ZOOMINFO TECHNOLOGIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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 to ZoomInfo 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,
and (2) after the consummation of the Reorganization Transactions, to ZoomInfo
Technologies 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
ZoomInfo is a leading go-to-market intelligence platform for sales and marketing
professionals. Our cloud-based platform provides highly accurate and
comprehensive information and insights on the organizations and professionals
they target, enabling sellers and marketers to shorten sales cycles and increase
win rates by delivering the right message, to the right person, at the right
time.
We are able to deliver high-quality intelligence at scale by leveraging an AI-
and ML-powered engine that gathers data from millions of sources and
standardizes, matches to entities, verifies, cleans, and applies the processed
data to companies and people at scale to generate insights. This data engine,
augmented by other data sources and our team of research analysts and data
scientists, enrich our platform by creating a combination of robust systems and
processes that are integrated into the workflows and CRM and sales and marketing
automation systems of our customers.
ZoomInfo, formerly known as DiscoverOrg, was co-founded in 2007 by our CEO,
Henry Schuck. Henry founded the Company to unlock actionable business
information and insights to make organizations more successful. Over time, we
developed new and innovative methods for gathering and cleansing data and
insights using automated processes to scale our capabilities. In February 2019,
we acquired Pre-Acquisition ZI and subsequently the combined business has been
re-branded as ZoomInfo. Pre-Acquisition ZI developed technologies to gather,
parse, and match data at massive scale. We combined Pre-Acquisition ZI's
technology with our technology to deliver more value to customers with our
combined platform that provides broader coverage and higher-quality insights.
We offer access to our platform on a subscription basis and we generate
substantially all of our revenue from sales of subscriptions. Our subscription
fees include the use of our platform and access to customer support.
Subscriptions generally range from one to three years in length with over 25% of
our ACV being under 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 ZoomInfo platform to both new and existing customers. Some existing
customers continue to renew their subscriptions to pre-acquisition versions of
the Pre-Acquisition ZI and DiscoverOrg solutions. We price our subscriptions
based on the functionality, users, and records under management that are
included in each product edition. Our paid product editions are Elite, Advanced,
and Professional, and we have a free Community Edition.
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Our software, insights, and data enable over 20,000 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, and 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 2020,
approximately 45% and 23% of our customers, as measured by ACV, operated in the
software and business services industries, respectively. In 2020, less than 4%
of our customers, as measured by ACV, operated in the retail, travel,
hospitality, consumer goods and services, or oil and gas industries. Our net
annual retention rate was 108%, 109%, and 102% in 2020, 2019, and 2018,
respectively.
For the year ended December 31, 2020, no single customer contributed more than
1% of revenue. We generate less than 10% of revenue from customers outside the
United States. As of December 31, 2020, over 850 customers contracted for more
than $100,000 in ACV for ZoomInfo services.
To address our market opportunity, we have built and continue to tune our
efficient 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 $476.2 million for the year ended
December 31, 2020, as compared to revenue for the year ended December 31, 2019
of $293.3 million, and income from operations of $37.1 million for the year
ended December 31, 2020, as compared to income from operations of $36.1 million
for the year ended December 31, 2019. In addition to our consolidated U.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." Our Adjusted Operating Income was
$226.0 million for the year ended December 31, 2020, as compared to
$167.1 million for the year ended December 31, 2019. Our Adjusted Operating
Income Margin was 47% for the year ended December 31, 2020, as compared to 51%
in 2019. Adjusted Operating Income and Adjusted Operating Margin do not include
results of operations from acquired entities before their acquisitions.
Recent Developments
Reorganization Transactions
ZoomInfo Technologies Inc. was incorporated in November 2019 with no operating
assets or operations for the purposes of facilitating the IPO and other related
transactions in order to carry on the business of the operating entity ZoomInfo
Holdings LLC ("ZoomInfo OpCo") (formerly known as DiscoverOrg Holdings, LLC)
following the consummation of the transactions described under "Reorganization
Transactions" in Note 1 to our audited consolidated financial statements
included in Part II, Item 8 of this Annual Report on Form 10-K (the
"Reorganization Transactions").
Following the consummation of the Reorganization Transactions on June 3, 2020,
ZoomInfo Technologies Inc. became a holding company, with its sole material
asset being a controlling equity interest in ZoomInfo Intermediate Holdings LLC
("ZoomInfo HoldCo"), which is a holding company with its sole material asset
being a controlling equity interest in ZoomInfo OpCo. ZoomInfo Technologies Inc.
operates and controls all of our business and affairs, and consolidates the
financial results of ZoomInfo OpCo through ZoomInfo HoldCo. Accordingly,
ZoomInfo Technologies Inc. reports a non-controlling interest related to the
OpCo Units or HoldCo Units held by our Continuing Members in our consolidated
financial statements.
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Initial Public Offering
On June 8, 2020, ZoomInfo Technologies Inc. completed the IPO, in which it sold
51,175,000 shares of Class A common stock (including shares issued pursuant to
the exercise in full of the underwriters' option to purchase additional shares)
at a public offering price of $21.00 per share for net proceeds of $1,019.6
million, after deducting underwriters' discounts (but excluding other offering
expenses and reimbursements). ZoomInfo Technologies Inc. used all of the
proceeds from the IPO to (i) purchase 48,528,783 newly issued HoldCo Units from
ZoomInfo HoldCo for approximately $966.9 million (which ZoomInfo HoldCo in turn
used to purchase the same number of newly issued OpCo Units from ZoomInfo OpCo);
(ii) purchase 2,370,948 OpCo Units from certain Pre-IPO OpCo Unitholders for
approximately $47.2 million; and (iii) fund $5.5 million of merger consideration
payable to certain Pre-IPO Blocker Holders in connection with the Blocker
Mergers. To date, ZoomInfo OpCo has used the proceeds it received through
ZoomInfo HoldCo from the IPO to (i) redeem and cancel all outstanding Series A
Preferred Units of ZoomInfo OpCo for approximately $274.2 million, including
accumulated but unpaid distributions and related prepayment premiums; (ii) repay
in full all outstanding indebtedness under our second lien credit agreement, for
approximately $380.6 million, including related prepayment premiums and accrued
interest; (iii) repay $35.0 million of outstanding borrowings under the
Company's first lien revolving credit facility; (iv) pay certain expenses
related to the IPO; and (v) prepay $100.0 million aggregate principal amount of
the first lien term loans outstanding under our first lien credit agreement,
including accrued interest thereon, using approximately $101.2 million of the
proceeds; with the remaining proceeds intended to be used for general corporate
purposes.
OpCo Units, HoldCo Units, and Common Stock
In connection with the Reorganization Transactions, the limited liability
company agreement of ZoomInfo OpCo was amended and restated to, among other
things, reclassify its outstanding preferred and common units into a new class
of units that we refer to as "OpCo Units." A portion of the Class P Units that
are held by the Continuing Class P Unitholders remain as Class P Units.
Pursuant to the amended and restated limited liability company agreement of
ZoomInfo OpCo, the Pre-IPO OpCo Unitholders (or certain permitted transferees)
have the right (subject to the terms of such limited liability company
agreement) to exchange their OpCo Units (together with a corresponding number of
shares of Class B common stock) for shares of our Class A common stock on a
one-for-one basis, subject to customary conversion rate adjustments for stock
splits, stock dividends, and reclassifications. Pursuant to the amended and
restated limited liability company of ZoomInfo HoldCo, the Pre-IPO HoldCo
Unitholders (or certain permitted transferees) have the right (subject to the
terms of such limited liability company agreement) to exchange their HoldCo
Units (together with a corresponding number of shares of Class B common stock)
for shares of our Class A common stock on a one-for-one basis, subject to
customary conversion rate adjustments for stock splits, stock dividends, and
reclassifications.
Pursuant to ZoomInfo Technologies Inc.'s amended and restated certificate of
incorporation, at the option of the holder, a share of Class C common stock may
be converted into one share of Class A common stock. In addition, each share of
Class C common stock will convert automatically into one share of Class A common
stock upon any transfer, whether or not for value, except for certain affiliate
transfers described in our amended and restated certificate of incorporation
among the Sponsors, the Founders, and their respective affiliates as of the date
of the consummation of the IPO. Each share of Class C common stock will also
automatically convert into one share of Class A common stock if, on the record
date for any meeting of the stockholders, the aggregate number of outstanding
shares of our Class B common stock and Class C common stock is less than 5% of
our outstanding shares of common stock. Once converted into Class A common
stock, Class C common stock will not be reissued.
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The Pre-IPO OpCo Unitholders and the Pre-IPO HoldCo Unitholders that held voting
units before the IPO and that continue to hold OpCo Units or HoldCo Units, as
applicable, hold all of the issued and outstanding shares of our Class B common
stock. The shares of Class B common stock have no economic rights but each share
entitles the holder to ten votes (for so long as the aggregate number of
outstanding shares of our Class B common stock and Class C common stock
represents at least 5% of the aggregate number of our outstanding shares of
common stock, and thereafter, one vote per share) on all matters on which
stockholders of ZoomInfo Technologies Inc. are entitled to vote generally. The
Pre-IPO Blocker Holders hold all of the issued and outstanding shares of our
Class C common stock. The shares of Class C common stock have the same economic
