ZOOMINFO TECHNOLOGIES INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the sections titled "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" included elsewhere in this Annual Report on Form 10-K. References in this Annual Report on Form 10-K to "ZoomInfo Technologies Inc. " refer toZoomInfo Technologies Inc. and not to any of its subsidiaries unless the context indicates otherwise. References in this Form 10-K to "ZoomInfo ," the "Company," "we," "us," and "our" refer (1) prior to the consummation of the Reorganization Transactions, to ZoomInfo OpCo and its consolidated subsidiaries, (2) after the consummation of the Reorganization Transactions and prior to the consummation of the Holding Company Reorganization, toZoomInfo Intermediate Inc. (formerly known asZoomInfo Technologies Inc. ) and its consolidated subsidiaries and (3) after the consummation of the Holding Company Reorganization, toZoomInfo Technologies Inc. (formerly known asZoomInfo NewCo Inc. ) and its consolidated subsidiaries unless the context indicates otherwise. Numerical figures included in this Annual Report on Form 10-K have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. Overview
RevOS - our modern, cloud-based operating system for revenue professionals - allows sales, marketing, operations, and recruiting teams to shorten sales cycles and increase win rates by delivering the right message to the right person at the right time in the right way. We do this by delivering timely insights and offering services that make reaching prospects fast and easy.
ZoomInfo , formerly known as DiscoverOrg, was co-founded in 2007 by Founder and CEOHenry Schuck . He has led the company's growth and profitability by efficiently developing innovative ways of gathering and improving our data and insights, and using intelligent automation to put those insights into action.
Today, our company defines the modern go-to-market technology stack across three distinct layers that build upon each other:
•Our Intelligence Layer is the foundation of our data-driven strategy. Our
best-in-class data, curated through first- and third-party sources, includes
billions of data points about companies and contacts, such as intent, hierarchy,
location, technographic, and financial information.
•Our Orchestration Layer integrates and enriches our data sources. At this
stage, our products assign and route data, leads, and insights to the
appropriate people. This creates a dataset that is continuously updated and can
be used to power automated business workflows. Our services connect with major
CRM providers.
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•Our Engagement Layer allows sales, marketing, operations, and recruiting professionals to put data-driven insights into action to identify and communicate with prospects and customers. In SalesOS, frontline teams, managers, and leaders use Engage for multi-touch and multi-channel sales engagement, as well as Chorus for call and web meeting recording, transcription, insight generation, and coaching. In MarketingOS, marketers drive awareness, lead generation, and deal acceleration campaigns through account-based marketing, advertising, and onsite conversion optimization solutions, along withZoomInfo Chat for intelligent onsite experiences through live conversation and chatbots. In TalentOS, recruiters and talent acquisition professionals access a database that helps them efficiently find candidates. Recruiters can filter and reach more good-fit candidates, use pipeline management tools to collaborate and organize the hiring process, and automate the candidate outreach process. In OperationsOS, our sales operations customers use a suite of products, services, and solutions to ingest, match, enrich, and connect data feeds into multiple systems. We generate substantially all of our revenue from sales of subscriptions to our platform. Subscriptions include the use of our platform and access to customer support. Subscriptions generally range from one to three years in length. Over 40% of customer contracts (based on annualized value) are multi-year agreements. We typically bill our customers at the beginning of each annual, semi-annual, or quarterly period and recognize revenue ratably over the term of the subscription period. We sell our software to both new and existing customers. We price our subscriptions based on the functionality, users, and records under management that are included in each product edition. Our paid products are SalesOS, MarketingOS, OperationsOS, and TalentOS (with add-on options for some products), and we have a free Community Edition. Our software, insights, and data enable over 30,000 companies to sell and market more effectively and efficiently. Our customers operate in almost every industry vertical, including software, business services, manufacturing, telecommunications, financial services, retail, media and internet, transportation, education, hospitality, and real estate. They range from the largest global enterprises, to mid-market companies, down to small businesses. Many of our customers are software and business services companies. In 2022, approximately 39% and 27% of our customers, as measured by ACV, operated in the software and business services industries, respectively. Our net annual retention rate was 104% in 2022. For the year endedDecember 31, 2022 , no single customer contributed more than 1% of revenue. Revenues derived from customers and partners located outsidethe United States , as determined based on the address provided by our customers and partners, accounted for approximately 12%, 11%, and 9% of total revenue for the years endedDecember 31, 2022 , 2021, and 2020, respectively. As ofDecember 31, 2022 , 1,926 customers contracted for more than$100,000 in ACV forZoomInfo services. To address our market opportunity, we have built and continue to tune our efficient and comprehensive go-to-market engine. We have integrated our insights and data into an automated engine with defined processes and specialized roles in order to market and sell our services. We are constantly improving the effectiveness of our engine in order to identify and close more business. We have experienced rapid organic growth, supplemented by additional growth from acquisitions. We generated revenue of$1,098.0 million for the year endedDecember 31, 2022 , as compared to revenue for the year endedDecember 31, 2021 of$747.2 million , and income from operations of$175.8 million for the year endedDecember 31, 2022 , as compared to income from operations of$113.3 million for the year endedDecember 31, 2021 . Operating income margin was 16% for the year endedDecember 31, 2022 , as compared to 15% in 2021. In addition to our consolidatedU.S. GAAP financial measures, we review various non-GAAP financial measures, including Adjusted Operating Income, Adjusted Operating Income Margin, and Adjusted Net Income. See "Non-GAAP Financial Measures" below. Our Adjusted Operating Income was$447.8 million for the year endedDecember 31, 2022 , as compared to$306.6 million for the year endedDecember 31, 2021 . Our Adjusted Operating Income Margin was 41% for the year endedDecember 31, 2022 , as compared to 41% in 2021. See "Non-GAAP Financial Measures" below for definitions. 41
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The discussion of our financial condition and results of operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 , included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations can be found in the Annual Report on Form 10-K for the year endedDecember 31, 2021 . Recent Developments
Impact of Macroeconomic Conditions and COVID-19
Our business and financial condition may be impacted by adverse macroeconomic conditions. In addition, the ongoing COVID-19 pandemic continues to have unpredictable and rapidly shifting impacts on global financial markets, economies, and business practices. See "Risk Factors - Geopolitical Risks" in Part I, Item 1A of this Annual Report on Form 10-K for further discussion of the possible impact of these issues on our business.
Corporate Structure Simplification Transactions
InAugust 2021 , the Company completed a series of reorganization transactions to simplify its corporate structure, including the distribution of shares of common stock ofRKSI Acquisition Corp ("RKSI") fromZoomInfo Holdings LLC toZoomInfo HoldCo , the merger of RKSI with and into ZoomInfo HoldCo with ZoomInfo HoldCo surviving, and the merger of ZoomInfo HoldCo with and into the Company with the Company surviving. Prior to the consummation of the HoldCo Merger, all holders of HoldCo Units (other than the Company) exchanged their HoldCo Units and paired shares of Class B common stock of the Company for shares of Class A common stock of the Company pursuant to the terms of the limited liability company agreement ofHoldCo .
Holding Company Reorganization
InSeptember 2021 , the Board of Directors unanimously approved streamlining the Company's corporate structure and governance by eliminating the Company's umbrella partnership-C-corporation ("UP-C") and multi-class voting structure. InOctober 2021 , the Company implemented this reorganization, pursuant to which (i) a subsidiary ofZoomInfo Technologies Inc. (formerly known asZoomInfo NewCo Inc. ) ("New ZoomInfo") merged with and intoZoomInfo Intermediate Inc. ("OldZoomInfo "), formerly known asZoomInfo Technologies Inc. , which resulted in NewZoomInfo becoming the direct parent company of Old ZoomInfo, and (ii) immediately thereafter, another subsidiary of New ZoomInfo merged with and intoZoomInfo Holdings LLC ("ZoomInfo OpCo"), which resulted in ZoomInfo OpCo becoming a subsidiary of New ZoomInfo (the combined transaction described in (i) and (ii), the "Holding Company Reorganization"). As a result of the Holding Company Reorganization, New ZoomInfo became the successor issuer and reporting company to Old ZoomInfo pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and replaced the Predecessor Registrant as the public company trading on the Nasdaq Global Select Market (the "Nasdaq") under the ticker symbol "ZI". After the consummation of the Holding Company Reorganization, the only class of common stock of the New ZoomInfo remaining issued and outstanding was the Class A common stock and all shares of Class B common stock were cancelled and all shares of Class C common stock were converted to Class A common stock. InMay 2022 , following approval by the Company's stockholders, the Company further amended and restated its Amended and Restated Certification of Incorporation to eliminate the multiple classes of common stock and to rename the Company's Class A common stock as "Common Stock".
