ZoomInfo Technologies Inc. (ZI)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 printed GAAP revenue of $291.5M (-6% YoY) and GAAP diluted EPS of -$0.07; adjusted operating income was $81.6M with a 28% margin. A noncash $33M change in estimates tied to receivable collectibility (including a $15M revenue reduction) drove the headline miss; excluding this charge, revenue would have been ~$307M and adjusted operating income ~$114M, broadly in line with prior guidance. Bold surprise: the accounting charges and guidance reset.
• FY 2024 guidance was lowered: revenue to $1.190–$1.205B (from $1.255–$1.27B), adjusted operating income to $412–$418M (from $488–$495M), and adjusted diluted EPS to $0.86–$0.88 (from $1.00–$1.02). Q3 2024 guidance: revenue $298–$301M; adjusted operating income $107–$109M; adjusted EPS $0.21–$0.22. Bold change: guidance cut.
• Operational positives: $100k+ ACV customers rose sequentially to 1,797 (+37 QoQ); enterprise ACV +9% YoY; Data-as-a-Service/Operations OS up 23% YoY with 117% NRR; Copilot reached >$18M ACV across >1,000 logos.
• Cash generation remained strong: operating cash flow $126.3M and unlevered FCF $120.0M; the company repurchased 10.8M shares for $147.4M and repriced its credit facility, cutting interest expense by ~$3M annually.
• Governance changes provide catalysts: CFO transition to interim CFO Graham O’Brien and two independent board appointments alongside the guidance reset likely influenced investor reaction.

What Went Well and What Went Wrong

• What Went Well

  • Upmarket momentum: “best new business quarter in both the mid-market and enterprise ever”; $100k customer cohort grew sequentially; enterprise ACV +9% YoY.
  • Net revenue retention stabilized for the first time since Q4 2021; operations/DAAS delivered 23% YoY growth with 117% NRR, underpinning AI use cases.
  • Copilot traction: “more than $18M of Copilot ACV across more than 1,000 logos,” with >75% of upsells in mid-market/enterprise; CEO expressed personal confidence to buy shares.

• What Went Wrong

  • Elevated SMB write-offs: management recorded a $33M total charge (including $15M revenue reduction, $14M bad debt) due to revised collectibility estimates; this forced a guidance reset.
  • FY 2024 guide cut across revenue, margins, EPS, and FCF; conservatism assumes escalated write-offs persist in 2H24.
  • Facilities restructuring and legal settlements: Waltham lease termination fee of $59M (to be recognized over ~6 months) and $30M class action settlement funding in July increase near-term reported costs.

Financial Results

Segment/KPI highlights

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “In Q2… we grew our $100k ACV customer cohort sequentially, had our best new business quarter in the mid-market and enterprise, while we stabilized net revenue retention.” — Henry Schuck, CEO
• “We… revised our estimates for the collectibility of a portion of previously recognized revenue… take a $33 million charge… Inclusive of this charge, GAAP revenue… $292M… adjusted operating income… $82M… Free cash flow was not impacted by this noncash charge.” — Henry Schuck
• “Excluding these charges… revenue of $307M and adjusted operating income of $114M.” — CFO Peter Hyzer
• “We repriced our first lien credit agreement to SOFR+175… expected to reduce annual interest expense by ~$3M.” — CFO
• “We now have more than $18M of Copilot ACV across more than 1,000 logos.” — CEO
• “In July, we funded the $30M settlement… and restructured our Waltham lease… $59M termination fee recognized over the next 6 months.” — CFO
• “I intend to be a meaningful personal buyer of ZoomInfo stock.” — CEO

Q&A Highlights

• Guidance conservatism and write-offs: Management assumes escalated write-off rates persist through 2H, with operational improvements (prepayments, upmarket mix) not yet embedded in the outlook.
• Pricing dynamics: No proactive price changes; some downsell pressure at lower end, with pricing uplift where Copilot is adopted.
• New business risk model: Prepayment requirements for higher-risk prospects, using firmographic factors and look-alike collectibility.
• NRR impact: Charges primarily affect new business write-offs; NRR largely unaffected.
• Q3 bridge: Reported Q2 revenue includes $15M write-down; Q3 guide is up vs reported but down vs ~$307M ex-charge level.
• Mix and exposure: SMB ~1/3 of business; enterprise >40%; focus on removing SMB credit risk via prepayments while continuing upmarket shift.

Estimates Context

• Wall Street consensus (S&P Global) for Q2 2024 EPS and revenue was unavailable due to a CIQ mapping issue for ZI; therefore, estimate comparisons could not be included. Values would be retrieved from S&P Global, but the mapping error prevented access.*

Key Takeaways for Investors

• Near-term overhang: The $33M noncash accounting charge and lowered FY 2024 guidance are the primary negative catalysts; management is purposefully conservative, assuming elevated write-offs in 2H.
• Quality of earnings: Strong cash generation continues (CFO $126.3M; UFCF $120.0M), with no FCF impact from the accounting charge; credit repricing lowers interest cost.
• Upmarket strategy gaining traction: Enterprise and mid-market new business hit records; $100k+ customer count rose sequentially; enterprise ACV +9% YoY.
• AI monetization runway: Copilot traction (>1,000 logos; >$18M ACV) and DAAS/Operations OS growth (23% YoY; 117% NRR) position ZI to benefit as customers embed AI; pricing uplift observed with Copilot.
• Risk mitigation in SMB: Prepayment roll-out ($11M ACV in Q2) and tightened risk model should reduce future write-off volatility.
• Legal and facility de-risking: Settlement funding and lease termination costs are recognized/expected in near term, clearing structural overhangs.
• Capital allocation: Aggressive buybacks and lower share count support per-share FCF targets; CEO’s stated intention to buy shares signals confidence.

Additional Relevant Q2 Press Releases

• Board appointments and resignation of Todd Crockett (independent additions focused on AI/data expertise).
• CFO transition: Interim CFO Graham O’Brien appointed effective Sept 6; Cameron Hyzer to advise through Oct 7.

Appendix: Business Outlook (as provided in Q2 press release)

• Q3 2024: Revenue $298–$301M; adjusted operating income $107–$109M; adjusted diluted EPS $0.21–$0.22; weighted average shares 366M.
• FY 2024: Revenue $1.190–$1.205B; adjusted operating income $412–$418M; adjusted diluted EPS $0.86–$0.88; UFCF $420–$430M; weighted average shares 375M.

*Estimates disclaimer: S&P Global consensus data was attempted via GetEstimates but unavailable due to a CIQ mapping issue; normally values would be retrieved from S&P Global.