rights as shares of Class A common stock, but each share entitles the holder to
ten votes (for so long as the aggregate number of outstanding shares of our
Class B common stock and Class C common stock represents at least 5% of the
aggregate number of our outstanding shares of common stock, and thereafter, one
vote per share upon the automatic conversion of our Class C common stock into
shares of Class A common stock) on all matters on which stockholders of ZoomInfo
Technologies Inc. are entitled to vote generally. Holders of outstanding shares
of our Class A common stock, Class B common stock, and Class C common stock vote
as a single class on all matters on which stockholders are entitled to vote
generally, except as otherwise required by law.
COVID-19
In December 2019, a novel strain of Coronavirus disease ("COVID-19") was
reported, and in March 2020, the WHO characterized COVID-19 as a pandemic. The
ongoing COVID-19 pandemic has resulted in travel restrictions, prohibitions of
non-essential activities, disruption and shutdown of certain businesses, and
greater uncertainty in global financial markets. Such conditions are creating
disruption in global supply chains, increasing rates of unemployment, and
adversely impacting many industries. The outbreak could have a continued adverse
impact on economic and market conditions and has triggered a period of global
economic slowdown.
As a result of the COVID-19 pandemic, we experienced headwinds and tailwinds
that impacted our business. In early 2020, we experienced headwinds in some
sales cycles as business leaders adapted to the impacts of the pandemic. Our
sales teams adjusted to the new environment and drove improved sales and
retention activity relative to prior year results. Customers in heavily impacted
industries represented less than 4% of ACV, and in early 2020, we saw heightened
cancellations and reductions in spend from this subset of customers relative to
pre-COVID time frames. We also experienced longer sales cycles and more intense
scrutiny, particularly for larger purchases and upgrades as customers and
prospects re-assessed their growth trajectory in light of the changing economic
environment. These headwinds dissipated during the course of the year and were
partially offset by tailwinds we experienced relating to reduced spending on
travel, facilities, and marketing events. By the end of 2020, demand for our
platform normalized and returned to levels materially consistent with historical
trends. We acknowledge the extent and continued impact of the COVID-19 pandemic
on our operational and financial condition will depend on certain developments,
including: the duration and spread of the outbreak; government responses to the
pandemic including vaccine availability and deployment; its impact on the health
and welfare of our employees and their families; its impact on our customers and
our sales cycles; its impact on customer, industry, or employee events; delays
in hiring and onboarding new employees; and effects on our partners and vendors,
some of which are uncertain, difficult to predict, not within our control.
Furthermore, because of our largely subscription-based business model, the
effect of the COVID-19 pandemic may not be fully reflected in our results of
operations and overall financial condition until future periods.
To address the safety and health of our employees during the COVID-19 pandemic,
in the first quarter of 2020 we temporarily closed all of our offices and
enabled our entire workforce to work remotely. These changes remained largely in
effect throughout 2020 and could extend into future quarters. The impact, if
any, of these and any additional operational changes we may implement is
uncertain, but changes we have implemented to date have not affected, and are
not expected to materially, affect our ability to maintain operations, including
financial reporting systems, internal control over financial reporting, and
disclosure controls and procedures. See "Human Capital" in Part I, Item 1 and
"Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K.
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Secondary Offerings
On August 24, 2020, certain selling stockholders, including entities affiliated
with the Sponsors, completed a secondary offering of 17,179,135 shares of Class
A common stock at a price to the public of $37.00 per share. The selling
stockholders received all of the net proceeds of approximately $615.0 million
after deducting the underwriting discount.
On December 4, 2020, certain selling stockholders, including entities affiliated
with the Sponsors, completed a secondary offering of 14,375,000 shares of Class
A common stock at a price to the public of $45.00 per share. The selling
stockholders received all of the net proceeds of approximately $631.0 million
after deducting the underwriting discount.
Acquisitions
In October 2020, the Company acquired substantially all the assets, and certain
specified liabilities, of Clickagy, LLC, a leading provider of artificial
intelligence-powered buyer intent data. In November 2020, the Company acquired
EverString Technology, LLC, a leading artificial intelligence-powered,
business-to-business (B2B) data solutions provider. In connection with these
acquisitions, the Company has agreed to pay an aggregate cash consideration,
inclusive of vesting cash retention payments, of approximately $71.7 million,
subject to working capital and other customary adjustments, and issued 67,075
shares of unregistered Class A common stock of the Company. We funded cash
payments made at closing with cash on hand. Neither acquisition had a material
impact on the Company's results of operations for the three months or year ended
December 31, 2020 or the Company's financial position as of December 31, 2020.
The initial accounting of the business combinations is incomplete as of the
issuance date of these financial statements. The fair values of assets acquired
and liabilities assumed may be subject to change as additional information is
received, including the finalization of tax assets and liabilities.
Senior Unsecured Notes Offering
In February 2021, ZoomInfo Technologies LLC and ZoomInfo Finance Corp., indirect
subsidiaries of ZoomInfo Technologies Inc., completed an offering of $350.0
million in aggregate principal amount of 3.875% senior notes due 2029. We used
all of the net proceeds, along with cash on hand, to prepay $356.4 million
aggregate principal amount of our first lien term loans outstanding under the
first lien credit agreement (the "Debt Prepayment"). Following the Debt
Prepayment, as of February 2, 2021, $400.0 million aggregate principal amount of
first lien term loans were outstanding under our first lien credit agreement.
First Lien Credit Agreement Amendment
In February 2021, ZoomInfo LLC entered into an amendment to our first lien
credit agreement, pursuant to which, among other things, there will be (i) an
increase in the aggregate commitments to $250.0 million under our first lien
revolving credit facility, (ii) the addition of the ZoomInfo Technologies LLC as
a co-borrower, (iii) the repricing of our first lien term loan facility maturing
in February 2026 and first lien revolving credit facility and (iv) an extension
of the maturity date of our first lien revolving credit facility to November
2025.
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.
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Impact of the Reorganization Transactions
ZoomInfo Technologies Inc. is a corporation for U.S. federal and state income
tax purposes. Our accounting predecessor, ZoomInfo OpCo, was and is treated as a
flow-through entity for U.S. federal income tax purposes, and as such, only
certain subsidiaries that were organized as corporations for U.S. federal income
tax purposes have been subject to U.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 for U.S. federal income tax for income
allocated to those subsidiaries that were organized as corporations for U.S.
federal income tax purposes. Following the completion of the Reorganization
Transactions, ZoomInfo Technologies Inc. pays U.S. federal and state income
taxes as a corporation on its share of our taxable income.
ZoomInfo OpCo is the predecessor of ZoomInfo Technologies Inc. for financial
reporting purposes. As a result, the consolidated financial statements of
ZoomInfo 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 to our audited
consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Initial Public Offering
In June 2020, the company completed its IPO which significantly impacted our
cash, first and second lien indebtedness, and temporary and permanent equity
balances. See "-Recent Developments." The IPO, driven by 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 NeverBounce in September 2018, Pre-Acquisition ZI in February 2019,
Komiko in October 2019, Clickagy in October 2020, and EverString in November
2020. In addition, Pre-Acquisition ZI acquired Datanyze in September 2018. As
discussed below under "-Results of Operations," these acquisitions have been a
significant driver of our revenue, cost of service, operating expense, and
interest expense growth. Purchase accounting requires that all assets acquired
and liabilities assumed be recorded at fair value on the acquisition date,
including unearned revenue. Revenue from contracts that are impacted by the
estimate of fair value of the unearned revenue upon acquisition will be recorded
based on the fair value until such contract is terminated or renewed, which will
differ from the receipts received by the acquired company allocated over the
service period for the same reporting periods.
Impact of the Zoom Information Acquisition
On February 1, 2019, we acquired, through a newly formed wholly owned
subsidiary, Zebra Acquisition Corporation, 100% of the stock of Pre-Acquisition
ZI for $748.0 million, net of cash acquired (the "Zoom Information
Acquisition"). Pre-Acquisition ZI was a provider of company and contact
information to sales and marketing professionals.
The Zoom Information Acquisition qualifies as a business combination and was
accounted for as such. We included the financial results of Pre-Acquisition ZI
in the consolidated financial statements of ZoomInfo OpCo from the date of the
Zoom Information Acquisition. Accordingly, the financial statements for the
period prior to the Zoom Information Acquisition may not be comparable to those
from the periods after the Zoom Information Acquisition.
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In connection with the Zoom Information Acquisition, ZoomInfo OpCo entered into
an $865.0 million first lien term loan facility, a $100.0 million first lien
revolving credit facility, which was undrawn at the time of the acquisition, and
a $370.0 million second lien term loan facility, and issued $207.0 million of
Series A Preferred Units. In addition to funding the Zoom Information
Acquisition, the additional proceeds from such facilities and Series A Preferred
Units were used to repay existing debt. These debt facilities drove a
significant impact to our interest expense from the date of the acquisition. We
would have expected interest expense for the year ended December 31, 2020 to be
