ZoomInfo Technologies Inc. (GTM) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. My name is Stan Zlotsky, and I'm part of the Morgan Stanley software research team. Thank you so much for joining us this afternoon. Before we get started, a quick disclaimer. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that out of the way, we have the pleasure of hosting the CEO and CFO of ZoomInfo this afternoon, Henry and Cameron. Good afternoon, gentlemen. How are you?

Good. How are you, Stan?

I'm doing great. Thank you so much, and we're really excited to chat with you today.

So maybe kind of digging into it, right? You've been now in the public domain for a couple of quarters, and most investors are fairly familiar with the ZoomInfo story, but maybe just start from a high level. From your perspective, as much as this conference, right, is all about what's happening during COVID and how is the world positioning for life after COVID. Before we can get to the what's happening to the life after COVID, as you've gone through 2020, what have you seen that has gone particularly well for you this year?

Yes. So I think just from a high level, what ZoomInfo does is it helps sellers and marketers identify their next customer. It gives them the information that they need to connect with them, give them tools and technologies to know when to connect with them, what to say and how to actually engage. And in March, when kind of the stay-at-home order hit across the country, we took a step back. We refocused on the business. We looked at sort of what was going well, where we needed to refocus our efforts from a go-to-market perspective, from a product perspective. And I think like the planning that we did in March really lined us up for success over the coming quarters. And that was from a go-to-market execution perspective, from an enterprise perspective, the focus -- the focus that we put on the product and making sure that we're focused on increasing levels of engagement across our product suite and making sure that our customers, who are adopting the solutions, were adopting them more and more, and were understanding the whole suite of products that we had built. And so I think a lot of the planning that we did in March set us up really well for the coming months.

Okay. Awesome. And you guys are really at the forefront of how B2B organizations are adopting to getting business done in this virtual environment. And at the same time, a lot of B2B relationships are really all about knowing people and seeing people and shaking hands. What role do you think software tools like yours really play in this entire selling cycle and as this entire selling cycle really goes from like this in-person to the virtual environment?

Yes. So I think a big role. And Stan, I think when we first met, the pandemic wasn't on our minds yet when we were first kind of gearing up to go public. And back then, what we were saying was, look, going to market today -- the way companies go to market today is largely inefficient. They have sellers who are out in the field, they're traveling all across the country, taking people out to dinners and fall games and events. And then they're building those types of relationships that they're leveraging in the future to sort of close new business. And what we were saying at the time is like, look, that's an incredibly inefficient way to go to market. Companies have invested in tools that were supposed to digitize and modernize the way that their sellers worked and went to market around CRM and marketing automation tools. Yet they weren't getting the value out of those tools and they hadn't really modernized that new go-to-market motion. And so this highly inefficient motion of traveling around the country and using field sales teams was the biggest way you saw sort of enterprises attack markets. And then and now, we were saying, look, there's a better way to do this. There are data and insights about your customers and your prospects that are available, that are -- your prospects are changing, your customers are changing. You don't have visibility into that change. You don't have that visibility sitting inside of your go-to-market systems. If you want to make your sellers efficient, we can deliver them these insights, we can deliver them this data. You can go to market in a more efficient way than you are today. And you saw sort of forward-leaning companies come to the table and say like, yes, we totally agree. It's crazy that we're still going to market in this very analog way and we want to digitize the way our sellers are going to market, and they were adopting ZoomInfo. And then you saw kind of the pandemic hit and a lot of sort of slow to evolve industries, sort of go, okay, we -- this is something we've been talking about. It's something that we said we were going to do. And now by necessity, we need to put our foot in and start doing these things. And so you do see these companies really working to digitize the way they go to market. Interestingly, you've seen departments across the corporate spectrum modernize. You've seen -- obviously, IT modernized, and they've modernized collaboration, they modernized marketing, they modernized the way IT and engineering build tools, they modernized security. And sales feels like the last place in the corporate sphere to be digitized and modernized. And so we feel like we're in a really good position to help companies do that as they come to the realization that this is the last place in the company that they're still sort of relying on boots on the ground to grow.

Yes. I mean it's definitely a big transformation and a big paradigm shift that we're seeing really unfolding in front of our eyes. So as on Monday, we had news, vaccine is coming along nicely. As that -- the world really starts to return to this more normal environment, what do you think happens to how businesses sell?

