ZoomInfo Technologies Inc. Q1 FY2023 earnings

ZoomInfo reported revenue of $300.7 million for the first quarter of fiscal 2023, up 24.4% from $241.7 million in the prior-year quarter. Growth came primarily from new customers added over the past 12 months and net expansion with existing customers. Gross profit rose 29.1% to $255.2 million, and gross margin expanded to 84.9% from 81.8%. Operating income more than doubled to $66.3 million, up 104.6% from $32.4 million, lifting operating margin to 22.0% from 13.4%. Net income reached $44.5 million, up 617.7% from $6.2 million, and diluted EPS was $0.11 versus $0.02.

Cash generation held steady. Operating cash flow was $108.6 million, up 3.4% from $105.0 million. Capital expenditures were $6.4 million, down 3.0% from $6.6 million. Unlevered free cash flow, a non-GAAP measure, was $121.1 million, down 4%. Adjusted operating income, also non-GAAP, was $120.3 million, up 26%, with an adjusted operating income margin of 40%. Adjusted net income per diluted share was $0.24. Deferred revenue ended the quarter at $451.4 million, up 11.2%, and remaining performance obligations were $1.09 billion, up 19.1% from $917.6 million.

Management highlighted 1,905 customers with $100,000 or greater in annual contract value at quarter end. Over 40% of customer contracts, based on annualized value, are multi-year agreements. The net annual retention rate was 104% for the year ended December 31, 2022, and the company said it expects that rate to be adversely impacted by macroeconomic conditions in the near term. ZoomInfo repurchased 1,058,291 shares at an average price of $22.99 for an aggregate $24.3 million under a $100 million authorization announced in March 2023, leaving $75.7 million available. It also completed a repricing of its First Lien Credit Agreement that extended the maturity to 2030 and reduced the interest rate by 25 basis points, and it integrated generative AI into its go-to-market plays and Chorus.

Cost of service was $45.5 million, up 3%. Operating expenses rose 14% to $188.9 million. Sales and marketing expense excluding equity-based compensation rose 23% to $83.7 million, research and development excluding equity-based compensation rose 18% to $35.4 million, and general and administrative excluding equity-based compensation rose 41% to $30.5 million. Equity-based compensation fell 11% to $37.7 million. Other income of $14.0 million, largely a tax receivable agreement remeasurement gain, compared with other expense of $1.4 million a year earlier. Interest expense, net declined 16% to $9.9 million. Income tax expense was $23.7 million, an effective tax rate of 34.8%, down from 67.6%.

Guidance for the second quarter of 2023 calls for revenue of $310 million to $312 million, non-GAAP adjusted operating income of $125 million to $127 million, and adjusted net income per share of $0.22 to $0.23. For the full year 2023, the company guided to revenue of $1.275 billion to $1.285 billion, adjusted operating income of $523 million to $533 million, adjusted net income per share of $0.98 to $1.00, and unlevered free cash flow of $507 million to $517 million.

Risks include adverse macroeconomic conditions and the ongoing COVID-19 pandemic, which management said could pressure net retention. The tax receivable agreement liability stood at $2,968.6 million as of March 31, 2023. Total net leverage ratio to Adjusted EBITDA was 1.3x, with trailing twelve months Adjusted EBITDA of $491.4 million. The company also disclosed $340.6 million in anticipated undiscounted future lease payments for operating leases not yet commenced. Cash and cash equivalents were $474.0 million, short-term investments were $141.8 million, and $250.0 million remained available under the first lien revolving credit facility. The company said it remains in compliance with its credit agreement covenants.