greater than that of the year ended December 31, 2019 due to the debt being
outstanding for the entire period in 2020. However, this increase was mitigated
and offset by (a) a reduction in interest rates period over period, and (b) the
debt repayments and prepayments referenced above and in Note 8 to our audited
consolidated financial statements included in Part II, Item 8 of this Form 10-K.
We recognized approximately $85.3 million of revenue from legacy Pre-Acquisition
ZI platform contracts with acquired customers, including the renewals and
upsells thereof, during the year ended December 31, 2019, of which $32.3 million
was included in the unearned revenue balance recorded at the acquisition date.
The fair value of acquired unearned revenue was $34.5 million, which differs
from the unearned revenue recorded by Pre-Acquisition ZI immediately prior to
the acquisition of $68.3 million. For the year ended December 31, 2019, the
amounts received or billed by Pre-Acquisition ZI in advance of revenue
recognition as of the acquisition date allocated over the service period
post-acquisition was $63.9 million, which was $31.6 million greater than the
amount recognized into revenue for those receipts and billings based on their
fair value.
We incurred approximately $2.7 million of transaction costs related to the Zoom
Information Acquisition. We paid $29.7 million related to the secured credit
facilities, which was accounted for as a debt discount. We also incurred
$0.6 million in transaction costs associated with issuing the new Series A
Preferred Units, which were issued at a 3% discount, which transaction costs
were deducted from the proceeds received from the units.
During 2019, we completed the integration of Pre-Acquisition ZI, including
aligning reporting structures for all employees along functional lines,
migrating all front-office sales and marketing activities onto a single
technology stack with a single instance for key technology components, migrating
back-office activities onto a single technology stack, integrating accounting,
legal, and human resources activities, including financial reporting processes
and benefits for employees, and developing a single platform that is being used
for all sales to new customers.
Additionally, as part of the integration of Pre-Acquisition ZI, we identified
that certain roles and responsibilities were redundant between the two companies
and terminated the employment of certain executives immediately upon the closing
of the transaction. We subsequently eliminated additional positions that were no
longer needed as a result of the functionally aligned reporting structure,
including the Russia operations of Pre-Acquisition ZI, certain development
positions in Vancouver, Washington, and certain executives from DiscoverOrg and
Pre-Acquisition ZI. Expenses relating to severance paid were recorded as
restructuring and transaction expenses on the statement of operations with the
majority of those expenses being recognized in the three months ended March, 31,
2019, and not recurring in 2020. Expenses relating to any accelerated payments
under the Cash Vesting Payment Program (see Note 4 to our audited financial
statements included elsewhere in this Annual Report on Form 10-K) were recorded
as operating expense according to the functional area aligning to the employee's
salary and is included in integration and transaction-related compensation
expenses when calculating non-GAAP metrics.
All new customers are sold the ZoomInfo platform that we released in September
2019. We continue to support pre-existing customers on the legacy DiscoverOrg
and Pre-Acquisition ZI platforms, although many pre-existing customers have
agreed to upgrade to the ZoomInfo platform. The pricing constructs for
subscriptions on the platforms are similar among the platforms and based on a
combination of the number of seats to which the customer commits and the level
of functionality and data access that the customer requires. Based on the
increased level of functionality and data access, upgrading to the ZoomInfo
platform will often require an increase in subscription pricing for an
equivalent number of users.
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We incurred expenses related to the integration of Pre-Acquisition ZI during
2019. Additionally, as part of the purchase of Pre-Acquisition ZI, we agreed
with the former owners of Pre-Acquisition ZI to implement a Cash Vesting Payment
Program to make payments to employees with respect to unvested options that were
canceled at the time of the Zoom Information Acquisition. We agreed to make the
payments to employees according to the remaining vesting schedule as of the
acquisition date in amounts that would have been paid had the options been
vested at the time of the acquisition. We reduced the originally agreed purchase
price to the former owners of Pre-Acquisition ZI as a result of agreeing to make
such payments. These payments are recorded as expense over the period of service
on our statement of operations in the same expense line item as the salary of
recipients, and we will continue to record expense for the majority of employees
until 2021, and for some employees into 2022. Additionally, we engaged
consulting firms and other professional services firms to help integrate our
companies, including developing branding and pricing strategies for the combined
platform. These expenses were recorded as sales and marketing and general and
administrative expenses on our statement of operations. For analyses and
non-GAAP metrics that include adjustments to operating expenses, the expenses
are deemed to be integration expenses and acquisition-related compensation.
Equity-Based Compensation
In December 2019, HSKB modified all outstanding awards to add an alternative
performance and time vesting condition and to also permit settlement through
exchange into the Company's public shares in addition to the existing
cash-settlement option. This modification resulted in the revaluation of the
awards in accordance with U.S. GAAP. Through the date of modification, no
equity-based compensation had been recognized for these awards as the qualifying
event (i.e., the IPO) was not probable. Upon completion of the IPO, the Company
recognized $57.6 million of additional compensation expense attributable to
service periods already elapsed on HSKB awards and the acceleration of vesting
select Class P Units. The remaining unamortized fair value as of the
modification date will be recognized as equity-based compensation over the
remaining service period of the awards. In addition to the impact of the
modified HSKB awards, new awards and modifications that took place as part of
the Reorganization Transactions and the IPO will contribute to higher
equity-based compensation expense in 2020 and 2021. See Note 16 - Equity-based
Compensation for unamortized equity-based compensation costs related to each
type of equity-based incentive award.
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. The majority of revenue growth when comparing the year ended
December 31, 2020 to the year ended December 31, 2019 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 network. We will need to continue to invest in our efficient
go-to-market effort to acquire new customers. As of December 31, 2018, we had
over 11,000 customers on a combined basis, including non-overlapping customers
of Pre-Acquisition ZI. As of December 31, 2019, we had over 14,000 customers. As
of December 31, 2020, we had over 20,000 customers. We define a customer as a
company that maintains one or more active paid subscriptions to our platform.
Delivering Additional High-Value Solutions to Our Existing Customers
Many of our customers purchase additional high-value solutions as they expand
their use of our platform. Customers add additional services and/or upgrade
their platform. We believe there is a significant opportunity for expansion with
our existing customers through additional solutions.
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Expanding Relationships with Existing Customers
Many of our customers increase spending with us by adding users or integrating
incremental data 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 and data integration within our
existing customers.
Our ability to expand relationships with existing customers and deliver
additional high-value solutions is demonstrated by our net annual retention
rate. We measure our retention rate on an annual basis and define annual net
revenue retention as the total ACV generated by our customers and customers of
Pre-Acquisition ZI at the end of the year divided by the ACV generated by the
same group of customers at the end of the prior year. Our net annual retention
rate was 108%, 109%, and 102% for the years ended December 31, 2020, 2019, and
2018, respectively. 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 of December 31, 2020, we had more than 850 customers with
over $100,000 in ACV.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.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 which 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 comparable
U.S. GAAP financial measure to Adjusted Operating Income is U.S. GAAP operating
income. We believe that the most directly comparable U.S. GAAP finance measure
to Adjusted Operating Income Margin is U.S. GAAP operating income divided by
U.S. GAAP revenue. We believe that the most directly comparable U.S. GAAP
financial measure to Adjusted EBITDA and Adjusted Net Income is U.S. GAAP Net
Income, and the most directly comparable U.S. GAAP financial measure to Adjusted
Net Income per diluted share is U.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.
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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.
The following table presents a reconciliation of Net loss to Adjusted Net Income
and Income from operations to Adjusted Operating Income for the periods
presented:
                                                                      Year Ended December 31,
($ in millions)                                             2020                2019                2018
Net loss                                               $     (36.4)         $    (78.0)         $    (28.6)
Add (less): Expense (benefit) from income taxes                4.7                (6.5)               (2.9)
Add: Interest expense, net                                    69.3               102.4                58.2
Add: Loss on debt extinguishment                              14.9                18.2                   -
Add (less): Other expense (income), net(a)                   (15.4)                  -                (0.1)
Income from operations                                 $      37.1          $     36.1          $     26.6
Add: Impact of fair value adjustments to acquired
unearned revenue(b)                                            2.6                32.2                    2.9
Add: Amortization of acquired technology                      23.3                25.0                    7.7
Add: Amortization of other acquired intangibles               18.7                17.6                    7.0
Add: Equity-based compensation                               121.6                25.1                   32.7

