39% from 47% a year ago. It reduced due to very bi incremental investment in R&D and S&M.

Cash & debt:
$239m cash & equivalents. Gross debt $1.25bn

Organic growth of 50% yoy for the full year, vs 42% last year. So that’s an 8%pts acceleration from last year in the guide. Incl acquisitions the guide is for 54% growth yoy.
Q4 revenue of $207m which is 48% yoy for Q4.


Q: Relative size of US data set vs International dataset? What are the differences?
A: 2Q’s ago we said we were going to invest in International and now we’ve grown coverage 80% ytd. Unique challenges in Intl. - different currencies, languages, government datasets for financial metrics of companies. But relatiuve size Europe is 90% of US of US size and they continue to invest in ROW too.

WSM: → Nice: international is another engine of growth, they’re aggressively investing and growth is accelerating (75% up yoy Q2 and 80% up yoy this Q).

Q: What’s driving the strength in $100k+ ACV customers? Seat expansion? Cross-sell products?
A: Both. New products to cross-sell and seat expansion.

Q: Are you seeing ZI as a solution to some of the labour shortages in the market?
A: For ZI enterprise products the majority of opportunity is still an expansion of user seats. Where opportunity is is Zoominfo Recruiter product. Engage rolled out in Q3 2020 and now 2000 customers. They feel similar about Recruiter product.

WSM: → Another product ramping up here at hyper-scale that they’re very confident in. What I like is the optionality here: they’re using their data asset to branch into other areas. Not unlike Datadog using their observability position to branch into security.

Q: How many customers are reaching conclusion that ZI is as important as CRM system?
A: Not competing for dollars with CRM systems; rather augmenting them, changing from system of record to system of insight.

Q: 39% Op margin - how much is impacted by chorus & other M&A vs other investments?
A: Chorus took us from low 40%’s to 39%. Chorus was growing >100% yoy prior to acquisition and they’ve been able to accelerate that further already and are really confident that they’ll be able to push that even further.

WSM: → Great stuff. Chorus is growing really, really quickly. Probably the majority of the $10m of revenue in the quarter came from Chorus.

Q: Investing heavily into Chorus; just wondering how much of that decision is driven by current customer conversations vs what was planned at acquisition?
A: Investment is largely in line with what they planned. They see a big white-space opportunity in conversation intelligence.

CEO: “When we’re talking to customers about conversation intelligence, it’s a largely evangelistic sale. It’s technology that they didn’t know what’s available to them or available to go-to-market teams. And we see a big opportunity to continue to drive growth in nation across that product set.”

Q: At analyst day you noted you wanted to add 30% sales capacity annually; how are you tracking?
A: In 2021 we’re ahead of that pace and will continue to be ahead of that pace as long as there are solid opportunities to invest in.

WSM: → Great, so they are on track to add more than 30% sales capacity this year.

Q: You called out the increase in health care vertical. Please can you expand on that - what are you collecting, plans in this space?
A: We’re focusing on the prospecting and engagement with that vertical; we cover 90% of doctors in the US.

Q: Tax receivable - how should we look at that and the impact on cash flow?
A: Impact will be on our non-GAAP tax rate.

WSM: → Basically this will just lower their tax rate imo.

Q: Large >$1m deals - please compare to prior Q’s? Also explain what drove them?
A: Those were new deals - we are landing larger customers, we focused some sales resources on larger deals, the pipeline for landing is also larger and we have more products to sell.

WSM: → Schuck saying that they are focusing on selling more to larger customers. Should bode well for revenue growth imo.

Q: “I guess if we put into context some of the enterprise metrics or those customers over $100,000, the sequential add was pretty staggering, I would say, in that metric as well as, I think, some of the outperformance you saw versus your own guidance for Chorus which came in and almost triple the amount you thought it would. How should we think about the S&M spend going forward given these trends?
A: We are going to use account management team to unlock growth across our 25,000 customers to drive Chorus growth.
Chorus did outperform; we thought they would contribute $3m but most of the outperformance relative to guidance was from other parts of the business.

WSM → I love these types of quotes from analysts. I think on the large customers side he’s talking about the acceleration in the last couple of quarters. >$100k ACV customers grew in absolute numbers in the last 5 quarters from Q3 last year to Q3 now by 70, 130, 100, 150, 150. So Q3 2021 vs Q3 2020 is an increase of 150 vs an increase of 70 a year ago!
And he’s very excited about chorus, same as me. And the 3x overperformance the analyst mentioned is because the CFO stated were expecting $3m from Chorus, and inorganic revenue for the quarter - which would mostly comprise of chorus - came in at $8.1m. So a massive overperformance here, with more to come.

Q: Engage is at close to 10% logo penetration. What is the potential for cross-sell longer term?
A: We expect Engage can spread across all customers - Enterprise & SMB. ASP is driven by number of seats so will be smaller from

Q: International being serviced from East Coast - is the current growth of 80% driven only by this team, or also from the new UK team?
A: All driven from East coast still. As UK comes on board we expect meaningful contribution from them too.