Acquisitions
OnApril 1, 2022 , the Company acquired all of the outstanding equity interests of Comparably and acquired substantially all the assets and certain specified liabilities of Dogpatch for a total purchase consideration of$150.6 million in cash and$10.0 million in a convertible note receivable. The Company has included the financial results of these businesses in the consolidated financial statements from the date of acquisition. The purchase accounting for both transactions is not finalized. Refer to Note 4 - Business Combinations for additional information. 42
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Key Factors Affecting Our Performance
We believe that the growth and future success of our business depends on many factors, including the following:
Continuing to Acquire New Customers
We are focused on continuing to grow the number of customers that use our platform inthe United States and around the world. The majority of revenue growth when comparing the year endedDecember 31, 2022 to the year endedDecember 31, 2021 was the result of new customers added over the last 24 months. Our operating results and growth prospects will depend, in part, on our ability to continue to attract new customers. Additionally, acquiring new customers strengthens the power of our contributory networks. We plan to continue to invest in our efficient go-to-market effort to acquire new customers. As ofDecember 31, 2022 , 2021 and 2020, we had over 30,000, 25,000, and 20,000 customers, respectively. We define a customer as a company that maintains one or more active paid subscriptions to our platform.
Increasing Usage of Our Platform
Many of our customers increase spending with us by adding users, integrating incremental data, and/or adding additional functionality as they increase their use of our platform. Several of our largest customers have expanded the deployment of our platform across their organizations following their initial deployment. We believe there is a significant opportunity to add additional users, data integration, and additional functionality within our existing customers. We believe that expanding the value that we provide to our customers and the corresponding revenue generated as a result is an important measure of the health of our business. We monitor net revenue retention to measure that growth. Net revenue retention is an annual metric that we calculate based on customers ofZoomInfo at the beginning of the year, and is calculated as: (a) the total ACV for those customers at the end of the year, divided by (b) the total ACV for those customers at the beginning of the year. Our net annual retention rate was 104% in 2022. In the near term, we expect our net retention rate to be impacted by macroeconomic conditions. See section "Recent Developments - Impact of Macroeconomic Conditions and COVID-19."We also measure our success in expanding relationships with existing customers by the number of customers that contract for more than$100,000 in ACV. As ofDecember 31, 2022 , we had 1,926 customers with over$100,000 in ACV.
Factors Affecting the Comparability of Our Results of Operations
As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.
Impact of the Reorganization Transactions
ZoomInfo Technologies Inc. is a corporation forU.S. federal and state income tax purposes. Our accounting predecessor, ZoomInfo OpCo, was and is treated as a flow-through entity forU.S. federal income tax purposes, and as such, only certain subsidiaries that were organized as corporations forU.S. federal income tax purposes have been subject toU.S. federal income tax at the entity level historically. Accordingly, unless otherwise specified, the historical results of operations and other financial information set forth in this Annual Report on Form 10-K only include a provision forU.S. federal income tax for income allocated to those subsidiaries that were organized as corporations forU.S. federal income tax purposes. Following the completion of the Reorganization Transactions,ZoomInfo Technologies Inc. paysU.S. federal and state income taxes as a corporation on its share of our taxable income. 43
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ZoomInfo OpCo is the predecessor ofZoomInfo Technologies Inc. for financial reporting purposes. As a result, the consolidated financial statements ofZoomInfo Technologies Inc. recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of ZoomInfo OpCo, the accounting predecessor. In addition, in connection with the Reorganization Transactions and the IPO, we entered into the tax receivable agreements described in Note 18 - Tax Receivable Agreements to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K. Initial Public Offering InJune 2020 , the Company completed its IPO which significantly impacted our cash, first and second lien indebtedness, and temporary and permanent equity balances. The IPO, which enabled the associated first and second lien term loan repayments, significantly reduced our interest expense relative to historical results. Impact of Acquisitions We seek to grow through both internal development and the acquisition of businesses that broaden and strengthen our platform. Our recent acquisitions include Clickagy inOctober 2020 ,EverString inNovember 2020 , Insent inJune 2021 , Chorus.ai inJuly 2021 , RingLead inSeptember 2021 , andComparably, Inc. andDogpatch Advisors, LLC inApril 2022 . As discussed below under "-Results of Operations," these acquisitions have been a driver of our revenue, cost of service, operating expense, and interest expense growth. Purchase accounting requires that certain assets acquired and liabilities assumed be recorded at fair value on the acquisition date. Prior toJanuary 2022 , revenue from contracts that were impacted by the estimate of fair value of the unearned revenue upon acquisition were recorded based on the fair value until such contract is terminated or renewed, which differed from the receipts received by the acquired company allocated over the service period for the same reporting periods. EffectiveJanuary 1, 2022 , the Company early adopted new accounting guidance which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contract. Refer to Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for further discussion.
Impact of the Holding Company Reorganization
InSeptember 2021 , the Board of Directors unanimously approved streamlining the Company's corporate structure and governance by eliminating the Company's UP-C and multi-class voting structure. InOctober 2021 , the Company implemented the Holding Company Reorganization. As a result of the Holding Company Reorganization, New ZoomInfo became the successor issuer and reporting company to Old ZoomInfo pursuant to Rule 12g-3(a) under the Exchange Act, and replaced Old ZoomInfo as the public company trading on the Nasdaq under Old ZoomInfo's ticker symbol "ZI." In addition, New ZoomInfo changed its name to "ZoomInfo Technologies Inc. " and Old ZoomInfo changed its name to "ZoomInfo Intermediate Inc. " Accordingly, upon consummation of the Holding Company Reorganization, OldZoomInfo stockholders automatically became stockholders of New ZoomInfo, on a one-for-one basis, with the same number and ownership percentage of shares they held in Old ZoomInfo immediately prior to the effective time of the Holding Company Reorganization. OldZoomInfo is the predecessor of New ZoomInfo for financial reporting purposes. As a result, the consolidated financial statements of New ZoomInfo recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Old ZoomInfo, the accounting predecessor. 44
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Non-GAAP Financial Measures
In addition to our results determined in accordance withU.S. GAAP, we believe certain non-GAAP measures are useful in evaluating our operating performance. These measures include, but are not limited to, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share and are used by management in making operating decisions, allocating financial resources, internal planning and forecasting, and for business strategy purposes. We believe that non-GAAP financial information is useful to investors because it eliminates certain items that affect period-over-period comparability, and it provides consistency with past financial performance and additional information about our underlying results and trends by excluding certain items that may not be indicative of our business, results of operations, or outlook. We view Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share as operating performance measures. We believe that the most directly comparableU.S. GAAP financial measure to Adjusted Operating Income isU.S. GAAP operating income. We believe that the most directly comparableU.S. GAAP financial measure to Adjusted Operating Income Margin isU.S. GAAP operating income divided byU.S. GAAP revenue. We believe that the most directly comparableU.S. GAAP financial measure to Adjusted EBITDA and Adjusted Net Income isU.S. GAAP Net Income, and the most directly comparableU.S. GAAP financial measure to Adjusted Net Income per diluted share isU.S. GAAP net earnings per diluted share. Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, but rather as supplemental information to our business results. This information should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items or events being adjusted. In addition, other companies may use different measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP.
Adjusted Operating Income, Adjusted Operating Income Margin, and Adjusted Net Income
We define Adjusted Operating Income as income from operations plus (i) impact of
fair value adjustments to acquired unearned revenue, (ii) amortization of
acquired technology and other acquired intangibles, (iii) equity-based
compensation expense, (iv) restructuring and transaction-related expenses, and
(v) integration costs and acquisition-related compensation. We exclude the
impact of fair value adjustments to acquired unearned revenue and amortization
of acquired technology and other acquired intangibles, as well as equity-based
compensation, because these are non-cash expenses or non-cash fair value
adjustments and we believe that excluding these items provides meaningful
supplemental information regarding performance and ongoing cash-generation
potential. We exclude restructuring and transaction-related expenses, as well as
integration costs and acquisition-related compensation, because such expenses
are episodic in nature and have no direct correlation to the cost of operating
our business on an ongoing basis. Adjusted Operating Income is presented because
it is used by management to evaluate our financial performance and for planning
and forecasting purposes. Additionally, we believe that it and similar measures
are widely used by securities analysts and investors as a means of evaluating a
company's operating performance. Adjusted Operating Income should not be
considered as an alternative to operating income as an indicator of operating
performance.
We define Adjusted Net Income as Adjusted Operating Income less (i) interest
expense, net (ii) other (income) expense, net, excluding TRA liability
remeasurement expense (benefit) and (iii) income tax expense (benefit) including
incremental tax effects of adjustments to arrive at Adjusted Operating Income
and current tax benefits related to the TRA. Adjusted Net Income is presented
because it is used by management to evaluate our financial performance and for
planning and forecasting purposes. Additionally, we believe that it and similar
measures are widely used by securities analysts and investors as a means of
evaluating a company's operating performance. Adjusted Net Income should not be
considered as an alternative to cash flows from operating activities as a
measure of liquidity or as an alternative to operating income or net income as
indicators of operating performance.