Add: Restructuring and transaction-related expenses(c) 13.8

       15.6                    3.6
Add: Integration costs and acquisition-related
expenses(d)                                                    9.0                15.5                    3.2
Adjusted Operating Income                              $     226.0          $    167.1          $     83.7
Less: Interest expense, net                                  (69.3)             (102.4)              (58.2)

Less (add): Other expense (income), net, excluding TRA liability remeasurement (benefit) expense

                     (0.3)                  -                 0.1
Add (less): Benefit (expense) from income taxes               (4.7)                6.5                 2.9

Less: Tax impacts of adjustments to net income (loss) (13.5)

      (9.3)               (0.3)
Adjusted Net Income                                    $     138.2          $     62.0          $     28.1


__________________
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(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, including Pre-Acquisition
ZI, 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,
2020, this expense related primarily to professional fees for the preparation
for an initial public offering and deferred acquisition cost revaluations. For
the year ended December 31, 2019, this expense related primarily to the
acquisition of Pre-Acquisition ZI, including professional fees, severance and
acceleration of payments for terminated employees. For the year ended December
31, 2018, this expense related primarily to Carlyle's investment in us.
(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, 2020, this expense
related primarily to cash vesting payments from the acquisition of
Pre-Acquisition ZI. For the year ended December 31, 2019, this expense related
primarily to activities resulting from the acquisition of Pre-Acquisition ZI,
including cash vesting payments and transaction bonuses, as well as expense
incurred for retention awards granted upon the Company's acquisitions of
RainKing, NeverBounce, and Komiko. For the year ended December 31, 2018, this
expense related primarily to retention awards granted upon our acquisition of
RainKing and transaction bonuses paid upon Carlyle's investment in us. See
Note 4 to our consolidated financial statements included elsewhere in this
report. 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)                                              2020              2019                   2018
Cost of service                                      $        0.4            $  0.4                  $ 0.2
Sales and marketing                                           3.5               5.8                    0.6
Research and development                                      4.1               3.9                    0.1
General and administrative                                    1.1               5.4                    2.3
Total integration costs and acquisition-related
compensation                                         $        9.0            $ 15.5                  $ 3.2


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)                                       2020                2019                2018
Adjusted Operating Income                         $    226.0          $    167.1          $     83.7

Revenue                                                476.2               293.3               144.3
Impact of fair value adjustments to acquired
unearned revenue                                         2.6                32.2                 2.9

Revenue for adjusted operating margin calculation $ 478.8 $ 325.6 $ 147.2 Adjusted Operating Income Margin

                          47  %               51  %               57  %


Adjusted Operating Income for the year ended December 31, 2020 was
$226.0 million and represented an Adjusted Operating Income Margin of 47%.
Adjusted Operating Income for the year ended December 31, 2019 was
$167.1 million and represented an Adjusted Operating Income Margin of 51%.
Growth in Adjusted Operating Income in the year ended December 31, 2020 relative
to the year ended December 31, 2019 was an increase of $58.8 million, or 35%,
and was driven primarily from the growth in customers and increasing revenue
from existing customers. Adjusted Operating Income Margin decreased to 47% in
the year ended December 31, 2020 from 51% in the year ended December 31, 2019
due to incremental sales and marketing expenses related to signing new customers
and retaining and upselling existing customers, and general and administration
costs to support incremental public company related requirements.
Adjusted Operating Income for the year ended December 31, 2018 was $83.7 million
and represented an Adjusted Operating Income Margin of 57%. Growth in Adjusted
Operating Income in the year ended December 31, 2019 relative to the year ended
December 31, 2018 was an increase of $83.5 million, or 100%, and was driven
primarily from the growth in revenue that resulted from the acquisition of
Pre-Acquisition ZI and additional customers in 2019. Adjusted Operating Income
Margin decreased to 51% in the year ended December 31, 2019 from 57% in the year
ended December 31, 2018 due to the lower margin profile of the Pre-Acquisition
ZI business and investment to drive revenue growth.
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Adjusted EBITDA
EBITDA is defined as earnings before debt-related costs, including interest and
loss on debt 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 loss to Adjusted EBITDA for
the periods presented:
                                                                      Year Ended December 31,
($ in millions)                                             2020                2019                2018
Net income (loss)                                      $     (36.4)         $    (78.0)         $    (28.6)
Expense (benefit) from income taxes                            4.7                (6.5)               (2.9)
Interest expense, net                                         69.3               102.4                58.2
Loss on debt extinguishment                                   14.9                18.2                   -
Depreciation                                                   8.9                 6.1                 2.6
Amortization of acquired technology                           23.3                25.0                 7.7
Amortization of other acquired intangibles                    18.7                17.6                 7.0
EBITDA                                                 $     103.4          $     84.8          $     43.9
Other (income) expense, net(a)                               (15.4)                  -                (0.1)

Impact of fair value adjustments to acquired unearned revenue(b)

                                                     2.6                32.2                 2.9
Equity-based compensation expense                            121.6                25.1                32.7
Restructuring and transaction-related expenses(c)             13.8                15.6                 3.6

Integration costs and transaction-related expenses(d) 9.0

      15.5                 3.2
Adjusted EBITDA                                        $     234.8          $    173.2          $     86.2


__________________
(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, including Pre-Acquisition
ZI, 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,
2020, this expense related primarily to professional fees for the preparation
for an initial public offering and deferred acquisition cost revaluations. For
the year ended December 31, 2019, this expense related primarily to the
acquisition of Pre-Acquisition ZI, including professional fees, severance and
acceleration of payments for terminated employees. For the year ended December
31, 2018, this expense related primarily to Carlyle's investment in us.
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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 ended December 31, 2020, this expense
related primarily to cash vesting payments from the acquisition of
Pre-Acquisition ZI. For the year ended December 31, 2019, this expense related
primarily to activities resulting from the acquisition of Pre-Acquisition ZI,
including cash vesting payments and transaction bonuses, as well as expense
incurred for retention awards granted upon the Company's acquisitions of
RainKing, NeverBounce, and Komiko. For the year ended December 31, 2018, this
expense related primarily to retention awards granted upon our acquisition of
RainKing and transaction bonuses paid upon Carlyle's investment in us. See
Note 4 to our consolidated financial statements included elsewhere in this
report. 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)                                                2020           2019       2018
Cost of service                                           $    0.4          $  0.4      $ 0.2
Sales and marketing                                            3.5               5.8        0.6
Research and development                                       4.1               3.9        0.1
General and administrative                                     1.1         

5.4 2.3 Total integration costs and acquisition-related expenses $ 9.0 $ 15.5 $ 3.2

Adjusted EBITDA for the year ended December 31, 2020 was $234.8 million, an
increase of $61.6 million, or 36%, relative to the year ended December 31, 2019.
This growth was driven primarily from the growth in revenue that resulted from
additional customers in 2020 and 2019.
Adjusted EBITDA for the year ended December 31, 2019 was $173.2 million, an
increase of $86.9 million, or 101%, relative to the year ended December 31,
2018. This growth was driven primarily from the growth in revenue that resulted
from the acquisition of Pre-Acquisition ZI and additional customers in 2019 and
2018.
Components of Our Results of Operations
Revenue
We derive 99% of our revenue from subscription services and the remainder from
recurring usage-based services. 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, the
amount of data that the customer integrates into their systems, and add-on
functionality that is provided. Our subscription contracts typically have a term
ranging from one to three years and are non-cancellable. 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. Email
verification service revenue is recognized in the period services are utilized
by our customers. 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-cancellable 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.
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We anticipate that we will continue to invest in costs of service and that costs
of service as a percentage of revenue will stay consistent or modestly decrease
as we realize operating leverage in the business.
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 only 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. The most significant component of our
operating expenses is personnel costs, which consists of salaries, bonuses,
sales commissions, stock-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, stock-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, but that sales and marketing expense as a percentage of
revenue will decrease as equity-based compensation expense related to the
modification of HSKB awards and triggered by the IPO become a less significant
component of overall sales and marketing expense. We anticipate that sales and
marketing expense excluding equity-based compensation 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, stock-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, and we
expect our research and development expenses to continue to increase as we
invest in research and development resources to further strengthen and enhance
our solutions.
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 long term.
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General and administrative. General and administrative expenses primarily
consist of employee-related costs such as salaries, bonuses, stock-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 stay
consistent or modestly decrease from 2020, as we realize operating leverage in
the business.
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 only increase
if we make additional acquisitions in the future.
Restructuring and transaction 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 our interest expense will be substantially lower after having
repaid a portion of our outstanding indebtedness with the proceeds from the IPO.
Interest expense could increase in the future based on changes in variable
interest rates or the issuance of additional debt.
Loss on Debt Extinguishment
Loss on debt extinguishment consists of prepayment penalties and impairment of
deferred financing costs associated with the extinguishment of debt.
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.
We anticipate that the magnitude of other income and expenses may increase as
tax receivable agreement liabilities increase, or we expand operations
internationally and add complexity to our operations.
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Benefit (expense) from Income Taxes
ZoomInfo OpCo is currently treated as a pass-through entity for U.S. federal
income tax purposes and most applicable state and local income tax purposes.
Benefit (expense) from income taxes, 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 subsidiaries, RKSI Acquisition Corporation and
Zebra Acquisition Corporation, are subject to income taxes in the United States
and hold noncontrolling interests in our subsidiary, ZoomInfo Technologies LLC.
ZoomInfo Technologies LLC is treated as a partnership for U.S. federal and most
applicable state and local income tax purposes. Any taxable income or loss
generated by ZoomInfo Technologies LLC is passed through to and included in the
taxable income or loss of its partners, including ZoomInfo LLC, RKSI Acquisition
Corporation, and Zebra Acquisition Corporation. However, because RKSI
Acquisition Corporation and Zebra Acquisition Corporation are subject to income
taxes in both the United States and foreign jurisdictions, income allocated to
such corporate subsidiaries for tax purposes reduces the taxable income
allocated to and distributions made to ZoomInfo OpCo. Significant judgments and
estimates are required in determining our consolidated income tax expense. See
Note 2 to our audited consolidated financial statements included in Part II,
Item 8 of this Form 10-K for additional information.
After consummation of the Reorganization Transactions, ZoomInfo Technologies
Inc. became subject to U.S. federal income taxes with respect to our allocable
share of any U.S. taxable income of ZoomInfo OpCo, and is taxed at the
prevailing corporate tax rates. ZoomInfo Technologies Inc. is treated as a U.S.
corporation for U.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. The limited liability company agreement of ZoomInfo OpCo, provides
that certain distributions to cover the taxes of the ZoomInfo Tax Group and
ZoomInfo Technologies Inc.'s obligations under the tax receivable agreements
will be made. See Note 18 to our audited consolidated financial statements
included in Part II, Item 8 of this Form 10-K. However, our ability to make such
distributions may be limited due to, among other things, restrictive covenants
in our secured credit facilities. In addition, because RKSI Acquisition
Corporation and Zebra Acquisition Corporation will continue to be subject to
income taxes in the United States, income allocated to such corporate
subsidiaries for tax purposes will reduce the distributions made to ZoomInfo
OpCo, thereby reducing our allocable share of U.S. taxable income of ZoomInfo
OpCo. See "Risk Factors - Risks Related to Our Organizational Structure" in Part
I, Item 1A of this Form 10-K.
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Results of Operations
The following table presents our results of operations for the years ended
December 31, 2020, 2019, and 2018:
                                                                     Year Ended December 31,
($ in millions)                                            2020                2019                2018
Revenue                                               $     476.2          $    293.3          $    144.3
Cost of service:
Cost of service(1)                                           84.2                43.6                30.1
Amortization of acquired technology                          23.3                25.0                 7.7
Gross profit                                                368.7               224.7               106.5
Operating expenses:
Sales and marketing(1)                                      184.9                90.2                42.4
Research and development(1)                                  51.4                30.1                 6.1
General and administrative(1)                                62.8                35.1                20.8
Amortization of other acquired intangibles                   18.7                17.6                 7.0
Restructuring and transaction related expenses               13.8                15.6                 3.6
Total operating expenses                                    331.6               188.6                79.9
Income (loss) from operations                                37.1                36.1                26.6
Interest expense, net                                        69.3               102.4                   58.2
Loss on debt extinguishment                                  14.9                18.2                   -
Other (income) expense, net                                 (15.4)                  -                (0.1)
Income (loss) before income taxes                           (31.7)              (84.5)              (31.5)
Benefit (expense) from income taxes                          (4.7)                6.5                    2.9
Net income (loss)                                           (36.4)              (78.0)              (28.6)