WSM: → Kaboom. International is set to really take off: new team in the UK has not even started contributing!

Q: Salesforce and Microsoft Dynamics integration has been very successful. Will ZI invest into the most widely used ones?
A: We will invest where we see a big opportunity. We see a lot of people needing integration into a data store. A strategic direction for them will be building solutions that sit alongside the places, where all of the data from all of the systems live - like Snowflake, Amazon, Azure.

Patrick Walravens, JMP: “Hi Henry, congratulations. Amazing.”

WSM: → Gotta love that.

Q: Where is all this going? Where is this category a couple of years out? Who are the big players and how are they differentiated?
A: “We think we run one of the most sophisticated and efficient go-to-market engines in the world.” And basically the ZI product is a reflection of what they want in a GTM motion: conversation intelligence, sales automation, website chat are all key parts of how they go to market, and then they build/buy what is necessary to have it all in one place.


I’d like to expand on one point I saw here:

Q: How many customers are reaching conclusion that ZI is as important as CRM system?
A: Not competing for dollars with CRM systems; rather augmenting them, changing from system of record to system of insight.

My background is in software sales and I currently run a CRM consulting practice. I’m fortunate to have come across ZI/DO (lumping in DiscoverOrg, who merged with ZI in 2019) in the field for years and have seen how nearly every customer we recommended ZI to - they absolutely love it. And what Schuck said is true - normally companies lump their lead lists and CRM into one budget category of “sales tech stack.” For companies who were just buying lead lists, this is often a generic piece of tech that could be swapped in and out with no loyalty. But the vast majority of ZI customers we interacted with were fiercely loyal. ZI often created enough value for our customers where the ZI budget was often untouchable, and that budget was treated like a different bucket of money than the rest of the sales tech stack. That wasn’t some industry trend that came out of nowhere - ZoomInfo caused that trend, and others are trying to follow in its wake.

For this reason, we’ve recommended ZI for years as part of our sales/CRM consulting practice and feel that it’s leagues ahead of any competitor.

I hope my field report helps the readers of this board understand ZI’s category leader/crusher status further. This was a great earnings call and your notes were very helpful 007!


I think the reason why the stock price reaction is muted is due to the operating margin. It was above 45% in 2020 but started to be down a lot from Q1 2021 onwards: 42.9% (Q1), 43.4% (Q2) and now, 39.4% (Q3). the guide for Q4 suggested further downside to margins at 38.6%.

Absolute operating profit dollars are still growing but I believe there’s some concern that it’s pursuing topline revenue and sacrificing profits. Wondering if anyone has any thoughts on that?

I don’t think this is like Twilio (where the operating margin is only breakeven vs. ZI with a 40ish % operating margin); but one reason why Twilio is slammed despite strong revenue growth is due to its profit going in the opposite direction. Obviously many high growth companies are loss making but they generally can show a path and progress towards higher profits.


Now contributing 11% of total : $80m in the quarter, up 80% yoy. This is up from 75% yoy last Q.

MillennialFool rightly pointed out to me off-board that my notes were a bit cryptic on their International growth, and said that he couldn’t find the numbers in the release.

That $80m above should read “more than $80m annualised in the quarter”.

The number is from the earnings call. The exact quote from Schuck was:

Because of our highly differentiated offering, demand for our platform is high, driving year-over-year international revenue growth greater than 80% in the quarter, with international representing more than 11% of our overall business or over $80 million on an annualized basis.


Just to double click on organic vs non-organic growth at ZI. This is in their 10-Q.

“The Company has included the financial results of the 2021 Acquired Companies in the consolidated financial statements from each date of acquisition. During the three and nine months ended September 30, 2021, the 2021 Acquired Companies contributed $3.9 million and $4.0 million to revenue, respectively. Due to the integration of the 2021 Acquired Companies into the operations of ZoomInfo, the Company cannot practicably determine the contribution of the 2021 Acquired Companies to consolidated net earnings. Transaction costs associated with each acquisition were not material.”

This confirms what they said earlier on their call and is in line with my assumptions about organic growth. Total Q3 revenue of 197.6 and organic 193.7, which makes it for an organic QoQ growth of 11.3%.


Hi guys,

Really informative thread as always! ZI is a 4% position for me and I am thinking hard about doubling it. From the above discussion, it seems pretty clear that ZI is the market leader/crusher. I would really appreciate if someone can throw more light onto CATSUNITED’s point regarding dropping margins.
I am relatively new to investing, so do you guys think the dropping margins are a cause of concern or is it just ‘necessary’ investment to capture the market share/white space? It would be fantastic if some experiences folks can shed some light here with a similar example from another company.

Thanks for the awesome forum. Learning a lot SUPER FAST!

Q3 Non-GAAP OM and FCF margin dropping was mainly caused by the two acquisitions, which is obviously temporary. On the other hand, these acquisitions significantly increased ZI’s moat and TAM.

Hope that helps.