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The following table presents a reconciliation of Net income (loss) to Adjusted
Net Income and Income (loss) from operations to Adjusted Operating Income for
the periods presented:
Year Ended December 31,
($ in millions) 2022 2021 2020
Net income (loss) $ 63.2 $ 94.9 $ (36.4)
Add (less): Expense (benefit) from income taxes 131.4 6.1 4.7
Add: Interest expense, net 47.6 43.9 69.3
Add: Loss on debt modification and extinguishment - 7.7 14.9
Add (less): Other expense (income), net (a) (66.4) (39.3) (15.4)
Income (loss) from operations $ 175.8 $ 113.3 $ 37.1
Add: Impact of fair value adjustments to acquired
unearned revenue (b) 2.1 4.6 2.6
Add: Amortization of acquired technology 48.2 35.3 23.3
Add: Amortization of other acquired intangibles 22.0 20.3 18.7
Add: Equity-based compensation 192.3 93.0 121.6
Add: Restructuring and transaction-related expenses (c)
4.1 23.7 13.8
Add: Integration costs and acquisition-related
expenses (d) 3.3 16.4 9.0
Adjusted Operating Income $ 447.8 $ 306.6 $ 226.0
Less: Interest expense, net (47.6) (43.9) (69.3)
Less (add): Other expense (income), net, excluding TRA liability remeasurement (benefit) expense
0.8 (0.3) (0.3)
Add (less): Benefit (expense) from income taxes (131.4) (6.1) (4.7)
Add (less): Tax impacts of adjustments to net income
(loss) 93.8 (25.3) (13.5)
Adjusted Net Income $ 363.5 $ 231.1 $ 138.2
Shares for Adjusted Net Income Per Share(e) 411 405 403
Adjusted Net Income Per Share $ 0.88 __________________
(a)Primarily represents revaluations on tax receivable agreement liability and foreign exchange remeasurement gains and losses. (b)Represents the impact of fair value adjustments to acquired unearned revenue relating to services billed by an acquired company prior to our acquisition of that company. These adjustments represent the difference between the revenue recognized based on management's estimate of fair value of acquired unearned revenue and the receipts billed prior to the acquisition less revenue recognized prior to the acquisition. (c)Represents costs directly associated with acquisition or disposal activities, including employee severance and termination benefits, contract termination fees and penalties, and other exit or disposal costs. For the year endedDecember 31, 2022 , this expense is primarily related to transition and retention payments related to 2021 and 2022 acquisitions. For the year endedDecember 31, 2021 , this expense related primarily to costs incurred related to 2021 acquisitions and impairment charges related to the Company's Waltham office relocation. 46
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(d)Represents costs directly associated with integration activities for acquisitions and acquisition-related compensation, which includes transaction bonuses and retention awards. For the year endedDecember 31, 2022 , this expense related to retention awards from the acquisitions of Clickagy,Everstring , and Insent, and professional fees relating to integration projects. For the year endedDecember 31, 2021 , this expense related primarily to retention awards from the acquisitions of Clickagy andEverstring , cash vesting payments from the acquisition of Pre-Acquisition ZI, and professional fees incurred to integrate acquired businesses. Refer to Note 4 - Business Combinations to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information. This expense is included in cost of service, sales and marketing expense, research and development expense, and general and administrative expense as follows: Year Ended December 31, ($ in millions) 2022 2021 2020 Cost of service$ 0.2 $ 2.1 $ 0.4 Sales and marketing 0.5 6.1 3.5 Research and development 2.3 5.8 4.1 General and administrative 0.3 2.4 1.1 Total integration costs and acquisition-related compensation$ 3.3
(e)Diluted earnings per share is computed by giving effect to all potential
weighted average Common Stock, and any securities that are convertible into
Common Stock, including options and restricted stock units. The dilutive effect
of outstanding awards and convertible securities is reflected in diluted
earnings per share by application of the treasury stock method, excluding deemed
repurchases assuming proceeds from unrecognized compensation as required by
GAAP. Shares and grants issued in conjunction with the IPO were assumed to be
issued at the beginning of the period.
We define Adjusted Operating Income Margin as Adjusted Operating Income divided
by the sum of revenue and the impact of fair value adjustments to acquired
unearned revenue.
Year Ended December 31,
($ in millions) 2022 2021 2020
Income (loss) from operations $ 175.8 $ 113.3 $ 37.1
Adjusted Operating Income $ 447.8 $ 306.6 $ 226.0
Revenue 1,098.0 747.2 476.2
Impact of fair value adjustments to acquired
unearned revenue 2.1 4.6 2.6
Revenue for adjusted operating margin calculation
16 % 15 % 8 %
Adjusted Operating Income Margin 41 % 41 % 47 %
Adjusted Operating Income for the year ended December 31, 2022 was
$447.8 million and represented an Adjusted Operating Income Margin of 41%.
Adjusted Operating Income for the year ended December 31, 2021 was
$306.6 million and represented an Adjusted Operating Income Margin of 41%.
Growth in Adjusted Operating Income in the year ended December 31, 2022 relative
to the year ended December 31, 2021 was an increase of $141.2 million , or 46%,
and was driven primarily from the growth in customers and increasing revenue
from existing customers. Adjusted Operating Income Margin stayed consistent at
41% in the year ended December 31, 2022 relative to the year ended December 31,
2021 as increased investment in sales and marketing capacity, as well as
increased research and development as a percentage of revenue, were offset by
operating leverage in cost of service and general and administrative.
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Adjusted EBITDA
EBITDA is defined as earnings before debt-related costs, including interest and loss on debt modification and extinguishment, provision for taxes, depreciation, and amortization. Management further adjusts EBITDA to exclude certain items of a significant or unusual nature, including other (income) expense, net, impact of certain non-cash items, such as fair value adjustments to acquired unearned revenue and equity-based compensation, restructuring and transaction-related expenses, and integration costs and acquisition-related compensation. We exclude these items because these are non-cash expenses or non-cash fair value adjustments, which we do not consider indicative of performance and ongoing cash-generation potential or are episodic in nature and have no direct correlation to the cost of operating our business on an ongoing basis. Adjusted EBITDA is presented because it is used by management to evaluate our financial performance and for planning and forecasting purposes. Additionally, we believe that it and similar measures are widely used by securities analysts and investors as a means of evaluating a company's operating performance. Adjusted EBITDA should not be considered as an alternative to cash flows from operating activities as a measure of liquidity or as an alternative to operating income or net income as indicators of operating performance.
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:
Year Ended December 31,
($ in millions) 2022 2021 2020
Net income (loss) $ 63.2 $ 94.9 $ (36.4)
Add (less): Expense (benefit) from income taxes 131.4 6.1 4.7
Add: Interest expense, net 47.6 43.9 69.3
Add: Loss on debt modification and extinguishment - 7.7 14.9
Add: Depreciation 17.6 13.7 8.9
Add: Amortization of acquired technology 48.2 35.3 23.3
Add: Amortization of other acquired intangibles 22.0 20.3 18.7
EBITDA $ 330.0 $ 222.0 $ 103.4
Add (less): Other expense (income), net (a) (66.4) (39.3) (15.4)
Add: Impact of fair value adjustments to acquired
unearned revenue (b) 2.1 4.6 2.6
Add: Equity-based compensation expense 192.3 93.0 121.6
Add: Restructuring and transaction related expenses (excluding depreciation) (c)
4.1 21.6 13.8
Add: Integration costs and acquisition-related
expenses (d) 3.3 16.4 9.0
Adjusted EBITDA $ 465.4 $ 318.2 $ 234.8
__________________
(a)Primarily represents revaluations on tax receivable agreement liability and
foreign exchange remeasurement gains and losses.
(b)Represents the impact of fair value adjustments to acquired unearned revenue
relating to services billed by an acquired company prior to our acquisition of
that company. These adjustments represent the difference between the revenue
recognized based on management's estimate of fair value of acquired unearned
revenue and the receipts billed prior to the acquisition less revenue recognized
prior to the acquisition.
(c)Represents costs directly associated with acquisition or disposal activities,
including employee severance and termination benefits, contract termination fees
and penalties, and other exit or disposal costs. For the year ended December 31,
2022 , this expense is primarily related to transition and retention payments
related to 2021 and 2022 acquisitions. For the year ended December 31, 2021 ,
this expense related primarily to costs incurred related to 2021 acquisitions
and impairment charges related to the Company's Waltham office relocation.
