ZoomInfo Technologies (ZI) - 2023 Q4 - Annual Report

Part I Business ZoomInfo is a global leader in GTM software, offering RevOS to over 35,000 customers, emphasizing data accuracy and privacy - ZoomInfo's core offering is RevOS, a cloud-based operating system for revenue professionals, structured across three layers[41][42][43] - Intelligence Layer: The foundational data layer with billions of data points on companies and contacts - Orchestration Layer: Integrates and enriches data, routing it to the appropriate people and systems like CRMs - Engagement Layer: Allows professionals to act on insights through tools for sales (SalesOS), marketing (MarketingOS), recruiting (TalentOS), and operations (OperationsOS) - The company's data engine leverages AI and machine learning, supplemented by a human research team, to process data from millions of sources, contractually guaranteeing at least 95% accuracy for certain data points[44][48] - As of December 31, 2023, the company had 3,516 employees, with the U.S. workforce approximately 27% ethnically diverse and 33% female[68][72] - The company has a diverse customer base with no single customer accounting for more than 1% of revenue in 2023, serving key industries including software, business services, manufacturing, and financial services[52] Risk Factors The company faces risks from economic downturns, customer retention, data accuracy, competition, privacy laws, cyber-attacks, and debt structure - Business & Industry Risks: Economic downturns may reduce customer spending on sales and marketing technology, and success depends on attracting new customers, renewing subscriptions, and maintaining data accuracy amidst competition from larger, well-funded companies and free data sources[81][113][146] - Privacy, Technology & Security Risks: Evolving data privacy laws (GDPR, CCPA, etc.) could impact data collection and use, and the business is vulnerable to litigation, cyber-attacks, and risks associated with investing in AI[81][113][146] - Credit & Financial Risks: Revenue is primarily from subscriptions, making it sensitive to demand shifts, and the company has substantial debt ($1.24 billion as of Dec 31, 2023), which could affect its financial position and is subject to interest rate fluctuations[81][113][146] - Geopolitical Risks: International operations expose the company to foreign currency fluctuations, regulatory complexities, and global economic uncertainty[81][113][146] - Organizational & Ownership Risks: The holding company structure and Tax Receivable Agreements (TRAs) create complex payment obligations and may restrict certain corporate actions[81][113][146] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[197] Cybersecurity ZoomInfo maintains a robust, risk-driven cybersecurity program with ISO and SOC 2 certifications, overseen by a CSO and the Board - The company's security program is built on a risk-driven framework based on the ISO 31000 Risk Management Standard and includes certifications such as ISO 27001, ISO 27701, ISO 27017, and AICPA's SOC 2 attestation[199][200] - Cybersecurity governance involves direct oversight from the Board of Directors, primarily through its Privacy, Security and Technology Committee, which reviews the company's risk exposures and management strategies[210][211] - The cybersecurity program is managed by a Chief Security Officer (CSO) with over 20 years of experience, supported by an executive-level Security Steering Committee that includes the CTO and General Counsel[212][213] Properties The company leases its Vancouver, Washington headquarters and other global offices, utilizing third-party data centers - The company leases its corporate headquarters in Vancouver, Washington, and has signed a lease for a new, larger 366,253 square foot headquarters in the same city, with occupancy planned for 2025[215] - ZoomInfo does not own any real property and leases all its office facilities, with additional locations in Massachusetts, Maryland, Pennsylvania, Michigan, California, Israel, Canada, India, and England[216] - The company's infrastructure operates out of third-party data centers hosted by Google and Amazon Web Services[216] Legal Proceedings The company is subject to various legal proceedings, with detailed descriptions found in Note 11 of the consolidated financial statements - For a description of legal and regulatory proceedings, refer to "Legal Matters" in Note 11 - Commitments and Contingencies in Part II, Item 8 of this report[218] Mine Safety Disclosures This item is not applicable to the company - Not applicable[219] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ZoomInfo's common stock trades on the Nasdaq Global Select Market under the symbol "ZI", with no current plans for dividends, and a share repurchase program initiated in 2023 - The company's common stock is listed on the Nasdaq Global Select Market under the trading symbol "ZI"[222] - ZoomInfo has no current plans to pay dividends on its common stock[224] - In 2023, the Board authorized a total of $600 million for the Share Repurchase Program, which has no time limit[230] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Number of Shares Purchased | Weighted Average Price Paid Per Share | Maximum Dollar Value of Shares that May Yet be Purchased (in millions) | | :--- | :--- | :--- | :--- | | October 2023 | 5,902,722 | $16.61 | $255.0 | | November 2023 | 3,325,528 | $13.37 | $210.6 | | December 2023 | 704,434 | $15.30 | $199.9 | | Total Q4 | 9,932,684 | | | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, revenue grew 13% to $1.24 billion, with GAAP operating income increasing to $259.5 million and net income to $107.3 million Results of Operations - Revenue for the year ended December 31, 2023, increased by 13% to $1,239.5 million, primarily due to the addition of new customers[292] - Gross margin improved to 86% in 2023 from 83% in 2022, primarily due to lower headcount within cost of service[295] - Operating income increased by 48% to $259.5 million in 2023, with the operating margin expanding to 21% from 16% in 2022[299] - Net income increased by 70% to $107.3 million in 2023, driven by higher operating income and a TRA remeasurement gain, partially offset by higher income tax expense[303] Consolidated Statements of Operations Summary (in millions) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $1,239.5 | $1,098.0 | $747.2 | | Gross profit | $1,061.4 | $909.6 | $610.5 | | Income from operations | $259.5 | $175.8 | $113.3 | | Net income | $107.3 | $63.2 | $94.9 | | Net income