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ZoomInfo Technologies (ZI) - 2023 Q3 - Quarterly Report
ZIZoomInfo Technologies (ZI)2023-10-29 16:00
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Financial Performance - Net income for the three months ended September 30, 2023 was 30.2million,comparedto30.2 million, compared to 17.9 million in the same period in 2022, representing a 69% increase[234] - Adjusted Operating Income for the three months ended September 30, 2023 was 126.2million,up7126.2 million, up 7% from 118.4 million in the same period in 2022[240] - Revenue for the three months ended September 30, 2023 was 313.8million,a9313.8 million, a 9% increase from 287.6 million in the same period in 2022[240] - Adjusted EBITDA for the three months ended September 30, 2023 was 131.1million,a6131.1 million, a 6% increase from 123.2 million in the same period in 2022[246] - Adjusted Net Income for the nine months ended September 30, 2023 was 311.0million,up22311.0 million, up 22% from 254.7 million in the same period in 2022[234] - Adjusted Operating Income for the nine months ended September 30, 2023 was 372.1million,a16372.1 million, a 16% increase from 320.9 million in the same period in 2022[241] - Revenue for the nine months ended September 30, 2023 was 923.1million,a16923.1 million, a 16% increase from 796.4 million in the same period in 2022[240] - Adjusted EBITDA for the nine months ended September 30, 2023 was 386.6million,a16386.6 million, a 16% increase from 333.7 million in the same period in 2022[247] - The company's Adjusted Operating Income Margin remained consistent at 40% for both the three and nine months ended September 30, 2023[240][241] - Growth in revenue was driven by additional customers and increasing revenue from existing customers in both the three and nine months ended September 30, 2023[240][241] - Revenue for Q3 2023 was 313.8million,a9313.8 million, a 9% increase compared to 287.6 million in Q3 2022, driven by new customer additions partially offset by cancellations[271] - Revenue for the nine months ended September 30, 2023 increased by 126.7million(16126.7 million (16%) to 923.1 million compared to 796.4millionforthesameperiodin2022,drivenbynewcustomeradditionspartiallyoffsetbycancellations[278]−NetincomeforthetrailingtwelvemonthsendedSeptember30,2023was796.4 million for the same period in 2022, driven by new customer additions partially offset by cancellations[278] - Net income for the trailing twelve months ended September 30, 2023 was 136.0 million, with EBITDA of 412.8millionandAdjustedEBITDAof412.8 million and Adjusted EBITDA of 518.2 million[310] Customer and Contract Metrics - ZoomInfo's net annual retention rate was 104% for the year ended December 31, 2022[228] - As of September 30, 2023, ZoomInfo had 1,869 customers with over 100,000inACV[228]−Over40100,000 in ACV[228] - Over 40% of ZoomInfo's customer contracts (based on annualized value) are multi-year agreements[218] Share Repurchase Program - ZoomInfo repurchased 8,800,000 shares of Common Stock at an average price of 18.19, totaling 160.1million,duringthethreemonthsendedSeptember30,2023[226]−ZoomInforepurchased12,705,412sharesofCommonStockatanaveragepriceof160.1 million, during the three months ended September 30, 2023[226] - ZoomInfo repurchased 12,705,412 shares of Common Stock at an average price of 19.44, totaling 247.0million,duringtheninemonthsendedSeptember30,2023[226]−AsofSeptember30,2023,247.0 million, during the nine months ended September 30, 2023[226] - As of September 30, 2023, 353.0 million remained available and authorized for repurchases under the Share Repurchase Program[226] - The Board of Directors authorized a share repurchase program of up to 600.0million,includinganadditional600.0 million, including an additional 500.0 million approved in July 2023[323] Debt and Credit Facilities - ZoomInfo extended the maturity date of 213.0millionofits213.0 million of its 250.0 million existing commitments of the first lien revolving credit facility to February 28, 2028[223] - ZoomInfo completed a repricing of its First Lien Term Loan Facility, extending the maturity date to February 28, 2030 and decreasing the applicable margin rate by 0.25%[222] - The company has a remaining balance of 