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(d)Represents costs directly associated with integration activities for acquisitions and acquisition-related compensation, which includes transaction bonuses and retention awards. For the year endedDecember 31, 2022 , this expense related to retention awards from the acquisitions of Clickagy,Everstring , and Insent, and professional fees relating to integration projects. For the year endedDecember 31, 2021 , this expense related primarily to retention awards from the acquisitions of Clickagy andEverstring , cash vesting payments from the acquisition of Pre-Acquisition ZI, and professional fees incurred to integrate acquired businesses. Refer to Note 4 - Business Combinations to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information. This expense is included in cost of service, sales and marketing expense, research and development expense, and general and administrative expense as follows: Year Ended December 31, ($ in millions) 2022 2021 2020 Cost of service$ 0.2 $ 2.1 $ 0.4 Sales and marketing 0.5 6.1 3.5 Research and development 2.3 5.8 4.1 General and administrative 0.3 2.4 1.1 Total integration costs and acquisition-related compensation$ 3.3
Adjusted EBITDA for the year ended
Components of Our Results of Operations
Revenue
We derive 99% of our revenue from subscription services and the remainder from recurring usage-based services and other revenue. Our subscription services consist of our SaaS applications. Pricing of our subscription contracts are generally based on the functionality provided, the number of users that access our applications, and the amount of data that the customer integrates into their systems. Our subscription contracts typically have a term ranging from one to three years and are non-cancelable. We typically bill for services in advance either annually, semi-annually or quarterly, and we typically require payment at the beginning of each annual, semi-annual or quarterly period. Subscription revenue is generally recognized ratably over the contract term starting with when our service is made available to the customer. Recurring usage-based revenue is recognized in the period services are utilized by our customers. Other revenue, comprised largely of implementation and professional services fees, is recognized as services are delivered. The amount of revenue recognized reflects the consideration we expect to be entitled to receive in exchange for these services. We record a contract asset when revenue recognized on a contract exceeds the billings to date for that contract. Unearned revenue results from cash received or amounts billed to customers in advance of revenue recognized upon the satisfaction of performance obligations. The unearned revenue balance is influenced by several factors, including purchase accounting adjustments, seasonality, the compounding effects of renewals, invoice duration, invoice timing, dollar size, and new business timing within the period. The unearned revenue balance does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements.
Cost of Service
Cost of service, excluding amortization of acquired technology. Cost of service, excluding amortization of acquired technology includes direct expenses related to the support and operations of our SaaS services and related to our research teams, including salaries, benefits, equity-based compensation, and related expenses, such as employer taxes, allocated overhead for facilities, IT, third-party hosting fees, third-party data costs, and amortization of internally developed capitalized software.
We anticipate that we will continue to invest in costs of service and that costs of service as a percentage of revenue will modestly decrease as we realize operating leverage in the business.
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Amortization of acquired technology. Amortization of acquired technology includes amortization expense for technology acquired in business combinations.
We anticipate that amortization of acquired technology will increase if we make additional acquisitions in the future.
Gross Profit and Gross Margin
Gross profit is revenue less cost of service, and gross margin is gross profit as a percentage of revenue. Gross profit has been and will continue to be affected by various factors, including leveraging economies of scale, the costs associated with third-party hosting services and third-party data, the level of amortization of acquired technology, and the extent to which we expand our customer support and research organizations. We expect that our gross margin will fluctuate from period to period depending on the interplay of these various factors. Operating Expenses Our operating expenses consist of sales and marketing, research and development, general and administrative, restructuring and transaction expenses, and amortization of acquired intangibles (other than acquired technology). The most significant component of our operating expenses is personnel costs, which consists of salaries, bonuses, sales commissions, equity-based compensation, and other employee-related benefits. Operating expenses also include overhead costs for facilities, technology, professional fees, depreciation and amortization expense, and marketing. Sales and marketing. Sales and marketing expenses primarily consist of employee compensation such as salaries, bonuses, sales commissions, equity-based compensation, and other employee-related benefits for our sales and marketing teams, as well as overhead costs, technology, and marketing programs. Sales commissions and related payroll taxes directly related to contract acquisition are capitalized and recognized as expenses over the estimated period of benefit. We anticipate that we will continue to invest in sales and marketing capacity to enable future growth. We anticipate that sales and marketing expense excluding equity-based compensation as a percentage of revenue will fluctuate from period to period depending on the interplay of our growing investments in sales and marketing capacity excluding equity-based compensation, the recognition of revenue, and the amortization of contract acquisition costs. Research and development. Research and development expenses support our efforts to enhance our existing platform and develop new software products. Research and development expenses primarily consist of employee compensation such as salaries, bonuses, equity-based compensation, and other employee-related benefits for our engineering and product management teams, as well as overhead costs. Research and development expenses do not reflect amortization of internally developed capitalized software. We believe that our core technologies and ongoing innovation represent a significant competitive advantage for us. We anticipate that we will continue to invest in research and development in order to develop new features and functionality to drive incremental customer value in the future and that research and development expense as a percentage of revenue will modestly increase in the short term, but will modestly decrease in the long term as we drive efficiencies in that organization. General and administrative. General and administrative expenses primarily consist of employee-related costs such as salaries, bonuses, equity-based compensation, and other employee related benefits for our executive, finance, legal, human resources, IT, and business operations and administrative teams, as well as overhead costs. Additionally, we incur expenses for professional fees including legal services, accounting, and other consulting services, including those associated with operating as a public company.
We expect general and administrative expenses as a percentage of revenue to modestly decrease as we realize operating leverage in the business.
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Amortization of other acquired intangibles. Amortization of acquired intangibles primarily consists of amortization of customer relationships, trade names, and brand portfolios.
We anticipate that amortization of other acquired intangibles will increase if we make additional acquisitions in the future.
Restructuring and transaction-related expenses. Restructuring and transaction expenses primarily consist of various restructuring and acquisition activities we have undertaken to achieve strategic or financial objectives. Restructuring and acquisition activities include, but are not limited to, consolidation of offices and responsibilities, office relocation, administrative cost structure realignment, and acquisition-related professional services fees. We anticipate that restructuring and transaction expenses will be correlated with future acquisition activity or strategic restructuring activities, which could be greater than or less than our historic levels.
Interest Expense, Net
Interest expense represents the interest payable on our debt obligations and the amortization of debt discounts and debt issuance costs, less interest income.
We anticipate that interest expense could be impacted by changes in variable interest rates or the issuance of additional debt.
Loss on Debt Modification and Extinguishment
Loss on debt modification and extinguishment consists of prepayment penalties and impairment of deferred financing costs associated with the modification or extinguishment of debt, as well as new fees incurred with third parties in connection with debt modifications.
We anticipate that losses related to debt extinguishment will only occur if we extinguish indebtedness before the contractual repayment dates.
Other (Income) Expense, Net
Other (income) expense, net consists primarily of the revaluation of tax receivable agreement liabilities and foreign currency realized and unrealized gains and losses related to the impact of transactions denominated in a foreign currency. Changes to existing tax law including changes to the corporate income tax rates and the Company's state tax footprint could lead to substantial revaluations of the tax receivable agreement liability recorded through other income and expense, net.
The magnitude of other income and expenses, net may increase as we expand operations internationally and add complexity to our operations.