attributable to ZoomInfo | $107.3 | $63.2 | $116.8 | Non-GAAP Financial Measures Reconciliation of GAAP Income from Operations to Adjusted Operating Income (in millions) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Income from operations (GAAP) | $259.5 | $175.8 | $113.3 | | Amortization of acquired intangibles | $61.0 | $70.2 | $55.6 | | Equity-based compensation expense | $167.6 | $192.3 | $93.0 | | Restructuring and transaction-related expenses | $10.3 | $4.1 | $23.7 | | Other adjustments | $0.2 | $5.4 | $21.0 | | Adjusted Operating Income (Non-GAAP) | $498.6 | $447.8 | $306.6 | | Adjusted Operating Income Margin | 40% | 41% | 41% | Reconciliation of GAAP Net Income to Adjusted Net Income (in millions) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net income (GAAP) | $107.3 | $63.2 | $94.9 | | Non-GAAP adjustments (pre-tax) | $243.4 | $209.2 | $193.3 | | TRA liability remeasurement (benefit) | ($160.7) | ($65.6) | ($39.5) | | Tax impacts of adjustments | $223.1 | $93.8 | ($25.3) | | Adjusted Net Income (Non-GAAP) | $413.1 | $363.5 | $231.1 | Liquidity and Capital Resources - As of December 31, 2023, the company had $447.1 million in cash and cash equivalents, $82.2 million in short-term investments, and $250.0 million available under its revolving credit facility[324] - As of December 31, 2023, total outstanding indebtedness was $1,244.0 million, with the total net leverage ratio to Adjusted EBITDA at 1.4x[155][346][347] - The company has a liability of $2,818.0 million related to its projected obligations under the Tax Receivable Agreements as of December 31, 2023[361] Historical Cash Flows (in millions) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $434.9 | $417.0 | $299.4 | | Net cash provided by (used in) investing activities | $24.4 | ($281.1) | ($695.8) | | Net cash provided by (used in) financing activities | ($427.2) | ($25.9) | $439.5 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on debt, foreign currency exposure, and credit risk, mitigated by hedging - The company is subject to interest rate risk on its first lien term loan, which has a variable rate based on SOFR, with an outstanding principal of $594.0 million as of December 31, 2023, and uses interest rate swaps to hedge this exposure[382] - Foreign currency risk exists due to operations in Israel, Canada, the UK, India, and Australia, with a foreign currency hedging program initiated in Q3 2023 to manage this risk[384][385] - Credit risk is managed by holding cash with multiple high-quality financial institutions and maintaining a diverse customer base, with no single customer accounting for more than 10% of revenue or receivables[387][451] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2021-2023, with KPMG LLP providing an unqualified opinion Report of Independent Registered Public Accounting Firm - KPMG LLP issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the three-year period ended December 31, 2023, in conformity with U.S. GAAP[394] - KPMG LLP also opined that the Company maintained effective internal control over financial reporting as of December 31, 2023[394] - A critical audit matter identified was the evaluation of the realizability of deferred tax assets, which required subjective judgment to assess projections of future taxable income, particularly projected revenue growth rates[401][403] Consolidated Financial Statements Consolidated Balance Sheet Highlights (in millions) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $6,868.3 | $7,136.4 | | Cash and cash equivalents | $447.1 | $418.0 | | Goodwill | $1,692.7 | $1,692.7 | | Deferred tax assets | $3,707.1 | $3,977.9 | | Total Liabilities | $4,749.0 | $4,864.6 | | Long-term debt | $1,226.4 | $1,235.7 | | Tax receivable agreements liability | $2,786.6 | $2,978.7 | | Total Stockholders' Equity | $2,119.3 | $2,271.8 | Consolidated Statement of Operations Highlights (in millions) | | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $1,239.5 | $1,098.0 | | Gross Profit | $1,061.4 | $909.6 | | Income from Operations | $259.5 | $175.8 | | Net Income | $107.3 | $63.2 | | Basic EPS | $0.27 | $0.16 | Notes to Consolidated Financial Statements - Revenue (Note 3): Subscription revenue was $1,225.1 million in 2023, up from $1,087.3 million in 2022, with total remaining performance obligations at $1,152.9 million as of year-end 2023[499][507] - Business Combinations (Note 4): In April 2022, the company acquired Comparably, Inc. and Dogpatch Advisors, LLC for a total consideration of $160.6 million, adding $119.4 million in goodwill[509][513] - Financing (Note 8): As of Dec 31, 2023, total debt carrying value was $1,232.4 million, consisting of a $590.7 million First Lien Term Loan and $641.7 million in Senior Notes[532] - Stockholders' Equity (Note 12): The company repurchased and retired 22.6 million shares of common stock for $400.1 million in 2023 under its share repurchase program[571] - Tax Receivable Agreements (Note 17): The company recorded a liability of $2,818.0 million for projected obligations under its TRAs as of Dec 31, 2023, recognizing a remeasurement gain of $160.7 million in 2023[650] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[664] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO 2013 framework[667] - The effectiveness of the internal control over financial reporting has been audited by KPMG LLP, the company's independent registered public accounting firm[668] - No changes occurred in the company's internal control over financial reporting during the fourth quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls[669] Other Information No directors or executive officers of the company adopted or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of 2023 - None of the Company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of 2023[672] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Related Party Transactions Information for Items 10-14, covering governance, compensation, and related party transactions, is incorporated by reference from the 2024 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 will be included in the definitive 2024 Proxy Statement and is incorporated herein by reference[677][678][679][680][681] Part IV Exhibit and Financial Statement Schedules This section lists financial statements and exhibits filed as part of the Annual Report on Form 10-K, with a detailed index - This section contains the list of financial statements filed under Item 8 and the Index to Exhibits[684][685] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[694]