• Revenue: $304 million for Q3 2024.
• Adjusted Operating Income: $112 million, with a margin of 37%.
• Unlevered Free Cash Flow: $111 million, up 17% year-over-year.
• Net Retention Rate (NRR): Stabilized at 85% for the third consecutive quarter.
• Share Repurchase: 24 million shares retired, approximately 7% of total shares outstanding.
• Enterprise ACV: Grew 1% sequentially, representing approximately 41% of the business.
• Copilot ACV: Surpassed $60 million in the quarter.
• Cash and Cash Equivalents: $148 million at the end of Q3.
• Gross Debt: $1.24 billion.
• Guidance for Q4 2024: GAAP revenue expected between $296 million to $299 million.
• Full Year 2024 Guidance: GAAP revenue expected between $1.201 billion to $1.204 billion.

• Warning! GuruFocus has detected 6 Warning Signs with ZI.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ZoomInfo Technologies Inc (NASDAQ:ZI) reported GAAP revenue of $304 million and adjusted operating income of $112 million, both exceeding the high end of their guidance.
• The company successfully implemented a new business risk model, reducing volatility and increasing upfront prepayments from 33% in Q2 to 55% in Q3.
• ZoomInfo Copilot exceeded expectations, contributing significantly to customer pipeline and engagement rates.
• The company retired 24 million shares, reducing total shares outstanding by approximately 7%, demonstrating a commitment to shareholder value.
• Enterprise growth was strong, with the $100,000 customer cohort growing by 12, and revenue from this cohort now making up 44% of ACV.

Negative Points

• Sequential revenue growth for Q3 was negative 2%, indicating challenges in maintaining growth momentum.
• Write-offs continued at elevated levels in Q3, although they showed signs of abating towards the end of the quarter.
• The SMB segment remains challenged, particularly at the lower end, impacting net retention rates.
• The company anticipates a growth headwind due to the disqualification of high-risk SMB transactions, which will affect optics until Q2 of next year.
• Guidance for Q4 indicates a conservative approach, with expected GAAP revenue in the range of $296 million to $299 million, reflecting ongoing caution in the business environment.

Q & A Highlights

Q: Can you comment on the demand environment and retention trends as you exit Q3 into Q4? A: The demand environment remains relatively unchanged from Q2, with strong demand in the mid-market and enterprise segments, particularly for Copilot. However, the SMB segment continues to face challenges, especially in net retention. Net revenue retention stabilized at 85% for the third consecutive quarter, with less downsell pressure in mid-market and more expansion opportunities from Copilot and operations in the enterprise. - Henry Schuck, CEO, and Graham O'Brien, Interim CFO

Q: How much of the free cash flow per share growth in 2025 is dependent on revenue growth recovery? A: The primary lever for growing levered free cash flow per share is top-line growth. If that is not achieved, margin expansion and share repurchases will be considered to drive growth. - Graham O'Brien, Interim CFO

Q: Can you clarify the SMB dynamics and the impact of stricter credit practices? A: The Q2 charge cleared the deck for SMB issues, and there is no ongoing P&L volatility from that. The disqualification of high-risk SMB sales transactions creates a growth headwind until we lap it in Q2 next year. We expect SMB to decrease as a percentage of the business, with a focus on capturing high-quality demand in the segment. - Graham O'Brien, Interim CFO

Q: How is Copilot adoption affecting average deal sizes and renewals? A: Copilot is driving double-digit growth in average selling prices (ASP) when migrating customers, indicating that it is contributing to increased deal sizes. - Henry Schuck, CEO

Q: What are the key drivers for revenue growth in 2025, and how does the company plan to manage SMB headwinds? A: The focus is on upmarket growth, particularly in the enterprise and mid-market segments, with improvements in retention and expansion opportunities through Copilot. The company is also disqualifying high-risk SMB customers to improve revenue quality. - Henry Schuck, CEO, and Graham O'Brien, Interim CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.