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Income Tax Expense (Benefit)
ZoomInfo OpCo is currently treated as a pass-through entity forU.S. federal income tax purposes and most applicable state and local income tax purposes. Income tax expense (benefit), Deferred tax assets, Deferred tax liabilities, and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid by our corporate subsidiaries and, to the extent paid directly by our limited liability companies and partnerships that are treated as partnerships for tax purposes, our partnerships. Our corporate subsidiary,RKSI Acquisition Corporation was subject to income taxes inthe United States and held a noncontrolling interests in our subsidiary,ZoomInfo Technologies LLC .ZoomInfo Technologies LLC was treated as a partnership forU.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated byZoomInfo Technologies LLC is passed through to and included in the taxable income or loss of its partners, includingZoomInfo LLC , and previouslyRKSI Acquisition Corporation . However, becauseRKSI Acquisition Corporation was subject to income taxes inthe United States , income allocated to such corporate subsidiary for tax purposes reduced the taxable income allocated to and distributions made to ZoomInfo OpCo. During the three months endedSeptember 30, 2021 ,RKSI Acquisition Corporation was distributed up to ZoomInfo HoldCo followed by the merger ofRKSI Acquisition Corporation with and into ZoomInfo HoldCo and the merger of ZoomInfo HoldCo with and intoZoomInfo Technologies Inc. Significant judgments and estimates are required in determining our consolidated income tax expense. Refer to Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information. During 2021ZoomInfo Technologies LLC made an election to be taxed as a corporation. Therefore, taxable income from the operations will no longer flow up toZoomInfo Intermediate Inc. After consummation of the Reorganization Transactions,ZoomInfo Intermediate Inc. became subject toU.S. federal income taxes with respect to its allocable share of anyU.S. taxable income of ZoomInfo OpCo, and is taxed at the prevailing corporate tax rates.ZoomInfo Technologies Inc. is treated as aU.S. corporation forU.S. federal, state, and local income tax purposes. Accordingly, a provision for income taxes will be recorded for the anticipated tax consequences of our reported results of operations for federal income taxes. In addition to tax expenses, we also will incur expenses related to our operations, as well as payments under the tax receivable agreements, which we expect to be significant. In addition, becauseRKSI Acquisition Corporation (prior to its merger with and into ZoomInfo HoldCo) andZebra Acquisition Corporation (prior to its merger withRKSI Acquisition Corporation ) was subject to income taxes inthe United States , income allocated to such corporate subsidiaries for tax purposes reduced the distributions made to ZoomInfo OpCo, thereby partially reducing our share ofU.S. taxable income of ZoomInfo OpCo in 2021. See "Risk Factors - Organizational Structure Risk Factors" in Part I, Item 1A of this Form 10-K. 52
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Results of Operations
The following table presents our results of operations for the years ended
Year Ended December 31,
($ in millions) 2022 2021 2020
Revenue $ 1,098.0 $ 747.2 $ 476.2
Cost of service:
Cost of service(1) 140.2 101.4 84.2
Amortization of acquired technology 48.2 35.3 23.3
Gross profit 909.6 610.5 368.7
Operating expenses:
Sales and marketing(1) 379.3 241.1 184.9
Research and development(1) 205.2 119.7 51.4
General and administrative(1) 123.2 92.4 62.8
Amortization of other acquired intangibles 22.0 20.3 18.7
Restructuring and transaction-related expenses 4.1 23.7 13.8
Total operating expenses 733.8 497.2 331.6
Income (loss) from operations 175.8 113.3 37.1
Interest expense, net 47.6 43.9 69.3
Loss on debt modification and extinguishment - 7.7 14.9
Other (income) expense, net (66.4) (39.3) (15.4)
Income (loss) before income taxes 194.6 101.0 (31.7)
Income tax expense (benefit) 131.4 6.1 4.7
Net income (loss) 63.2 94.9 (36.4)
Less: Net income (loss) attributable to ZoomInfo OpCo prior to the Reorganization Transactions
- - (5.1)
Less: Net income (loss) attributable to noncontrolling interests
- (21.9) (27.3)
Net income (loss) attributable to ZoomInfo
Technologies Inc. $ 63.2 $ 116.8 $ (4.0)
__________________(1)Includes equity-based compensation expense as follows:
Year Ended December 31,
($ in millions) 2022 2021 2020
Cost of service $ 20.2 $ 13.2 $ 27.4
Sales and marketing 80.4 38.2 62.6
Research and development 65.7 24.3 13.6
General and administrative 26.0 17.3 18.0
Total equity-based compensation expense
Year Ended
Revenue. Revenue was$1,098.0 million for the year endedDecember 31, 2022 , an increase of$350.8 million , or 47%, as compared to$747.2 million for the year endedDecember 31, 2021 . This increase was primarily due to the addition of new customers over the past 12 months and net expansion with existing customers. Revenue from acquired products in the first 12 months post-acquisition contributed$44.5 million for the year endedDecember 31, 2022 . 53
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Cost of service. Cost of service was
Operating Expenses. Operating expenses were$733.8 million for the year endedDecember 31, 2022 , an increase of$236.6 million , or 48%, as compared to$497.2 million for the year endedDecember 31, 2021 . Excluding equity-based compensation expenses, operating expenses were$561.7 million for the year endedDecember 31, 2022 , an increase of$144.3 million , or 35%, as compared to$417.5 million for the year endedDecember 31, 2021 . The increase excluding equity-based compensation was primarily due to: •an increase in sales and marketing expense (excluding equity-based compensation) of$96.0 million , or 47%, to$298.9 million for the year endedDecember 31, 2022 , due primarily to additional headcount and related salaries and benefits expenses added to drive continued incremental sales and support acquired products, additional commission expense and amortization of deferred commissions related to obtaining contracts with customers, and advertising expense; •an increase in research and development expense (excluding equity-based compensation) of$44.1 million , or 46%, to$139.5 million for the year endedDecember 31, 2022 , due primarily to additional headcount and related salaries and benefits expenses to support continued innovation of our services and acquired products; •an increase in general and administrative expense (excluding equity-based compensation) of$22.0 million , or 29%, to$97.2 million for the year endedDecember 31, 2022 , due primarily to additional headcount and related salaries and benefits expenses to support the larger organization; •an increase in amortization of acquired intangibles expense of$1.7 million , or 9%, to$22.0 million for the year endedDecember 31, 2022 , due to amortization expense related to intangible assets from 2021 and 2022 acquisitions; and •restructuring and transaction-related expense of$4.1 million for the year endedDecember 31, 2022 , primary due to transition and retention payments and other costs incurred related to 2021 and 2022 acquisitions. This represented a decrease of$19.6 million , or 83%, as compared to expense of$23.7 million for the year endedDecember 31, 2021 , which largely represented costs incurred related to 2021 acquisitions and impairment and accelerated depreciation related to the Company's Waltham office relocation.
Equity-based Compensation Expense. Equity-based compensation expense was
Other (income) expense, net. Other income was$66.4 million for the year endedDecember 31, 2022 , an increase of$27.2 million , as compared to Other income of$39.3 million for the year endedDecember 31, 2021 , primarily due to a TRA remeasurement gain recognized in 2022.
Interest expense, net. Interest expense, net was
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Income tax expense (benefit). The Company is subject to income taxes inthe United States and various foreign jurisdictions. Expense from income taxes for the year endedDecember 31, 2022 was$131.4 million , representing an effective tax rate of 67.5%, as compared to expense from income taxes of$6.1 million , representing an effective tax rate of 6.1% for the year endedDecember 31, 2021 . Our effective tax rate for year endedDecember 31, 2022 exceeded the federal statutory rate of 21% primarily due to the remeasurement of state deferred tax assets based on various state tax laws passed in 2022 and changes in our expectations for future apportionment of income between states, as well the impact of certain stock-based compensation being non-deductible for tax purposes.The effective tax rate for year endedDecember 31, 2021 was lower than the federal statutory rate of 21% primarily due to a benefit from the election to taxZoomInfo Technologies LLC as a corporation partially offset by non-cash tax expense due to shifts in GAAP basis.
Liquidity and Capital Resources
As ofDecember 31, 2022 , we had$418.0 million of cash and cash equivalents,$127.7 million of short-term investments, and$250.0 million available under our first lien revolving credit facility. We have financed our operations primarily through cash generated from operations and financed various acquisitions through cash generated from operations supplemented with debt offerings. We believe that our cash flows from operations and existing available cash and cash equivalents, together with our other available external financing sources, will be adequate to fund our operating and capital needs for at least the next 12 months and for the foreseeable future. We are currently in compliance with the covenants under the credit agreements governing our secured credit facilities, and we expect to remain in compliance with our covenants. We generally invoice our subscription customers annually, semi-annually, or quarterly in advance of our subscription services. Therefore, a substantial source of our cash is from such prepayments, which are included on our Consolidated Balance Sheets as unearned revenue. Unearned revenue consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As ofDecember 31, 2022 , we had unearned revenue of$419.9 million , of which$416.8 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met. After the consummation of the Reorganization Transactions,ZoomInfo Intermediate Inc. (formerly known asZoomInfo Technologies Inc. ) became a holding company with no material assets other than its ownership of HoldCo Units, andZoomInfo HoldCo became a holding company with no material assets other than its ownership of ZoomInfo OpCo Units. During the quarter endedSeptember 30, 2021 ,ZoomInfo HoldCo was merged with and intoZoomInfo Intermediate Inc. During the quarter endedDecember 31, 2021 ,ZoomInfo Intermediate Inc. became a wholly owned subsidiary ofZoomInfo Technologies Inc. ZoomInfo Technologies Inc. andZoomInfo Intermediate Inc. have no independent means of generating revenue. In the eventZoomInfo Technologies Inc. declares any cash dividend, we expect thatZoomInfo Technologies Inc. to causeZoomInfo MidCo LLC to make distributions toZoomInfo Technologies Inc. in part through distributions toZoomInfo Intermediate Inc. and ZoomInfo OpCo, in an amount sufficient to cover such cash dividends declared by us. Deterioration in the financial condition, earnings, or cash flow ofZoomInfo MidCo LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions. In addition, the terms of our financing arrangements contain covenants that may restrictZoomInfo MidCo LLC and its subsidiaries from paying such distributions, subject to certain exceptions. Further,ZoomInfo MidCo LLC is generally prohibited underDelaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities ofZoomInfo MidCo LLC (with certain exceptions), as applicable, exceed the fair value of its assets. Subsidiaries ofZoomInfo MidCo LLC are generally subject to similar legal limitations on their ability to make distributions toZoomInfo MidCo LLC . See "Risk Factors - Organizational Structure Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K. 55
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Our cash flows from operations, borrowing availability, and overall liquidity are subject to risks and uncertainties. We may not be able to obtain additional liquidity on reasonable terms, or at all. In addition, our liquidity and our ability to meet our obligations and to fund our capital requirements are dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, our business may not generate sufficient cash flow from operations and future borrowings may not be available from additional indebtedness or otherwise to meet our liquidity needs. If we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which would result in additional expenses or dilution. See "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K.