595.5milliononitsfirstlientermloansand595.5 million on its first lien term loans and 650.0 million in 3.875% Senior Notes, with principal payments due quarterly and at maturity dates in 2030 and 2029, respectively[302] - The effective interest rate on the first lien debt was 8.30% as of September 30, 2023, compared to 7.38% as of December 31, 2022[303] - The company's first lien term loan has a total principal balance outstanding of 595.5millionasofSeptember30,2023,withavariableinterestratebasedonSOFR[332]OperatingExpensesandCosts−Costofservicedecreasedby7595.5 million as of September 30, 2023, with a variable interest rate based on SOFR[332] Operating Expenses and Costs - Cost of service decreased by 7% to 44.8 million in Q3 2023, primarily due to the completion of amortization expenses related to intangible assets from a 2019 acquisition and reduced equity-based compensation[272] - Operating expenses increased by 10% to 205.9millioninQ32023,witha16205.9 million in Q3 2023, with a 16% increase excluding equity-based compensation, driven by higher sales and marketing expenses and increased accruals for bad debt[273] - Equity-based compensation expense decreased by 11% to 42.9 million in Q3 2023, primarily due to slower headcount growth and higher forfeitures of unvested awards[274] - Sales and marketing expenses (excluding equity-based compensation) increased by 10% to 84.8millioninQ32023,drivenbyadditionalsalaries,benefits,andcommissionexpenses[276]−Researchanddevelopmentexpenses(excludingequity−basedcompensation)decreasedby484.8 million in Q3 2023, driven by additional salaries, benefits, and commission expenses[276] - Research and development expenses (excluding equity-based compensation) decreased by 4% to 35.6 million in Q3 2023, primarily due to reduced salaries and benefits expenses[276] - General and administrative expenses (excluding equity-based compensation) increased by 49% to 36.4millioninQ32023,primarilyduetoincreasedaccrualsforbaddebt[276]−Restructuringandtransaction−relatedexpensesincreasedby245036.4 million in Q3 2023, primarily due to increased accruals for bad debt[276] - Restructuring and transaction-related expenses increased by 2450% to 5.1 million in Q3 2023, primarily due to costs related to the Ra'anana lease impairment[276] - Cost of service decreased by 5.7million(45.7 million (4%) to 133.5 million for the nine months ended September 30, 2023, primarily due to completion of amortization expense related to intangible assets and reduced equity-based compensation[279] - Operating expenses increased by 67.1million(1367.1 million (13%) to 600.6 million for the nine months ended September 30, 2023, with a significant increase in sales and marketing expenses (excluding equity-based compensation) of 33.5million(1533.5 million (15%) to 253.5 million[280] - Equity-based compensation expense decreased by 10.7million(810.7 million (8%) to 126.9 million for the nine months ended September 30, 2023, primarily due to slower headcount growth and higher forfeitures of unvested awards[281] Cash Flow and Liquidity - As of September 30, 2023, the company had 442.6millionincashandcashequivalents,442.6 million in cash and cash equivalents, 125.3 million in short-term investments, and 250.0millionavailableunderitsfirstlienrevolvingcreditfacility[285]−UnearnedrevenueasofSeptember30,2023was250.0 million available under its first lien revolving credit facility[285] - Unearned revenue as of September 30, 2023 was 403.1 million, with 399.2millionexpectedtoberecognizedasrevenuewithinthenext12months[287]−NetcashprovidedbyoperatingactivitiesfortheninemonthsendedSeptember30,2023was399.2 million expected to be recognized as revenue within the next 12 months[287] - Net cash provided by operating activities for the nine months ended September 30, 2023 was 306.1 million, driven by net income of 112.8millionandnon−cashchargesof112.8 million and non-cash charges of 330.5 million[291] - Cash used in investing activities for the nine months ended September 30, 2023 was 11.1million,primarilyconsistingofpurchasesofshort−terminvestmentsandpropertyandequipment[297]−AdjustedEBITDAforthe12monthsendedSeptember30,2023was11.1 million, primarily consisting of purchases of short-term investments and property and equipment[297] - Adjusted EBITDA for the 12 months