ZoomInfo Technologies Inc. (NASDAQ:ZI), a leading provider of cloud-based go-to-market intelligence and engagement platform, reported its financial results for the first quarter of 2024. Despite facing a difficult operating environment, the company managed to deliver solid financial performance, showcasing the resilience of its business model.

Financials

Revenue for the first quarter of 2024 came in at $310.1 million, up 3.1% year-over-year, in line with analysts' expectations. The company's annualized revenue based on days of revenue recognition was $1.25 billion. While the revenue growth was modest, ZoomInfo's focus on efficiency enabled it to deliver adjusted operating income of $119 million, representing a margin of 39%, which was above expectations.

On the bottom line, ZoomInfo reported GAAP net income of $15.1 million, or $0.04 per share, and non-GAAP earnings per share of $0.26. The company's effective tax rate for the quarter was 48.8%, which was higher than the 34.8% rate in the same period last year, primarily due to non-deductible equity compensation costs and state tax effects.

Retention Trends and Customer Dynamics

ZoomInfo's net revenue retention (NRR) rate for the quarter was 85%, which was better than expected, despite the challenges faced by the small and medium-sized business (SMB) segment. The company noted that its enterprise and mid-market customer retention has stabilized, with signs of potential improvement as it looks ahead to expirations in the second and third quarters.

The SMB segment, however, was more challenged in the first quarter than anticipated, with a higher pool of renewals coming due. ZoomInfo's management team expects the pressure on the SMB cohort to continue throughout the year, as these customers are more sensitive to the higher-for-longer interest rate environment.

Despite the SMB headwinds, ZoomInfo saw continued traction in the enterprise segment, with the number of customers contributing over $1 million in annual contract value (ACV) increasing by the largest amount since the first quarter of 2023. The company's ACV from the $1 million customer cohort grew 16% year-over-year.

Operational Highlights and Product Developments

During the quarter, ZoomInfo was named a leader in Forrester's Marketing And Sales Data Providers Wave and won two Google Cloud Technology Partner of the Year Awards. These accolades underscore the company's strong position in the market and its ability to deliver value to customers.

One of the key highlights of the quarter was the continued development of ZoomInfo Copilot, the company's AI-powered go-to-market solution. More than 20,000 beta users have had access to Copilot, and the feedback has been overwhelmingly positive. On average, Copilot beta users reduced their time spent on account research and manual tasks by 10 hours per week, and Copilot-identified signals were responsible for 45% of total opportunities created.

ZoomInfo plans to monetize Copilot in a thoughtful way, focusing first on the customers who are most likely to get significant value from the advanced platform. The company's management team is excited about the upgrade paths within its customer base and looks forward to sharing more details about the Copilot rollout and its learnings in the back half of the year.

Liquidity

ZoomInfo ended the first quarter with $440 million in cash, cash equivalents, and short-term investments, and carried approximately $1.24 billion in gross debt, the vast majority of which has fixed or hedged interest rates. The company's net leverage ratio was 1.5x trailing 12 months adjusted EBITDA and 1.5x trailing 12 months cash EBITDA.

During the quarter, ZoomInfo repurchased approximately 10 million shares of its common stock for $153 million. Over the past four quarters, the company has retired more than 31 million shares, nearly 8% of its total shares outstanding. Management remains committed to aggressively repurchasing shares as it takes advantage of the disconnect between the share price and the intrinsic value of its growing, cash flow-generative business.

Outlook

For the second quarter of 2024, ZoomInfo expects revenue in the range of $306 million to $309 million, adjusted operating income in the range of $114 million to $116 million, and non-GAAP net income in the range of $0.23 to $0.24 per share.

For the full year 2024, the company now expects revenue in the range of $1.255 billion to $1.27 billion and adjusted operating income in the range of $488 million to $495 million. ZoomInfo also expects non-GAAP net income in the range of $1 to $1.02 per share and unlevered free cash flow in the range of $440 million to $455 million.

The company's updated guidance reflects the continued challenges in the SMB segment, as well as the stabilization and potential improvement in the enterprise and mid-market customer cohorts. ZoomInfo remains committed to driving profitable growth and maintaining a disciplined approach to capital allocation.

Geographic and Segment Performance

ZoomInfo generates a significant portion of its revenue from the United States and Israel, which accounted for approximately 97% of the company's long-lived assets as of March 31, 2024. The company's international operations, while still a relatively small part of the business, have been growing and contributing to its overall performance.

In terms of revenue breakdown, ZoomInfo's subscription services, which include its SaaS applications and related access to the platform, accounted for the majority of its revenue at $306.8 million, or 99% of total revenue, in the first quarter of 2024. Usage-based revenue, which includes email verification and facilitation of online advertisements, contributed $2.3 million, or 0.7% of total revenue. The remaining $1.0 million, or 0.3% of revenue, came from other sources, such as implementation and professional services fees.

The company's fastest-growing segments during the quarter were operations, up 18% year-over-year, and marketing solutions, which saw improving retention and increasing ad spend on the platform. The software and technology sectors, however, continued to experience down-sell pressure, particularly among smaller customers.

Risks and Challenges

While ZoomInfo has demonstrated resilience in the face of a challenging macroeconomic environment, the company is not immune to the broader economic headwinds. The continued pressure on the SMB segment, as well as the potential for further down-sell pressure in the software and technology sectors, pose risks to the company's future performance.

Additionally, ZoomInfo's success is heavily dependent on its ability to continue attracting and retaining customers, as well as its ability to cross-sell and up-sell its products and services. The company's reliance on a limited number of large customers and the potential for increased competition in the market are also key risks that investors should consider.

Conclusion

Despite the ongoing macroeconomic challenges, ZoomInfo has managed to deliver solid financial results in the first quarter of 2024. The company's focus on efficiency, coupled with its innovative product offerings, such as ZoomInfo Copilot, have helped it navigate the difficult operating environment.

While the SMB segment remains a concern, the stabilization and potential improvement in the enterprise and mid-market customer cohorts, as well as the company's strong capital position and disciplined capital allocation strategy, provide a solid foundation for future growth. Investors should closely monitor ZoomInfo's ability to execute on its strategic initiatives and its progress in monetizing its AI-powered solutions, as these will be key drivers of the company's long-term success.