Historical Cash Flows
The following table summarizes our cash flows for the periods presented:
Year Ended December 31,
($ in millions) 2022 2021 2020
Net cash provided by (used in) operating activities
299.4$ 169.6 Net cash provided by (used in) investing activities (281.1) (695.8) (113.3) Net cash provided by (used in) financing activities (25.9) 439.5 172.2
Net increase (decrease) in cash and cash equivalents and restricted cash
$ 110.0 $
43.1
Cash Flows from (used in) Operating Activities
Net cash provided by operations was$417.0 million for the year endedDecember 31, 2022 as a result of net income of$63.2 million , adjusted by non-cash charges of$412.6 million and the change in our operating assets net of operating liabilities of$58.8 million . The non-cash charges are primarily comprised of equity-based compensation of$192.3 million , a decrease in deferred tax assets net of deferred tax liabilities of$123.3 million , depreciation and amortization of$87.8 million , and amortization of deferred commission costs of$65.9 million , partially offset by tax receivable agreement remeasurement of$65.6 million . The change in operating assets net of operating liabilities was primarily the result of an increase in deferred costs and other assets of$81.9 million , an increase in accounts receivable of$39.3 million , and an increase in prepaid expenses and other assets of$8.0 million , partially offset by an increase in unearned revenue of$48.8 million , an increase in accounts payable of$19.5 million , and an increase in accrued expenses and other liabilities of$2.8 million . Net cash provided by operations was$299.4 million for the year endedDecember 31, 2021 as a result of a net income of$94.9 million , adjusted by non-cash charges of$167.6 million and a change in our operating assets net of operating liabilities of$36.9 million . The non-cash charges are primarily comprised of equity-based compensation of$93.0 million , depreciation and amortization of$69.3 million , amortization of deferred commissions cost of$41.7 million , partially offset by tax receivable agreement measurement of$39.5 million and deferred income taxes of$14.5 million . The change in operating assets net of operating liabilities was primarily the result of an increase in unearned revenue of$131.4 million , and an increase in accrued expenses and other liabilities of$32.5 million , largely offset by an increase in accounts receivable of$66.1 million , and an increase in deferred costs and other assets of$53.4 million . 56
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Restructuring and transaction-related cash costs for the year endedDecember 31, 2022 primarily related to transaction costs related to 2021 and 2022 acquisitions transaction costs and tax payments related to entity conversions, which are not expected to recur. However, we may continue to make future acquisitions as part of our business strategy which may require the use of capital resources and drive additional future restructuring and transaction-related cash expenditures as well as integration and acquisition-related compensation cash costs. During the years endedDecember 31, 2022 , 2021, and 2020, we incurred the following cash expenditures: Year Ended December 31, (in millions) 2022 2021 2020 Cash interest expense$ 50.0
$ 14.6 $ 24.2 $ 13.1 Integration costs and acquisition-related compensation paid in cash(b)$ 3.7 $ 13.7 $ 11.3 __________________ (a)Represents cash payments directly associated with acquisition or disposal activities, including employee severance and termination benefits, contract termination fees and penalties, and other exit or disposal costs. For the year endedDecember 31, 2022 , these payments related primarily to transition bonuses paid related to 2021 and 2022 acquisitions offset by payment received for the Waltham sublease termination. For the year endedDecember 31, 2021 , these payments related primarily to transaction costs related to 2021 acquisitions and tax payments related to entity conversions. (b)Represents cash payments directly associated with integration activities for acquisitions and acquisition-related compensation, which includes transaction bonuses and retention awards. For the year endedDecember 31, 2022 , these payments related to retention awards from the acquisitions of Clickagy,Everstring , and Insent, and professional fees relating to integration projects. For the year endedDecember 31, 2021 , these payments related primarily to retention awards from the acquisitions of Clickagy andEverstring , cash vesting payments from the acquisition of Pre-Acquisition ZI, as well as professional fees related to 2021 acquisitions. Refer to Note 4 - Business Combinations - Business Combinations to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K), and transaction bonuses and other compensation, as well as payments of retention awards granted upon the Company's acquisitions. Future demands on our capital resources associated with our debt facilities may also be impacted by changes in reference interest rates and the potential that we incur additional debt in order to fund additional acquisitions or for other corporate purposes. Future demands on our capital resources associated with transaction expenses and restructuring activities and integration costs and transaction-related compensation will be dependent on the frequency and magnitude of future acquisitions and restructuring and integration activities that we pursue. As part of our business strategy, we expect to continue to pursue acquisitions of, or investments in, complementary businesses from time to time; however, we cannot predict the magnitude or frequency of such acquisitions or investments.
Cash Flows from (used in) Investing Activities
Cash used in investing activities for the year endedDecember 31, 2022 was$281.1 million , consisting of cash paid for acquisitions of$143.7 million , purchases of short-term investments of$139.3 million , and purchases of property and equipment and other assets of$28.9 million , partially offset by maturities of short-term investments of$30.8 million . Cash used in investing activities for the year endedDecember 31, 2021 was$695.8 million , consisting of cash paid for acquisitions of$684.2 million , purchases of short-term investments of$119.8 million , and purchases of property and equipment and other assets of$23.6 million partially offset by proceeds from sales of short-term investments of$70.5 million , and maturities of short-term investments of$61.3 million .
As we continue to grow and invest in our business, we expect to continue to invest in property and equipment and opportunistically pursue acquisitions.
Cash Flows from (used in) Financing Activities
Cash used in financing activities for the year endedDecember 31, 2022 was$25.9 million , primarily comprised of taxes paid related to net share settlement of equity awards of$17.4 million , payments related to our tax receivable agreements of$12.2 million , payments of deferred consideration of$1.1 million , payments of issuance fees from prior transactions of$0.7 million , partially offset by proceeds from issuance of common stock under the employee purchase plan of$4.2 million , and proceeds from exercise of stock options of$1.3 million . 57
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Cash provided by financing activities for the year endedDecember 31, 2021 was$439.5 million , primarily comprised of proceeds from debt of$1,071.8 million , partially offset by payments on long-term debt of$581.4 million , tax distributions to equity partners of$19.9 million , payments of debt issuance and modification costs of$11.6 million , and taxes paid related to net share settlement of equity awards of$10.4 million .
Refer to Note 8 - Financing Arrangements of our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information related to each of our borrowings.
Debt Obligations
As ofDecember 31, 2022 , the aggregate remaining balance of$600.0 million of first lien term loans is due, in its entirety, at the contractual maturity date ofFebruary 1, 2026 . As ofDecember 31, 2022 , the aggregate remaining balance of$650.0 million of 3.875% Senior Notes is due, in its entirety, at the contractual maturity date ofFebruary 1, 2029 . Interest on the Senior Notes is payable semi-annually in arrears beginning onAugust 1, 2021 . The foregoing currently represent the only existing required future debt principal repayment obligations that will require future uses of the Company's cash. The first lien term debt has a variable interest rate whereby the Company can elect to use a Base Rate or SOFR plus an applicable rate. The applicable rate is 2.00% for Base Rate loans or 3.00% for SOFR loans, plus a credit spread adjustment of 0.1%, depending on the Company's leverage. The first lien revolving debt has a variable interest rate whereby the Company can elect to use a Base Rate or SOFR plus an applicable rate. The applicable margin is 1.00% to 1.25% for Base Rate loans or 2.00% to 2.25% for SOFR Based Loans, depending on the Company's leverage. The effective interest rate on the first lien debt was 7.38% and 3.41% as ofDecember 31, 2022 andDecember 31, 2021 , respectively. Our total net leverage ratio to Adjusted EBITDA is defined as total contractual maturity of outstanding indebtedness less cash and cash equivalents, restricted cash, and short-term investments, divided by trailing twelve months Adjusted EBITDA. Adjusted EBITDA for the 12 months endedDecember 31, 2022 was$465.4 million . Our total net leverage ratio to Adjusted EBITDA as ofDecember 31, 2022 was 1.5x. ($ in millions, except leverage ratios) Total contractual maturity of outstanding indebtedness $
1,250.0
Less: Cash and cash equivalents, restricted cash, and short-term investments
551.8
Net Debt $
698.2
Trailing Twelve Months (TTM) Adjusted EBITDA $
465.4
Total net leverage ratio to Adjusted EBITDA 1.5x Our consolidated first lien net leverage ratio is defined in the agreement governing our existing first lien credit facilities (the "FirstLien Credit Agreement") as total contractual maturity of outstanding First Lien indebtedness less cash and cash equivalents and short-term investments, divided by trailing twelve months Cash EBITDA (defined as Consolidated EBITDA in our Credit Agreements). Cash EBITDA differs from Adjusted EBITDA due to certain defined add-backs, including cash generated from changes in unearned revenue; see table below for reconciliation. Cash EBITDA for the 12 months endedDecember 31, 2022 was$519.1 million . Our consolidated first lien net leverage ratio as ofDecember 31, 2022 was 0.1x.
