ZoomInfo Q421 - My Thoughts

Before I get into my thoughts on the results, just a reminder that Daws put together a very nice summary of earnings expectations for ZI before they reported, and my modeling was pretty close to what Daws listed - https://discussion.fool.com/zoominfo-earnings-expectations-35051…

I quick smattering of the key results:

Revenue- $222.3M, 59% YoY, 13% QoQ
uFCF - $84M, 23% YoY
$100k TTM Customers - 1,452 total, 71% YoY
Gross Margins (adj) 89%
Op Margins (adj) 39%
DBNRR 116% vs 108% Q4 of last year

Taking Daws guide as a barometer, I would call this a “Meets” quarter as was laid out in the post above. Everything for Q4 came in right around what I was expecting, with the exception that DBNRR was 8 points higher, which is the standout metric for me in the positive column this quarter.

There was a lot of discussion on the conference call about DBNRR, but the long and short of it is that ZI’s leadership has strong conviction this can go even higher. Here’s a few snippets from the CC…

Henry Schuck regarding DBNRR at 116% vs 108% YoY - “I was just going to say, going forward, I do think that the rates that we’ve established in 2021 are sustainable and something that we’ll look to improve upon as we look into next year and the following years….Our sellers are enabled now to sell Engage and Chorus and Recruiter into those companies as well. And so I would say, if you take a step back and you say where are our biggest opportunities, it is still in expanding our footprint across the enterprise, expanding our footprint internationally. But then we have this added arsenal of Chorus, Engage, RingLead, Chat that we’re able to sell in a cohesive way into those companies. And so I think we have a sort of two-headed motion into the customer base that we think is going to be the backdrop of that improvement as we go forward.

All good so far right? Let’s get to the guidance. Going into earnings, I was hoping to see about $235M at the top end of their Q1 guide, but they only guided to $228M.

Why did I think they would have a strong guide? Well, if you look at ZI’s past history, they’ve been pretty consistent with sprinkling in M&A each year to bolster their platform. In 2020, they acquired Everstring and Clickagy to bolster their AI, and in 2021 they acquired Inset (conversational marketing), RingLead (data orchestration) and Chorus (AI). I was thinking the cross-selling GTM motions for these strategic acquisitions were going to continue to pick up steam. And honestly, on the conference call they made it sounds this way!

For example, here’s what they said about Chorus - “At the time of acquisition, our conversation intelligence platform Chorus was growing 100% year-over-year and we accelerated that growth in both the third and fourth quarters of 2021……we’ve accelerated Chorus growth to 200% relative to year-end 2020.

Then they said this about RingLead - ”Another testament to the power of our go-to-market motion is demonstrated through RingLead, where in Q4 we’ve added more than 2x the amount of ACV than it did independently in Q3.

Those comments line up with what I was expecting, but then why guide to only $228M if you have that strong of momentum? A “good” beat with my modeling for Q1 then puts them at ~$243M which is 58% YoY and 9% QoQ, a tick down on YoY and a few ticks down QoQ for them. It’s fair to point out that they did 9% QoQ in Q121, so maybe I’m missing the seasonality adjustment for a slow sales quarter that impacts their top line.

It’s also important to point out how similar their Full Year Guidance is for 2022 relative to what it was for 2021 after their Q4 report last year.

Let’s compare what they said this Q4 vs. last years Q4:

From Q4 2020 “Our full-year guidance calls for revenue growth of 37% and continued investment in sales and marketing capacity and innovation to drive sustained growth going forward.”

From Q4 2021 “Our initial 2022 guidance calls for revenue growth of 36%

So….from that lens, they are only guiding 1% lower this year than what they guided to last year.

That said, you have to wonder how long ZI is going to continue the M&A strategy they’ve employed the last few years to drive outsized growth, which has helped them boost their total revenues beyond organic ZI growth.

They were explicit about that on the CC - “For the full year, we delivered GAAP revenue of $747 million, up 57% compared to 2020 with organic growth exceeding 50%.

So we know organically they grew somewhere slightly north of ~50% this year (~52% in Q4), and with the absence of acquisitions in 2022 and with a FY Guide of 36% vs 37% last year, you can hypothesize a ~50% FY 2022 growth rate this year on revenue (sans any new acquisitions).

A couple other nuggets from the CC/Prepared Remarks that I think are worth calling out:

Do I think the revenue growth is still durable? Yes I do! Hyzer answered a question on adding 30% S&M in 2021 and said this is a long-term target for them over time. He even went a step further in stating in the near-term they are looking to invest “even more aggressively” in S&M to ensure the growth rate remains high.

So, what actions did I take AH and what I’m I planning to do with ZI near term? Well, for someone like me who had an outsized position (~22% into earnings), and seeing what our other companies did, and seeing ZI give some “meh” results and some even more “meh” guidance, I felt it was prudent for me to do some trimming AH to reduce my exposure and add to other names that have blown the doors off in Q4 (eg. BILL)

That said, if I were holding ZI at a smaller position size, and the AH 13% down turn holds up, I might be thinking about adding to my position. But that’s just me. I still really love this company’s combination of growth, profitability, and free cash flow generation at scale, and see that continuing even if organic growth slows.

Hope you found this perspective useful and I welcome any contrary thoughts/observations!



thanks Chris for that very useful perspective. Some other things that stood out to me from the call:

I liked that they mentioned they are strengthening their international expansion efforts by setting up a new office in London and moving senior staff across the pond - “Those folks will be tasked with not just the U.K. and Ireland, but also reaching out and building business in the rest of Europe. I think as we continue to look into '22, we’re going to evaluate other potential areas to move into, whether that’s Australia or APAC or LATAM.”

And they also mentioned that they are entering the government space – “we are obviously new into the government space. And so we are introducing ourselves currently in that vertical.
I think the thing that I would tell you is that we’ve already closed business with government agencies on the contract vehicle that we announced. We feel really good about that. There are a number of places throughout government agencies that take advantage of data like that, that which our customers on the enterprise side take advantage of. And they’re using it for validating businesses to make sure that when they’re giving out procurement contracts that those businesses are validated companies.”

The CFO repeatedly stated in the Q&A that the guidance was conservative – “So our guidance methodology has not changed. We continue to evaluate a wide range of potential outcomes and set our guidance at a level that we are comfortable that we will meet and exceed.”

What surprised me overall is that there wasn’t much focus on their profitability and FCF generation. It is a given that revenue growth is the key metric around these parts however, whereas we are often discussing a path to profitability with SaaS companies, here we have a business forecasting continued Operating Margins around 40% alongside their revenue growth rates. I think that is rather impressive, unfortunately the (AH) market doesn’t seem to agree(yet)