Less: Net income (loss) attributable to ZoomInfo OpCo prior to the Reorganization Transactions

                     (5.1)              (78.0)              (28.6)
Less: Net income (loss) attributable to
noncontrolling interests                                    (27.3)                  -                   -
Net income (loss) attributable to ZoomInfo
Technologies Inc.                                     $      (4.0)         $        -          $        -


__________________

(1)Includes equity-based compensation expense as follows:

                                                   Year Ended December 31,
($ in millions)                                  2020            2019        2018
Cost of service                            $     27.4          $  4.0      $  8.3
Sales and marketing                              62.6            11.2        15.8
Research and development                         13.6             4.7         1.1
General and administrative                       18.0             5.2         7.5

Total equity-based compensation expense $ 121.6 $ 25.1 $ 32.7

Year Ended December 31, 2020 and Year Ended December 31, 2019
Revenue. Revenue was $476.2 million for the year ended December 31, 2020, an
increase of $182.9 million, or 62%, as compared to $293.3 million for the year
ended December 31, 2019. This increase was primarily due to the addition of new
customers over the past 18 months and net expansion with existing customers,
and, to a lesser extent, due to the recognition of revenue for renewed contracts
at the contracted value, as opposed to the fair value ascribed to acquired
contracts under purchase accounting during the prior year period or recognized
by Pre-Acquisition ZI before the acquisition on February 1, 2019.
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Cost of Service. Cost of service was $107.5 million for the year ended
December 31, 2020, an increase of $38.8 million, or 57%, as compared to $68.7
million for the year ended December 31, 2019. The increase was primarily due to
additional stock-based compensation expense related to grants previously made by
HSKB, modified in December 2019, and triggered by the IPO. Additional expenses
related to additional headcount and hosting expense to support new and growing
customers also contributed to the increase.
Operating Expenses. Operating expenses were $331.6 million for the year ended
December 31, 2020, an increase of $143.0 million, or 76%, as compared to
$188.6 million for the year ended December 31, 2019. The increase was primarily
due to additional stock-based compensation expense related to grants previously
made by HSKB, modified in December 2019, and triggered by the IPO. Excluding
stock-based compensation expenses, operating expenses were $237.5 million for
the year ended December 31, 2020, an increase of $70.0 million, or 42%, as
compared to $167.5 million for the year ended December 31, 2019. The increase
was primarily due to:
•an increase in sales and marketing expense (excluding an increase in
stock-based compensation of $51.3 million) of $43.4 million, or 55%, to
$122.4 million for the year ended December 31, 2020, due primarily to additional
headcount and related salaries and benefits expenses added to drive continued
incremental sales, as well as additional commission expense and amortization of
deferred commissions related to obtaining contracts with customers;
•an increase in research and development expense (excluding an increase in
stock-based compensation of $8.9 million) of $12.5 million, or 49%, to
$37.8 million for the year ended December 31, 2020, due primarily to additional
engineering and product management resources added to support continued
innovation of our services;
•an increase in general and administrative expense (excluding an increase in
stock-based compensation of $12.8 million) of $14.8 million, or 49%, to
$44.8 million for the year ended December 31, 2020, due primarily to additional
headcount and related salaries and benefits expenses to support the larger
organization and additional corporate expenses related to operating as a public
company, which were partially offset by a decrease in integration-related
expenses in the year ended December 31, 2019, which did not recur in the year
ended December 31, 2020;
•an increase in amortization of acquired intangibles expense of $1.1 million, or
6%, to $18.7 million for the year ended December 31, 2020, due to amortization
expense related to intangible assets acquired in the Zoom Information
Acquisition during the full period for the current year; and
•restructuring and transaction-related expense of $13.8 million for the year
ended December 31, 2020, that were primarily related to the IPO. This
represented a decrease of $1.8 million, or 12%, as compared to expense of
$15.6 million for the year ended December 31, 2019, that were related to the
Zoom Information Acquisition.
Interest Expense, Net. Interest expense, net was $69.3 million for the year
December 31, 2020, a decrease of $33.2 million, or 32%, as compared to
$102.4 million for the year ended December 31, 2019. The decrease was primarily
due to interest savings resulting from the repayment of our second lien term
loans in full and $100.0 million of first lien term loans, offset by
nonrecurring interest expense recognized upon partial dedesignation of cash flow
hedges resulting from reclassification from accumulated other comprehensive
income (loss).
Loss on Debt Extinguishment. Loss on debt extinguishment was $14.9 million for
the year ended December 31, 2020, related to penalties and derecognition of
deferred and unamortized debt issuance costs resulting from the repayment of the
second lien term loans and $100.0 million first lien term loan principal
repayment after the IPO. This represented a decrease of $3.2 million, or 18%, as
compared to expense of $18.2 million for the year ended December 31, 2019,
related to costs incurred with respect to prior debt instruments that were
repaid in conjunction with the Zoom Information Acquisition in February 2019.
Other (Income) Expense, Net. Other (income) expense, net was $(15.4) million for
the year ended December 31, 2020, a decrease of $15.4 million, as compared to
$0.0 million for the year ended December 31, 2019, primarily due to the
recognition of a TRA remeasurement gain of $15.7 million.
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Benefit (expense) from Income Taxes. Income tax benefit (expense) for the year
ended December 31, 2020 was $(4.7) million (a (14.8)% effective tax rate)
compared to $6.5 million (a 7.7% effective tax rate) for the year ended
December 31, 2019. The decrease in the effective tax rate was primarily due to a
GAAP loss driven by non-deductible stock-based compensation expense resulting in
positive tax expense despite the GAAP loss. Furthermore, the reorganization
transactions resulted in a higher proportion of GAAP earnings being allocated to
tax paying entities.
Year Ended December 31, 2019 and Year Ended December 31, 2018
Revenue. Revenue was $293.3 million for the year ended December 31, 2019, an
increase of $149.1 million, or 103%, as compared to $144.3 million for the year
ended December 31, 2018. This increase was primarily due to new customers
acquired in the acquisitions of Pre-Acquisition ZI, NeverBounce, and Komiko, as
well as the organic addition of new customers and net expansion with existing
customers. Excluding the impact of the legacy platform contracts with customers
acquired in the purchases of Pre-Acquisition ZI, NeverBounce, and Komiko, and
the renewals and upsells thereof, revenue increased by $60.5 million. The
increase in revenue, excluding the impact of customers acquired, was primarily
driven by sales to new customers and, to a lesser extent, by the addition of
additional subscriptions to existing customers, offset by cancellations and
subscription reductions upon renewal. As of December 31, 2019, we had over
14,000 customers, an increase of about 3,000 customers, or 25%, as compared to
over 11,000 customers on a combined basis, including non-overlapping customers
of Pre-Acquisition ZI, as of December 31, 2018. As of December 31, 2019, over
580 of our customers spent more than $100,000 in ACV, an increase of
approximately 200 customers, or 53%, as compared to over 380 customers of
ZoomInfo and Pre-Acquisition ZI on a combined basis who spent more than $100,000
in ACV, as of December 31, 2018. On a pro forma basis, the combined revenue of
ZoomInfo OpCo and Pre-Acquisition ZI would have been $334.2 million for the year
ended December 31, 2019, an increase of $128.4 million, or 62%, as compared to
$205.8 million for the year ended December 31, 2018, calculated as if the
acquisition had occurred on January 1, 2018.
Cost of Service. Cost of service was $68.7 million for the year ended
December 31, 2019, an increase of $30.8 million, or 81%, as compared to $37.9
million for the year ended December 31, 2018. The increase was primarily due to
additional amortization of acquired technology that arose from the Zoom
Information Acquisition and additional headcount and hosting expense to support
acquired and new customers. On a pro forma basis, the combined cost of services
of ZoomInfo OpCo and Pre-Acquisition ZI would have been $70.7 million for the
year ended December 31, 2019, an increase of $9.9 million, or 16%, as compared
to $60.9 million for the year ended December 31, 2018, calculated as if the
acquisition had occurred on January 1, 2018.
Operating Expenses. Operating expenses were $188.6 million for the year ended
December 31, 2019, an increase of $108.7 million, or 136%, as compared to $79.9
million for the year ended December 31, 2018. The increase was primarily due to:
•an increase in sales and marketing expense of $47.8 million, or 113%, to
$90.2 million for the year ended December 31, 2019, due primarily to additional
sales and marketing resources added through the Zoom Information Acquisition and