($ in millions, except leverage ratios)
Total contractual maturity of First Lien indebtedness
$ 54.3 Trailing Twelve Months (TTM) Cash EBITDA$ 519.1 Consolidated first lien net leverage ratio 0.1x 58
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Our total net leverage ratio to Cash EBITDA (defined as Consolidated EBITDA in our Credit Agreements) is defined as total contractual maturity of outstanding indebtedness less cash and cash equivalents, restricted cash, and short-term investments, divided by trailing twelve months Cash EBITDA. Cash EBITDA for the 12 months endedDecember 31, 2022 was$519.1 million . Our total net leverage ratio to Cash EBITDA as ofDecember 31, 2022 was 1.3x. ($ in millions, except leverage ratios) Total contractual maturity of outstanding indebtedness $
1,250.0
Less: Cash and cash equivalents, restricted cash, and short-term investments
551.8
Net Debt $
698.2
Trailing Twelve Months (TTM) Cash EBITDA $
519.1
Total net leverage ratio to Cash EBITDA 1.3x
Trailing Twelve Months as of
(in millions) December 31, 2022
Net income (loss) $ 63.2
Add (less): Expense (benefit) from income taxes 131.4
Add: Interest expense, net 47.6
Add: Loss on debt modification and extinguishment -
Add: Depreciation 17.6
Add: Amortization of acquired technology 48.2
Add: Amortization of other acquired intangibles 22.0
EBITDA 330.0
Add (less): Other expense (income), net (a) (66.4)
Add: Impact of fair value adjustments to acquired unearned revenue(b)
2.1
Add: Equity-based compensation expense 192.3
Add: Restructuring and transaction related expenses (excluding depreciation)(c)
4.1
Add: Integration costs and acquisition-related expenses(d) 3.3
Adjusted EBITDA 465.4
Add: Unearned revenue adjustment 46.7
Add: Pro forma cost savings -
Add (less): Cash rent adjustment 1.5
Add (less): Pre-Acquisition EBITDA 1.4
Add (less): Other lender adjustments 4.0
Cash EBITDA $ 519.1
__________________
(a)Primarily represents revaluations on tax receivable agreement liability and
foreign exchange remeasurement gains and losses.
(b)Represents the impact of fair value adjustments to acquired unearned revenue
relating to services billed by an acquired company prior to our acquisition of
that company. These adjustments represent the difference between the revenue
recognized based on management's estimate of fair value of acquired unearned
revenue and the receipts billed prior to the acquisition less revenue recognized
prior to the acquisition.
(c)Represents costs directly associated with acquisition or disposal activities,
including employee severance and termination benefits, contract termination fees
and penalties, and other exit or disposal costs. For the year ended December 31,
2022 , this expense is primarily related to transition and retention payments
related to 2021 and 2022 acquisitions.
(d)Represents costs directly associated with integration activities for
acquisitions and acquisition-related compensation, which includes transaction
bonuses and retention awards. For the year ended December 31, 2022 , this expense
is primarily related to transition and
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retention payments related to 2021 and 2022 acquisitions. This expense is included in cost of service, sales and marketing expense, research and development expense, and general and administrative expense as follows:
Year Ended
December 31,
(in millions) 2022
Cost of service $ 0.2
Sales and marketing 0.5
Research and development 2.3
General and administrative 0.3
Total integration costs and acquisition-related compensation $ 3.3
In addition, the credit agreement governing our first lien term loan contains
restrictive covenants that may limit our ability to engage in activities that
may be in our long-term best interest. These restrictive covenants include,
among others, limitations on our ability to pay dividends or make other
distributions in respect of, or repurchase or redeem, capital stock, prepay,
redeem, or repurchase certain debt, make acquisitions, investments, loans, and
advances, or sell or otherwise dispose of assets. Our failure to comply with
those covenants could result in an event of default which, if not cured or
waived, could result in the acceleration of substantially all of our debt. The
Company may be able to incur substantial additional indebtedness in the future.
The terms of the credit agreements governing our first lien term loan limit, but
do not prohibit, the Company from incurring additional indebtedness, and the
additional indebtedness incurred in compliance with these restrictions could be
substantial. These restrictions will also not prevent the Company from incurring
obligations that do not constitute "Indebtedness" as defined in the agreements
governing our indebtedness.
Capital Expenditures
Capital expenditures increased by $5.3 million , or 22%, to $28.9 million in the
year ended December 31, 2022 compared to the year ended December 31, 2021 . The
increase reflects increased capital expenditures to support the larger company
and greater capitalization of internal development costs.
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Tax Receivable Agreements
We have entered into two tax receivable agreements. We entered into (i) the Exchange Tax Receivable Agreement with certain of our Pre-IPO OpCo Unitholders and (ii) the Reorganization Tax Receivable Agreement with the Pre-IPO Blocker Holders. These tax receivable agreements provide for the payment by members of theZoomInfo Tax Group to such Pre-IPO Owners and certain Pre-IPO HoldCo Unitholders of 85% of the benefits, if any, that theZoomInfo Tax Group is deemed to realize (calculated using certain assumptions) as a result of certain tax attributes and benefits covered by the tax receivable agreements. The Exchange Tax Receivable Agreement provides for the payment by members of theZoomInfo Tax Group to certain Pre-IPO OpCo Unitholders and certain Pre-IPO HoldCo Unitholders of 85% of the benefits, if any, that theZoomInfo Tax Group is deemed to realize (calculated using certain assumptions) as a result of (i) theZoomInfo Tax Group's allocable share of existing tax basis acquired in the IPO and (ii) increases in theZoomInfo Tax Group's allocable share of existing tax basis and tax basis adjustments that will increase the tax basis of the tangible and intangible assets of theZoomInfo Tax Group as a result of sales or exchanges of OpCo Units for shares of Common Stock after the IPO, and certain other tax benefits, including tax benefits attributable to payments under the Exchange Tax Receivable Agreement. The Reorganization Tax Receivable Agreement provides for the payment byZoomInfo Intermediate Inc. to Pre-IPO Blocker Holders and certain Pre-IPO HoldCo Unitholders of 85% of the benefits, if any, that theZoomInfo Tax Group is deemed to realize (calculated using certain assumptions) as a result of theZoomInfo Tax Group's utilization of certain tax attributes of the Blocker Companies (including theZoomInfo Tax Group's allocable share of existing tax basis acquired in the Reorganization Transactions), and certain other tax benefits, including tax benefits attributable to payments under the Reorganization Tax Receivable Agreement. In each case, these increases in existing tax basis and tax basis adjustments generated over time may increase (for tax purposes) theZoomInfo Tax Group's depreciation and amortization deductions and, therefore, may reduce the amount of tax that theZoomInfo Tax Group would otherwise be required to pay in the future, although theIRS may challenge all or part of the validity of that tax basis, and a court could sustain such a challenge.The ZoomInfo Tax Group's allocable share of existing tax basis acquired in the IPO and the increase in theZoomInfo Tax Group's allocable share of existing tax basis and the tax basis adjustments upon exchanges of OpCo Units for shares of Common Stock may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. The payment obligations under the tax receivable agreements are an obligation of members of the ZoomInfo Tax group, but not of ZoomInfo OpCo.The ZoomInfo Tax Group expects to benefit from the remaining 15% of realized cash tax benefits. For purposes of the tax receivable agreements, the realized cash tax benefits will be computed by comparing the actual income tax liability of theZoomInfo Tax Group (calculated with certain assumptions) to the amount of such taxes that theZoomInfo Tax Group would have been required to pay had there been no existing tax basis, no anticipated tax basis adjustments of the assets of theZoomInfo Tax Group as a result of exchanges and no utilization of certain tax attributes of the Blocker Companies (including the Blocker Companies' allocable share of existing tax basis), and hadZoomInfo Intermediate Inc. not entered into the tax receivable agreements. The term of each tax receivable agreement will continue until all such tax benefits have been utilized or expired, unless (i)ZoomInfo Intermediate Inc. exercises its right to terminate one or both tax receivable agreements for an amount based on the agreed payments remaining to be made under the agreement, (ii)ZoomInfo Intermediate Inc. breaches any of its material obligations under one or both tax receivable agreements in which case all obligations (including any additional interest due relating to any deferred payments) generally will be accelerated and due as ifZoomInfo Intermediate Inc. had exercised its right to terminate the tax receivable agreements, or (iii) there is a change of control ofZoomInfo Intermediate Inc. , in which case the Pre-IPO Owners may elect to receive an amount based on the agreed payments remaining to be made under the agreement determined as described above in clause (i). Estimating the amount of payments that may be made under the tax receivable agreements is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The amount of existing tax basis and the anticipated tax basis adjustments, as well as the amount and timing of any payments under the tax receivable agreements, will vary depending upon a number of factors, including our blended federal and state tax rate and the amount and timing of our income. 61
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We expect that as a result of the size of theZoomInfo Tax Group's allocable share of existing tax basis acquired in the IPO, the increase in theZoomInfo Tax Group's allocable share of existing tax basis and the tax basis adjustment of the tangible and intangible assets of theZoomInfo Tax Group upon the exchange of OpCo Units for shares of Common Stock and our possible utilization of certain tax attributes, the payments thatZoomInfo Intermediate Inc. may make under the tax receivable agreements will be substantial. As ofDecember 31, 2022 , the Company had a liability of$2,978.7 million related to its projected obligations under the Tax Receivable Agreements in connection with the Reorganization Transactions and OpCo Units. During the year endedDecember 31, 2022 , we paid a total of$12.2 million pursuant to the Tax Receivable Agreements. There were no payments in the year endedDecember 31, 2021 . The payments under the tax receivable agreements are not conditioned upon continued ownership of us by the exchanging holders of OpCo Units. Refer to Note 18 - Tax Receivable Agreements to our audited consolidated financial statements included in Part II Item 8 of this Form 10-K for additional information.
