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ZT

ZoomInfo Technologies Inc. (ZI)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered a clean beat vs company guidance: revenue $303.6M and adjusted operating income $111.7M, both above the high end of prior guidance; GAAP diluted EPS was $0.07 and adjusted diluted EPS was $0.28 .
  • Net revenue retention stabilized at 85% for the third consecutive quarter; enterprise momentum continued with 1,809 $100k+ ACV customers (+12 q/q), and Copilot ACV surpassed $60M, supporting upmarket mix and higher ASPs on migrations .
  • Cash generation remained robust on an unlevered basis ($110.7M, +17% YoY), while operating cash flow was depressed by one-time lease termination and litigation settlement payments; share repurchases accelerated (24.5M shares, ~$242M) as management leaned into valuation dislocation .
  • Guidance was set conservatively: Q4 revenue $296–$299M, adjusted OpInc $103–$105M, adjusted EPS $0.22–$0.23; FY24 revenue $1.201–$1.204B (narrowed/raised low end), adjusted OpInc $416–$418M (raised low end), adjusted EPS $0.92–$0.93 (raised), reflecting SMB pruning headwinds and an emphasis on durable quality of revenue .

What Went Well and What Went Wrong

What Went Well

  • Enterprise/mid-market strength: 1,809 $100k+ ACV customers (+12 q/q); enterprise ACV ~41% of business and grew 1% sequentially, with one of the best YoY increases in $1M+ customers .
  • Copilot traction and ROI: customer-reported impacts include 25% of pipeline from Copilot signals, +58% engagement, +62% email response rates, and ~8 hours/week productivity gains; Copilot ACV surpassed $60M and migrations are driving double-digit ASP growth .
  • Profitability and cash generation: adjusted operating margin 37% and unlevered FCF $110.7M (+17% YoY); management reiterated focus on growing levered FCF/share and executed sizable buybacks (~7% of shares retired in Q3) .

What Went Wrong

  • SMB headwinds remained a drag: tightened credit screens disqualified >$2M/month of high-risk SMB new sales, creating near-term growth headwinds even as write-offs began to abate exiting Q3 .
  • GAAP operating cash flow declined to $18.2M in Q3, impacted by a $59M lease termination and ~$30M litigation settlements; GAAP operating income declined YoY (+14% margin vs 20% LY), reflecting non-recurring items and mix shifts .
  • Sequential revenue growth normalized at -2% in Q3 (and guided ~-2% for Q4) as management adopted a deliberately conservative posture amid SMB transition and the company’s largest expiring quarter in Q4 .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$310.1 $291.5 $303.6
YoY Revenue Growth (%)3% (6)% (3)%
GAAP Diluted EPS ($)$0.04 $(0.07) $0.07
Adjusted Diluted EPS ($)$0.26 $0.17 $0.28
GAAP Operating Income Margin (%)14% (7)% 14%
Adjusted Operating Income Margin (%)39% 28% 37%
Adjusted Operating Income ($USD Millions)$119.4 $81.6 $111.7
Cash Flow from Operations ($USD Millions)$115.9 $126.3 $18.2
Unlevered Free Cash Flow ($USD Millions)$122.7 $120.0 $110.7

Notes:

  • Management cited $304M revenue on the call due to rounding and an additional day; the press release reported $303.6M .
  • Non-GAAP adjustments reflect amortization of intangibles, equity-based compensation, restructuring/transaction costs, and legal settlements, among others .

KPIs and Operating Metrics

KPIQ1 2024Q2 2024Q3 2024
Net Revenue Retention (%)85% (stabilizing) 85% (stabilized) 85% (third consecutive quarter)
Customers ≥$100k ACV (count)1,760 1,797 1,809
Advanced Functionality (% of business)—35% 38%
Copilot ACV ($USD Millions)—$18 (included in total) >$60 (exiting total)
Enterprise ACV (% of business)——~41%
Unearned Revenue ($USD Millions)$443.0 $438.9 $419.0
RPO ($USD Billions)——$1.05; $0.78 due next 12 months
Share Repurchases (shares/$)9.62M; $153.1M 10.80M; $147.4M 24.48M; $242.1M
Cash & Equivalents ($USD Millions)$405.9 $385.9 $147.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q3 2024$298–$301 Actual: $303.6 Beat vs guidance
Revenue ($USD Millions)Q4 2024n/a$296–$299 Introduced
Revenue ($USD Billions)FY 2024$1.190–$1.205 $1.201–$1.204 Narrowed; raised low end
Adjusted Operating Income ($USD Millions)Q4 2024n/a$103–$105 Introduced
Adjusted Operating Income ($USD Millions)FY 2024$412–$418 $416–$418 Raised low end
Adjusted Diluted EPS ($)Q4 2024n/a$0.22–$0.23 Introduced
Adjusted Diluted EPS ($)FY 2024$0.86–$0.88 $0.92–$0.93 Raised
Unlevered Free Cash Flow ($USD Millions)Q4 2024Not guided Not guided Maintained
Unlevered Free Cash Flow ($USD Millions)FY 2024$420–$430 $420–$430 Maintained
Weighted Avg Diluted Shares (Millions)Q4 2024n/a362 Introduced
Weighted Avg Diluted Shares (Millions)FY 2024375 378 Higher

