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%)