additional hiring to drive continued incremental sales;
•an increase in research and development expense of $24.0 million, or 392%, to
$30.1 million for the year ended December 31, 2019, due primarily to additional
engineering and product management resources added through the Zoom Information
Acquisition;
•an increase in general and administrative expense of $14.4 million, or 69%, to
$35.1 million for the year ended December 31, 2019, due primarily to additional
resources added through the Zoom Information Acquisition and additional hiring
to support the larger organization;
•an increase in amortization of acquired intangibles expense of $10.6 million,
or 153%, to $17.6 million for the year ended December 31, 2019, due to
additional amortization expense related to intangible assets acquired in the
Zoom Information Acquisition; and
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•an increase in restructuring and transaction-related expense of $12.0 million,
or 334%, to $15.6 million for the year ended December 31, 2019, due to expenses
incurred in completing the Zoom Information acquisition of Pre-Acquisition ZI
and restructuring activities undertaken as part of and after the Zoom
Information Acquisition to rationalize certain research, engineering, and
general and administrative activities, offset by restructuring and
transaction-related expenses in the year ended December 31, 2018 related to the
investment in us by Carlyle and the NeverBounce acquisition that did not recur.
Interest Expense, Net. Interest expense, net was $102.4 million for the year
ended December 31, 2019, an increase of $44.3 million, or 76%, as compared to
$58.2 million for the year ended December 31, 2018. The increase was primarily
due to additional debt that we incurred to fund the Zoom Information
Acquisition, partially offset by decreasing LIBOR rates.
Loss on Debt Extinguishment. Loss on debt extinguishment was $18.2 million for
the year ended December 31, 2019, related to costs incurred with respect to
prior debt instruments that were repaid in conjunction with the Zoom Information
Acquisition in February 2019. There was no loss on debt extinguishment for the
year ended December 31, 2018.
Other (Income) Expense, Net. Other (income) expense, net was $0.0 million for
the year ended December 31, 2019, an increase of $0.1 million, or 67%, as
compared to $(0.1) million for the year ended December 31, 2018.
Benefit from Income Taxes. Income tax benefit (expense) for the year ended
December 31, 2019 was $6.5 million (a 7.7% effective tax rate) compared to
$2.9 million (a 9.1% effective tax rate) for the year ended December 31, 2018.
The decrease in the effective tax rate was primarily due to a decrease in the
impact of state taxes.
The pro forma results shown above with respect to our revenue and cost of
service include amortization of fair value adjustments to acquired intangible
assets and fair value adjustments to unearned revenue as if the acquisition had
occurred on January 1, 2018. Management believes presenting such pro forma
results is useful to investors because it demonstrates the significant impact on
revenue trends resulting from the Zoom Information Acquisition during the
periods presented, and the related fair value adjustments required under
purchase accounting that impact year-over-year comparisons. The pro forma
results shown above are provided for informational purposes only and is not
necessarily indicative of the operating results that would have occurred if the
acquisitions had occurred on January 1, 2018, nor is it indicative of our future
results.
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Liquidity and Capital Resources
As of December 31, 2020, we had $269.8 million of cash and cash equivalents,
$30.6 million of short-term investments, $1.2 million of restricted cash, and
$100.0 million available under our first lien revolving credit facility. In
February 2021, we entered into an amendment to our first lien credit agreement
which increased the aggregate commitments to $250.0 million 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. 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 in the
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 of December 31, 2020, we had unearned revenue of
$222.7 million, of which $221.3 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 Restructuring Transactions, ZoomInfo Technologies
Inc. became a holding company with no material assets other than its ownership
of HoldCo Units, and ZoomInfo HoldCo became a holding company with no material
assets other than its ownership of OpCo Units. ZoomInfo Technologies Inc. has no
independent means of generating revenue. The limited liability company agreement
of ZoomInfo OpCo provides that certain distributions to cover the taxes of the
ZoomInfo Tax Group and ZoomInfo Technologies Inc.'s obligations under the tax
receivable agreements will be made. The manager of ZoomInfo HoldCo has broad
discretion to make distributions out of ZoomInfo HoldCo. In the event ZoomInfo
Technologies Inc. declares any cash dividend, we expect that the manager of
ZoomInfo HoldCo would cause ZoomInfo HoldCo to cause ZoomInfo OpCo to make
distributions to ZoomInfo HoldCo, which in turn will make distributions to
ZoomInfo Technologies Inc., in an amount sufficient to cover such cash dividends
declared by us. Deterioration in the financial condition, earnings, or cash flow
of ZoomInfo OpCo and its subsidiaries for any reason could limit or impair their
ability to pay such distributions. In addition, the terms of our financing
arrangements, including the secured credit facilities, contain covenants that
may restrict ZoomInfo OpCo and its subsidiaries from paying such distributions,
subject to certain exceptions. Further, ZoomInfo HoldCo and ZoomInfo OpCo are
generally prohibited under Delaware 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 of ZoomInfo HoldCo or ZoomInfo OpCo (with certain
exceptions), as applicable, exceed the fair value of its assets. Subsidiaries of
ZoomInfo OpCo are generally subject to similar legal limitations on their
ability to make distributions to ZoomInfo OpCo. See "Risk Factors - Risks
Related to Our Organizational Structure" in Part I, Item 1A of this Annual
Report on Form 10-K.
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."
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Historical Cash Flows
The following table summarizes our cash flows for the periods presented:
                                                                Year Ended December 31,
($ in millions)                                              2020            2019         2018
Net cash provided by (used in) operating activities    $    169.6          $  44.4      $ 43.8
Net cash provided by (used in) investing activities        (113.3)          (736.7)      (13.1)
Net cash provided by (used in) financing activities         172.2           

725.8 (29.9) Net increase (decrease) in cash and cash equivalents $ 228.5 $ 33.5 $ 0.8

Cash Flows from (used in) Operating Activities
Net cash provided by operations was $169.6 million for the year ended
December 31, 2020 as a result of a net loss of $36.4 million, adjusted by
non-cash charges of $201.5 million and the change in our operating assets net of
operating liabilities of $4.5 million. The non-cash charges are primarily
comprised of depreciation and amortization of $50.8 million, equity-based
compensation of $121.6 million, loss on early extinguishment of debt of
$14.9 million, and amortization of deferred commission costs of $25.1 million,
partially offset by tax receivable agreement remeasurement of $15.7 million. The
change in operating assets net of operating liabilities was primarily the result
of an increase in unearned revenue of $60.1 million and an increase in accrued
expenses and other liabilities of $21.9 million, largely offset by an increase
in deferred costs and other assets of $40.0 million and an increase in accounts
receivable of $32.9 million.
Net cash provided by operations was $44.4 million for the year ended
December 31, 2019 as a result of a net loss of $78.0 million, adjusted by
non-cash charges of $93.8 million and a change of $28.6 million in our operating
assets and liabilities. The non-cash charges are primarily comprised of
depreciation and amortization of $48.7 million, equity-based compensation of
$25.1 million, and loss on debt extinguishment of $9.4 million. The change in
operating assets and liabilities was primarily the result of an increase in
unearned revenue of $71.9 million, and an increase in accrued expenses and other
liabilities of $18.2 million, partially offset by increases in accounts
receivable of $34.5 million and deferred costs and other assets of $27.8
million.
Net cash provided by operations was $43.8 million for the year ended
December 31, 2018 as a result of a net loss of $28.6 million, adjusted by
non-cash charges of $67.3 million and a change of $5.1 million in our operating
assets and liabilities. The non-cash charges are primarily comprised of $32.7
million in equity-based compensation, $17.3 million in depreciation and
amortization, and $16.4 million in paid-in-kind accrued interest. The change in
operating assets and liabilities was primarily the result of an increase in
unearned revenue of $15.0 million, partially offset by an increase in accounts
receivable of $8.9 million and in deferred costs and other assets of $3.3
million.
Restructuring and transaction-related cash costs for the year ended December 31,
2020 primarily related to cash IPO costs and 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 ended
December 31, 2020, 2019, and 2018, we incurred the following cash expenditures:
                                                                          Year Ended December 31,
(in millions)                                                   2020                  2019                2018
Cash interest expense                                    $      66.5