Contractual Obligations and Commitments
The following table summarizes our material contractual obligations as of
Payments due by Period
Less than one One to three Three to five Greater than (in millions)
Total year years years five years
Long-term indebtedness(1) $ 1,250.0 $ -
$ -
104.4 14.2 22.3 15.2 52.7
Deferred consideration and employee
compensation(3) 6.7 3.3 3.4 - -
Purchase obligations(4) 112.0 43.6 67.7 0.7 -
Total contractual obligations
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(1)Includes future principal payments on long-term indebtedness through the scheduled maturity dates thereof. Indebtedness is discussed in Note 8 - Financing Arrangements to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K. Interest incurred on amounts we borrow is based on relative borrowing levels, fluctuations in the variable interest rates, and the spread we pay over those interest rates. As such, we are unable to quantify our future obligations relating to interest and therefore no amounts have been included in the above table. (2)Represents future payments on existing operating leases through the scheduled expiration dates thereof. This amount excludes executed lease agreements that commence afterDecember 31, 2022 . (3)Includes deferred consideration and employee compensation related to the Insent and Dogpatch acquisitions at the currently estimated payout amounts, undiscounted. Acquisitions and related deferred consideration are discussed in Note 11 - Commitments and Contingencies to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K. Estimated contingent consideration is subject to change depending on results of factors each arrangement is based on. (4)Primarily relates to third-party cloud hosting and software as a service arrangements. The amounts included in the table above represent agreements that are enforceable and legally binding; any obligations under contracts that we can cancel without significant penalty are not included here. The ultimate timing of these liabilities cannot be determined; therefore, we have excluded these amounts from the contractual obligations table above. Purchase orders issued in the ordinary course of business are not included in the table above as they represent authorizations to purchase the items rather than binding agreements. However, if such claims arise in the future, they could have a material effect on our financial position, results of operations, and cash flows. The payments that we may be required to make under the tax receivable agreements that we entered into may be significant and are not reflected in the contractual obligations tables set forth above, as we are currently unable to estimate the amounts and timing of the payments that may be due thereunder. 62
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Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). Our critical accounting policies are those that we believe have the most significant impact to the presentation of our financial position and results of operations and that require the most difficult, subjective, or complex judgments. In many cases, the accounting treatment of a transaction is specifically dictated byU.S. GAAP with no need for the application of judgment. In certain circumstances, however, the preparation of consolidated financial statements in conformity withU.S. GAAP requires us to make certain estimates, judgments, and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. While our significant accounting policies are more fully described in Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K, we believe the following topics reflect our critical accounting policies and our more significant judgment and estimates used in the preparation of our financial statements. Revenue Recognition We derive revenue primarily from subscription services. Our subscription services consist of our SaaS applications and related access to our databases. Subscription contracts are generally based on the number of users that access our applications, the level of functionality that they can access, and the amount of data that a customer integrates with their systems. Our subscriptions contracts typically have a term of one to three years and are non-cancelable. We typically bill for services annually, semi-annually, or quarterly in advance of delivery. We account for revenue contracts with customers using the following steps: (i) identification of contracts with customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract transaction price to the performance obligations, and (v) determination of revenue recognition based on the timing of satisfaction of the performance obligation(s). We recognize revenue for subscription contracts on a ratable basis over the contract term based on the number of calendar days in each period, beginning on the date that our service is made available to the customer. Unearned revenue results from revenue amounts billed to customers in advance or cash received from customers in advance of the satisfaction of performance obligations.
Business Combinations
We allocate the purchase consideration to the tangible assets acquired,
liabilities assumed, and intangible assets acquired based on their estimated
fair values. The purchase price is determined based on the fair value of the
assets transferred, liabilities assumed, and equity interests issued, after
considering any transactions that are separate for the business combination. The
excess of fair value of purchase consideration over the fair values of the
identifiable assets and liabilities is recorded as goodwill. Such valuations
require management to make significant estimates and assumptions, especially
with respect to intangible assets and contingent liabilities. Significant
estimates in valuing certain intangible assets include, but are not limited to,
future expected cash flows from acquired customer bases, acquired technology and
acquired trade names, useful lives, royalty rates, and discount rates.
The estimates are inherently uncertain and subject to refinement during the
measurement period for an acquisition, which may last up to one year from the
acquisition date. During the measurement period, we may record adjustments to
the fair value of tangible and intangible assets acquired and liabilities
assumed, with a corresponding offset to goodwill. After the conclusion of the
measurement period or the final determination of the fair value of assets
acquired or liabilities assumed, whichever comes first, any subsequent
adjustments are recorded to earnings.
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In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We re-evaluate these items based upon the facts and circumstances that existed as of the acquisition date, with any adjustments to our preliminary estimates being recorded to goodwill, provided that the timing is within the measurement period. Subsequent to the measurement period, changes to uncertain tax positions and tax related valuation allowances will be recorded to earnings. Tax Receivable Agreements In connection with our IPO, we entered into two Tax Receivable Agreements with certain non-controlling interest owners (the "TRA Holders"). The TRAs generally provide for payment by the Company to the TRA Holders of 85% of the net cash savings, if any, inU.S. federal, state and local income tax or franchise tax that the Company actually realizes or is deemed to realize in certain circumstances. The Company will retain the benefit of the remaining 15% of these net cash savings. We account for amounts payable under the TRA in accordance with Accounting Standards Codification ("ASC") Topic 450, Contingencies. As such, subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other income (expense), net. As ofDecember 31, 2022 , the Company had a liability of$2,978.7 million related to its projected obligations under the Tax Receivable Agreements in connection with the Reorganization Transactions and OpCo units exchanged. For the year endedDecember 31, 2022 , we recognized a TRA remeasurement gain of$65.6 million . Refer to Note 18 - Tax Receivable Agreements to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for further details on the TRA liability.
Income Taxes
Deferred taxes are recorded using the asset and liability method, whereby tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We regularly evaluate the valuation allowances established for deferred tax assets for which future realization is uncertain. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax planning strategies and results of recent operations. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded.ZoomInfo Intermediate Inc. is a corporation and is subject toU.S. federal as well as state income tax related to its ownership percentage inZoomInfo Holdings LLC .ZoomInfo Holdings LLC is a limited liability company treated as a partnership forU.S. federal income tax purposes and files aU.S. Return of Partnership Income. Consequently, the members ofZoomInfo Holdings are taxed individually on their share of earnings forU.S. federal and state income tax purposes. During the quarter endedDecember 31, 2021 , our operating entity,ZoomInfo Technologies LLC , made an election to be taxed as a corporation forU.S. federal and state income tax purposes. As a result, taxable income from our operations is no longer expected to flow up toZoomInfo Technologies Inc. ZoomInfo Technologies LLC is subject to the Texas Margins Tax. Additionally, our operations inCanada ,India ,Israel , and theU.K. are subject to local country income taxes. Refer to Note 19 - Income Taxes to our audited consolidated financial statements included in Part II, Item 8 of this Form 10-K for additional information regarding income taxes.
Recently Issued Accounting Pronouncements
Refer to Note 2 - Basis of Presentation and Summary of Significant Accounting
Policies to our consolidated financial statements included in Part II, Item 8 of
this Form 10-K regarding recently issued accounting pronouncements.
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