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q1)Current Period (Q3 2024)Trend
AI/Copilot adoptionQ1: Copilot set to launch; stabilizing NRR . Q2: Copilot released; early traction; 1,797 $100k customers .Copilot ACV >$60M; strong ROI metrics (25% pipeline, +58% engagement, +62% email responses); expanded integrations (Teams, HubSpot, Outreach/SalesLoft/Groove) .Accelerating adoption and impact .
SMB risk model & credit tighteningQ2: Implemented new risk model and recorded $33M charges affecting revenue and bad debt .Disqualifying >$2M/month high-risk SMB new sales; write-offs still elevated but abating; growth optics pressured until lapping in Q2’25 .Near-term headwind; improving quality mid-term .
Retention/NRRQ1: Stabilizing NRR . Q2: NRR stabilized .NRR 85% for third straight quarter; mid-market downsell pressure easing; Copilot/Operations support expansion .Stabilizing with positive bias .
Enterprise momentumQ1: 1,760 $100k customers . Q2: best new business in mid-market/enterprise .1,809 $100k customers (+12 q/q); enterprise ACV ~41% of business (+1% seq); one of best YoY increases in $1M+ cohort .Strengthening upmarket mix .
Legal/real estate cost actionsQ1: Legal settlements recognized ($30.2M in adjustments) . Q2: Lease impairment/abandonment ($50M) .$59M Waltham lease termination (expected >$100M savings) and $30M settlements funded; depressed GAAP OCF in Q3 .One-time costs now behind; future savings tailwind .

Management Commentary

  • “Net revenue retention was stable for the third consecutive quarter and we again grew our $100k and million dollar customer cohorts. We remain steadfast in our commitment to growing levered free cash flow per share...” .
  • “In the third quarter, we applied [the business risk] model more broadly... disqualified more risky small businesses than ever before... it will remain a headwind to the optics of our growth in the coming quarters.” .
  • “Copilot performed better than expected... adjusted operating income was $112 million, a margin of 37%, both above the high end of our previously provided guidance.” .
  • “We will take a very conservative approach to our guidance communications going forward... particularly as we navigate this SMB transition.” .

Q&A Highlights

  • Demand environment: Stable vs Q2; strong upmarket demand (mid-market Copilot, enterprise DaaS/OperationsOS), while low-end SMB remains challenged on retention .
  • Levered FCF/share pathway: 2025 growth to be driven first by top-line, then margin expansion, then continued buybacks if needed .
  • Guidance conservatism: Sequential growth normalized -2% in Q3; guiding similarly for Q4 and discounting recent operating momentum given largest expiring quarter .
  • SMB quality over quantity: Disqualification of >$2M/month high-risk new SMB sales; write-offs still elevated but abating; expect benefits to show 6–9 months post-implementation .
  • Copilot impact on ASPs: Migrations are yielding double-digit ASP growth; higher utilization and customer satisfaction are leading indicators for renewals/NRR .

Estimates Context

  • We attempted to retrieve Wall Street consensus estimates (revenue, EPS) via S&P Global; the data was unavailable due to a missing CIQ mapping for ZI. Therefore, comparisons to Street estimates are not provided in this recap. We anchor comparisons to company guidance and actuals disclosed in the 8-K and the call . Values retrieved from S&P Global were unavailable due to mapping constraints.

Key Takeaways for Investors

  • The quarter was a guidance beat: revenue and adjusted operating income exceeded the high end; adjusted EPS landed well above prior Q3 guidance, a positive signal amid conservative forward posture .
  • Copilot is a real monetization lever: >$60M ACV exiting Q3; clear ROI signals and double-digit ASP uplift on migrations suggest durable upsell/cross-sell runway in mid-market and enterprise .
  • Upmarket mix shift is working: enterprise ACV ~41% and growing; $100k+ cohort up for the second straight quarter; million-dollar cohort accelerating—supports higher-quality revenue and resilience .
  • SMB pruning is a necessary near-term headwind: disqualifying higher-risk deals pressures new sales optics now but should reduce write-offs and improve revenue durability by mid-2025 .
  • Cash discipline and capital returns: despite one-time cash uses, unlevered FCF remained strong; aggressive repurchases (~7% of shares retired in Q3) highlight confidence and boost FCF/share math .
  • FY24 guide raised where it matters: revenue range narrowed/raised low end; adjusted OpInc raised low end; adjusted EPS raised—signals improved profitability trajectory even as top-line remains subdued .
  • Trading setup: conservative Q4 guide (largest expiring quarter), SMB headwinds, and estimate data unavailability point to volatility; watch for Copilot-driven ASP expansion, enterprise/mid-market upsell, and sequential stabilization as potential catalysts into 2025 .