$ 95.0 $ 40.2 Restructuring and transaction-related expenses paid in cash(a)

$      13.1              $     12.8          $      3.6
Integration costs and acquisition-related compensation
paid in cash(b)                                          $      11.3              $     15.0          $      3.2


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(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
ended December 31, 2020, these payments related primarily to the IPO, including
professional fees, severance and acceleration of payments for terminated
employees, and deferred consideration. For the year ended December 31, 2019,
these payments related primarily to the acquisition of Pre-Acquisition ZI,
including professional fees, severance and acceleration of payments for
terminated employees, and deferred consideration. For the year ended December
31, 2018, these payments related primarily to Carlyle's investment in us.
(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 ended December 31, 2020, these
payments related primarily to cash vesting payments from the acquisition of
Pre-Acquisition ZI. For the year ended December 31, 2019, these payments related
primarily to activities resulting from the acquisition of Pre-Acquisition ZI,
including consulting and professional services costs, cash vesting payments (see
Note 4 - Business Combinations to our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K), and transaction bonuses and other
compensation, as well as payments of retention awards granted upon the Company's
acquisitions of RainKing and NeverBounce. For the year ended December 31, 2018,
these payments related primarily to retention awards granted upon our
acquisition of RainKing and transaction bonuses paid upon Carlyle's investment
in us.
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 ended December 31, 2020 was
$113.3 million, consisting of cash paid for acquisitions of $65.9 million,
purchases of short-term investments of $30.6 million, and purchases of property
and equipment and other assets of $16.8 million.
Cash used in investing activities for the year ended December 31, 2019 was
$736.7 million, primarily as a result of cash paid for acquisitions of $723.1
million and purchases of property and equipment and other assets of $13.6
million.
Cash used in investing activities for the year ended December 31, 2018 was
$13.1 million, primarily as a result of cash payments for the acquisition of
NeverBounce of $8.5 million and purchases of property and equipment and other
assets of $4.6 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 provided from financing activities for the year ended December 31, 2020 was
$172.2 million, primarily consisting of the IPO proceeds, net of the
underwriters discount, of $1,023.7 million, proceeds from debt of $35.0 million,
partially offset by the redemption of Series A Preferred Units of
$274.2 million, repayment of debt of $510.9 million, purchase of OpCo Units from
Pre-IPO OpCo Unitholders for $47.2 million, payments of deferred consideration
of $24.7 million, payment of IPO issuance costs of $7.2 million, and tax
distributions to equity partners of $9.9 million.
Cash provided from financing activities for year ended December 31, 2019 was
$725.8 million, primarily as a result of the issuance of new debt of $1,220.8
million and the Series A Preferred Unit issuance of $200.2 million, partially
offset by payments on long-term debt of $649.8 million, payment of debt issuance
costs of $16.7 million, and tax distributions to equity partners of $16.5
million.
Cash used in financing activities for year ended December 31, 2018 was
$29.9 million, primarily as a result of distributions to equity partners of
$93.4 million, partially offset by the issuance of new debt of $67.3 million.
Refer to Note 8 - Financing Arrangements of our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for additional
information related to each of our borrowings.
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Debt Obligations
As of December 31, 2020, the aggregate remaining balance of $756.4 million of
first lien term loans is due, in its entirety, at the contractual maturity date
of February 1, 2026, which represents the only existing required future debt
principal repayment obligations that will require future uses of the Company's
cash.
The first lien debt has a variable interest rate whereby the Company can elect
to use a Base Rate or LIBOR plus an applicable rate. The applicable margin is
2.75% to 3.00% for Base Rate loans or 3.75% or 4.00% for LIBOR Based Loans,
depending on the Company's leverage. On June 17, 2020, the Company used
approximately $101.2 million to prepay $100.0 million aggregate principal amount
of the first lien term loans outstanding under the First Lien Credit Agreement,
including accrued interest thereon of $1.2 million. The repayment was funded
with a portion of the net proceeds received from the initial public offering of
the Company's Class A common stock. As of December 31, 2020, $756.4 million
aggregate principal amount of term loans were outstanding under the First Lien
Credit Agreement. The interest related portion of the repayment was recorded
within Interest expense, net in its Consolidated Statements of Operations, and
represented use of cash from operating activities in the Consolidated Statements
of Cash Flows. The quarterly repayment requirement on first lien borrowings has
been satisfied for the remainder of the term after the $100.0 million principal
payment. The effective interest rate on the first lien debt was 4.3% and 7.5% as
of December 31, 2020 and December 31, 2019, respectively.
Our consolidated first lien net leverage ratio is defined in our first lien
credit agreement, and the EBITDA used for that ratio ("Credit Agreement EBITDA")
differs from Adjusted EBITDA due to certain defined add-backs, including pro
forma cost savings from synergies and cash generated from changes in unearned
revenue; see table below for reconciliation. Credit Agreement EBITDA for the 12
months ended December 31, 2020 was $291.5 million. Our consolidated first lien
net leverage ratio as of December 31, 2020 was 1.9x.
                                                                         Trailing Twelve Months as of
(in millions)                                                                  December 31, 2020
Net income (loss)                                                       $                      (36.4)
Benefit (expense) from income taxes                                                              4.7
Interest expense, net                                                                           69.3
Loss on debt extinguishment                                                                     14.9
Depreciation                                                                                     8.9
Amortization of acquired technology                                                             23.3
Amortization of other acquired intangibles                                                      18.7
EBITDA                                                                                         103.4
Other (income) expense, net(a)                                                                 (15.4)
Impact of fair value adjustments to acquired unearned revenue(b)                                 2.6
Equity-based compensation expense                                                              121.6
Restructuring and transaction related expenses(c)                                               13.8
Integration costs and acquisition-related expenses(d)                                            9.0
Adjusted EBITDA                                                                                234.8
Unearned revenue adjustment                                                                     56.2
Pro forma cost savings                                                                           0.3
Cash rent adjustment                                                                            (0.7)
Other lender adjustments                                                                         0.9
Credit Agreement EBITDA                                                 $                      291.5


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(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.
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(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,
2020, this expense related primarily to professional fees for the preparation
for an initial public offering and deferred acquisition cost revaluations.
(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, 2020, this expense
related primarily to cash vesting payments from the acquisition of
Pre-Acquisition ZI. 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)                                                                          2020
Cost of service                                                             $                    0.4
Sales and marketing                                                                              3.5
Research and development                                                                         4.1
General and administrative                                                                       1.1
Total integration costs and acquisition-related expenses                    $                    9.0