ended September 30, 2023 was 518.2 million, with a total net leverage ratio to Adjusted EBITDA of 1.3x[304][305] - Cash EBITDA for the 12 months ended September 30, 2023 was 542.0million,withaconsolidatedfirstliennetleverageratioof0.1x[307][308]TaxandFinancialObligations−IncometaxexpensefortheninemonthsendedSeptember30,2023was542.0 million, with a consolidated first lien net leverage ratio of 0.1x[307][308] Tax and Financial Obligations - Income tax expense for the nine months ended September 30, 2023 was 69.3 million, representing an effective tax rate of 38.1%, down from 58.1% in the same period in 2022, primarily due to reduced non-deductible equity-based compensation[284] - The company had a liability of 2,964.9millionrelatedtoprojectedobligationsundertheTaxReceivableAgreementsasofSeptember30,2023[322]LeasesandRealEstate−Thecompanyhadadditionaloperatingleasesforofficespacewithanticipatedundiscountedfutureleasepaymentsof2,964.9 million related to projected obligations under the Tax Receivable Agreements as of September 30, 2023[322] Leases and Real Estate - The company had additional operating leases for office space with anticipated undiscounted future lease payments of 293.6 million as of September 30, 2023[324] Macroeconomic and Currency Risks - Inflation has not had a material direct effect on the company's business, financial condition, or results of operations, but macroeconomic conditions including inflation could impact future performance[331] - A hypothetical 100 basis points change in the effective interest rate would cause an immaterial impact on the company's financials over the next 12 months[332] - The company initiated a foreign currency hedging program this quarter, with derivative financial instruments totaling 13.3millioninnotionalvalueforIsraelishekelexposure[335]−Foreigncurrencytransactiongainsandlossesarerecordedtonon−operatingincome(loss),withpastimpactsofcurrencyfluctuationsbeingimmaterial[336]−SalescontractsareprimarilydenominatedinU.S.dollars,withforeignsubsidiariesinIsrael,Canada,theUK,India,andAustraliausingtheU.S.dollarastheirfunctionalcurrency[334]−AstrongerU.S.dollarcouldreducedemandforthecompany′ssolutionsoutsidetheU.S.,whileaweakerdollarcouldhavetheoppositeeffect[334]−AllcashflowhedgingrelationshipsaredesignatedasaccountinghedgesasofSeptember30,2023[333]InvestmentandCreditRiskManagement−Thecompanyholdscashwithreputablefinancialinstitutions,oftenexceedingfederallyinsuredlimits,andmanagescreditriskthroughdiversifieddepositsandperiodicevaluations[337]−Theinvestmentportfolioconsistsofhighlyratedsecuritieswithaweighted−averagematurityoflessthan12months,aimingtopreserveprincipalandmaintainliquidity[337]OtherIncomeandExpenses−Otherincomewas13.3 million in notional value for Israeli shekel exposure[335] - Foreign currency transaction gains and losses are recorded to non-operating income (loss), with past impacts of currency fluctuations being immaterial[336] - Sales contracts are primarily denominated in U.S. dollars, with foreign subsidiaries in Israel, Canada, the UK, India, and Australia using the U.S. dollar as their functional currency[334] - A stronger U.S. dollar could reduce demand for the company's solutions outside the U.S., while a weaker dollar could have the opposite effect[334] - All cash flow hedging relationships are designated as accounting hedges as of September 30, 2023[333] Investment and Credit Risk Management - The company holds cash with reputable financial institutions, often exceeding federally insured limits, and manages credit risk through diversified deposits and periodic evaluations[337] - The investment portfolio consists of highly rated securities with a weighted-average maturity of less than 12 months, aiming to preserve principal and maintain liquidity[337] Other Income and Expenses - Other income was 8.0 million in Q3 2023, primarily consisting of 6.7millionininvestmentincomeanda6.7 million in investment income and a 2.6 million TRA remeasurement gain, offset by a 1.3millionlossonforeigncurrencytransactions[275]−Interestexpense,netincreasedby31.3 million loss on foreign currency transactions[275] - Interest expense, net increased by 3% to 11.9 million in Q3 2023, primarily due to fluctuations in derivative instruments, partially offset by higher deposit rates[276]