In addition, our 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.
In February 2021, ZoomInfo Technologies LLC and ZoomInfo Finance Corp., indirect
subsidiaries of ZoomInfo Technologies Inc., completed an offering of $350.0
million in aggregate principal amount of 3.875% senior notes due 2029. We used
all of the net proceeds, along with cash on hand, to consummate the Debt
Prepayment.. Following the Debt Prepayment, as of February 2, 2021, $400.0
million aggregate principal amount of first lien term loans were outstanding
under our first lien credit agreement.
In February 2021, ZoomInfo LLC entered into an amendment to our first lien
credit agreement, pursuant to which, among other things, there will be (i) an
increase in the aggregate commitments to $250.0 million under our first lien
revolving credit facility, (ii) the addition of the ZoomInfo Technologies LLC as
a co-borrower, (iii) the repricing of our first lien term loan facility and
first lien revolving credit facility and (iv) an extension of the maturity date
of our first lien revolving credit facility to November 2025.
Capital Expenditures
Capital expenditures increased by $3.2 million, or 24%, to $16.8 million in the
year ended December 31, 2020 compared to the year ended December 31, 2019. The
increase reflects increased capital expenditures to support the larger company
and greater capitalization of internal development costs.
Capital expenditures increased by $9.0 million, or 196%, to $13.6 million in the
year ended December 31, 2019 compared to the year ended December 31, 2018. 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
the ZoomInfo Tax Group to such Pre-IPO Owners and certain Pre-IPO HoldCo
Unitholders of 85% of the benefits, if any, that the ZoomInfo 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 the
ZoomInfo Tax Group to certain Pre-IPO OpCo Unitholders and certain Pre-IPO
HoldCo Unitholders of 85% of the benefits, if any, that the ZoomInfo Tax Group
is deemed to realize (calculated using certain assumptions) as a result of (i)
the ZoomInfo Tax Group's allocable share of existing tax basis acquired in the
IPO and (ii) increases in the ZoomInfo 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 the ZoomInfo Tax Group as a result of sales or
exchanges of OpCo Units for shares of Class A 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 by ZoomInfo Technologies Inc. to Pre-IPO
Blocker Holders and certain Pre-IPO HoldCo Unitholders of 85% of the benefits,
if any, that the ZoomInfo Tax Group is deemed to realize (calculated using
certain assumptions) as a result of the ZoomInfo Tax Group's utilization of
certain tax attributes of the Blocker Companies (including the ZoomInfo 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) the ZoomInfo Tax Group's
depreciation and amortization deductions and, therefore, may reduce the amount
of tax that the ZoomInfo Tax Group would otherwise be required to pay in the
future, although the IRS 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
the ZoomInfo Tax Group's allocable share of existing tax basis and the
anticipated tax basis adjustments upon exchanges of OpCo Units for shares of
Class A 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 the ZoomInfo Tax Group (calculated with certain assumptions) to
the amount of such taxes that the ZoomInfo Tax Group would have been required to
pay had there been no existing tax basis, no anticipated tax basis adjustments
of the assets of the ZoomInfo 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 had ZoomInfo
Technologies 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 Technologies 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
Technologies 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 if ZoomInfo Technologies Inc. had exercised its right to terminate
the tax receivable agreements, or (iii) there is a change of control of ZoomInfo
Technologies 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 the timing
of exchanges, the price of shares of our Class A common stock at the time of the
exchange, the extent to which such exchanges are taxable, the amount of tax
attributes, and the amount and timing of our income.
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We expect that as a result of the size of the ZoomInfo Tax Group's allocable
share of existing tax basis acquired in the IPO, the increase in the ZoomInfo
Tax Group's allocable share of existing tax basis and the anticipated tax basis
adjustment of the tangible and intangible assets of the ZoomInfo Tax Group upon
the exchange of OpCo Units for shares of Class A common stock and our possible
utilization of certain tax attributes, the payments that ZoomInfo Technologies
Inc. may make under the tax receivable agreements will be substantial. We
estimate the amount of existing tax basis with respect to which our Pre-IPO
Owners will be entitled to receive payments under the tax receivable agreements
(assuming all Pre-IPO OpCo Unitholders exchange their outstanding OpCo Units
(together with a corresponding number of shares of Class B common stock) for
shares of Class A common stock on December 31, 2020) is approximately
$295.2 million (assuming a price of $48.23 per share of Class A common stock,
which is the last reported sale price of our Class A common stock on the Nasdaq
on December 31, 2020). The payments under the tax receivable agreements are not
conditioned upon continued ownership of us by the exchanging holders of OpCo
Units. See Note 18 to our audited consolidated financial statements included in
Part II Item 8 of this Form 10-K.
Contractual Obligations and Commitments
The following table summarizes our material contractual obligations as of
December 31, 2020 and the years in which these obligations are due:
                                                                            

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)               $  756.4          $        -        

$ - $ - $ 756.4 Operating leases(2)

                         44.1                 7.5                16.3                 18.9                  1.4
Deferred or contingent consideration(3)     11.8                11.8                                        -                    -
Purchase obligations(4)                     18.5                11.7                 6.7                  0.1                    -
Total contractual obligations           $  830.8          $     31.0

$ 23.0 $ 19.0 $ 757.8

__________________

(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 consolidated financial statements included
elsewhere in this Annual Report on 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 lease agreements executed after
December 31, 2020.
(3)Includes deferred consideration related to the Zoom Information Acquisition
and contingent consideration related to the Komiko acquisitions at
non-discounted, currently estimated payout amounts. Acquisitions and related
deferred or contingent consideration are discussed in Note 4 - Business
Combinations to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K. Estimated contingent consideration is subject to
change depending on results of factors each 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.
Off-Balance Sheet Arrangements
As of December 31, 2020, there were "no off-balance sheet arrangements," as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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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 in the 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 by U.S. GAAP with no need for the
application of judgment.
In certain circumstances, however, the preparation of consolidated financial
statements in conformity with U.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, 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-cancellable.
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.
Determining the transaction price often involves judgments and estimates that
can have a significant impact on the timing and amount of revenue reported. At
times, the Company may adjust billing under a contract based on the addition of
services or other circumstances, which are accounted for as variable
consideration. The Company estimates these amounts based on historical
experience and reduces revenue recognized.
Equity-Based Compensation
Equity instruments issued in exchange for services performed by officers,
employees, and directors of the Company are accounted for using a fair-value
based method, and the fair value of such equity instruments are recognized as
expense in the consolidated statements of operations. Historically, the Company
has issued profits interests to employees and officers with a return threshold
that is set based on the fair value of the Company, as determined by the board
of directors.
Equity-based compensation expense is measured at the grant date of the
equity-based awards that vest over set time periods. Compensation expense is
recognized on a straight-line basis over the requisite services period. For
profits interests, fair value is estimated using the Black-Scholes
option-pricing model. We determine the assumptions for the option-pricing model
as follows:
•Risk-free interest rate - The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the date closest to the grant date for
zero-coupon U.S. Treasury notes with maturities approximately equal to the
expected life of the equity grants.
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•Expected life - The expected life represents the period of time that the
equity-based awards are expected to remain outstanding, giving consideration to
vesting schedules and forfeiture patterns.
•Volatility - The volatility is based on the historical volatility of the stock
prices for comparable companies with a look-back period consistent with the
expected life.
•Dividend yield - The dividend yield is assumed to be zero.
Equity-based compensation that vests based on a performance event, such as a
liquidity event, begins to be recognized at the date that the performance event
becomes probable, and compensation expense is recognized on a straight-line
basis over any remaining service period. As of January 1, 2019, the Company
adopted ASU 2018-07 and upon the adoption, the Company determined the fair value
of outstanding non-vested, non-employee awards and will recognize expense in the
same periods and in the same manner as if the Company were to pay cash to the
recipient in lieu of the non-employee award. Performance vesting programs are
primarily payable in cash from an upper-tier holder of Company equity units
based on the appreciation of such units. These awards were modified in December
2019 to add an alternative performance and time vesting condition and to also
permit settlement through exchange into the Company's shares in addition to the
existing cash-settlement option. The Company re-determined the fair value of
these outstanding non-vested, non-employee awards at the time of the
modification in December 2019. The modified fair value of these incentive units
is based on the Company's underlying common unit equivalent.
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.
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.
Goodwill and Acquired Intangible Assets
Goodwill is calculated as the excess of the purchase consideration paid in a
business combination over the fair value of the assets acquired less liabilities
assumed. Goodwill is not amortized, but instead is assigned to each of the
Company's reporting units and is tested for impairment at least annually or when
events and circumstances indicate that fair value of a reporting unit may be
below its carrying value. The Company has one reporting unit.
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We first assess qualitative factors to evaluate whether it is more likely than
not that the fair value of a reporting unit is less than the carrying amount or
elect to bypass such assessment. If it is determined that it is more likely than
not that the fair value of the reporting unit is less than its carrying value,
or we elect to bypass the qualitative assessment, we perform a quantitative test
by determining the fair value of the reporting unit. The estimated fair value of
the reporting unit is based on a projected discounted cash flow model that
includes significant assumptions and estimates, including the discount rate,
growth rate, and future financial performance. Valuations of similarly situated
public companies are also evaluated when assessing the fair value of the
reporting unit. If the carrying value of the reporting unit exceeds the fair
value, then an impairment loss is recognized for the difference.
Acquired technology, customer lists, trade names or brand portfolios, and other
intangible assets are related to previous acquisitions. Acquired intangible
assets determined to have definite lives are amortized on a straight-line basis
over the estimated period over which we expect to realize economic value related
to the intangible asset. The amortization periods range from two years to 15
years. Acquired intangible assets determined to have indefinite lives are not
amortized, but rather tested for impairment annually, or more often if and when
events or circumstances indicate that the carrying value may not be recoverable.
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, in U.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 of December 31,
2020, the Company had a liability of $271.0 million related to its projected
obligations under the Tax Receivable Agreements in connection with the
Reorganization Transactions and OpCo units exchanged. For the year ended
December 31, 2020, we recognized a TRA remeasurement gain of $15.7 million. See
Note 18 - Tax Receivable Agreements 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 Technologies Inc. is a corporation and is subject to U.S. federal as
well as state income tax related to its ownership percentage in ZoomInfo
Holdings LLC. ZoomInfo Holdings LLC is a limited liability company treated as a
partnership for U.S. federal income tax purposes and files a U.S. Return of
Partnership Income. Consequently, the members of ZoomInfo Holdings are taxed
individually on their share of earnings for U.S. federal and state income tax
purposes. However, ZoomInfo Holdings is subject to the Texas Margins Tax.
Additionally, our operations in Israel are subject to local country income
taxes. See Note 19 - Income Taxes for additional information regarding income
taxes.
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JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS
Act, emerging growth companies can delay adopting new or revised accounting
standards issued subsequent to the enactment of the JOBS Act until such time as
those standards apply to private companies. We have elected to use this extended
transition period for complying with new or revised accounting standards that
have different effective dates for public and private companies until the
earlier of the date we (i) are no longer an emerging growth company or
(ii) affirmatively and irrevocably opt out of the extended transition period
provided in the JOBS Act. As a result, our financial statements may not be
comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Recently Issued Accounting Pronouncements
Refer to Note 2 - Basis of Presentation and Summary of Significant Accounting
Policies of our consolidated financial statements included in Item 8 of this
Form 10-K regarding recently issued accounting pronouncements.
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