Yes. I mean, look, I think -- first, I think as we get to a little bit more of a normalized environment, I think the last people who are going to be invited inside of the company's doors are sellers and vendors. So I think even as you think about the vaccine coming online and everything, sort of the last people who are going to make it back into not their office are sellers in the field. That being said, look, I think companies -- the biggest conversation I'm having with our enterprise clients today is they're telling us, look, we have CRM. We have a CRM system. The sellers don't go into it, and they don't particularly like going into it because they feel like it's a mechanism for us to like just do reporting on them and track their activity. And I want CRM to be a place that they go to get insights from. I want them going in there to learn about their prospects, to learn about their customers, to get that next piece of insight that drives our next sale, but that vision for what I want CRM to be and the reality of where we are today is far away. And we want to transform this system of record to truly a system of insight. And I have that conversation over and over and over. There's not a single enterprise client I sat down with where they don't offer that up as something that they want to be doing. And so pre-COVID, post-COVID, that is something that companies want to see accomplished, and they need data, and they need insights and they need technology that lives inside of CRM that can deliver that to their sales team, that can deliver that vision for their sales teams. And we've been delivering that for our clients all this year, from our InboxAI product that does automated data capture and puts it into CRM from e-mail to our platform and our analytics that we can deliver directly inside of CRM, such as data cleansing and hygiene that we're able to do. A lot of these companies go out, they do a Salesforce implementation. They take a beta group of people, put them on the platform, and inevitably, they go, wait a second, the data in here is -- I know this is not the CEO, the CFO and the VP of Sales of this company. How am I supposed to use this? And so we've seen companies get in that position, take a step back and go, okay, we need to think holistically about the data in these systems because they can either be a strategic asset or an impediment to adoption of these systems. So we're in a strategic place now, and the IPO helped us get a strategic seat at the table when they're having these conversations. And it's a conversation that we're uniquely positioned to help them solve.

So in that scenario, right, it certainly feels like ZoomInfo -- the right question is not to ask whether ZoomInfo is more or less helpful in that new scenario, but it's more like, hey, is this the new normal, right? Is this the way that the progressive companies are now going to get business done on a going-forward basis? And essentially is using tools like ZoomInfo the way to get the business done regardless of we're in pandemic or we're in the normal times? Is that the right way to think about it?

Yes. I think that is the right way to think about it. There's a McKinsey study that came out this quarter that went out and talked to a bunch of business-to-business leaders and business-to-business buyers of technology and product, and only 20% of B2B buyers expected or wanted to go back to the old way of buying things in person, meetings and events and conferences. 80% of the people said, look, this is a new normal that we want, that we like, and we'd like to continue buying products in this digital way. And so I don't think that's something that's going to change. I also think, look, this is an efficiency and effectiveness game. We think that technology tools like ours makes going to -- make going to market much more efficient. And once companies get a taste of that, they don't go back. In the history of like analog to digital transformation, no one goes digital and goes, you know what, I kind of like -- I like the horse and buggy a little bit better. So it's unlikely that we see people go back. And they're going to see their counterparts getting efficiency and effectiveness gains by relying on and leveraging these digital tools in the go-to-market motion, and I think it's going to become ubiquitous.

So the one thing that I think has become quite apparent, right, before COVID started and just us working together and really learning about ZoomInfo is exactly say, the efficiency play, right? Nobody goes back to the horse and buggy days after you experienced digital transformation. But at the same time, right, we're almost 8 months into this pandemic, but you guys are -- you just reported outstanding Q3 results. You're still picking up a lot of customers, right? Who are these customers who somehow managed to survive through the first 8 months of the pandemic, and they're just now kind of getting the wake up call, hey, we -- there's a better way to do this. What's the profile of these companies?

Yes. I mean, look, first, it was our biggest net new customer add quarter in our history. And we sit in a very large total addressable market, a more than $30 billion total addressable market. We're single-digit penetrated in that market. And so lots of companies, companies of all sizes, across all industries, across the globe that haven't quite gotten there on making this efficiency play from a digitization of their sales teams. And like even in a world where there are horse and buggy, the horse and buggy still get you from point A to point B. They just do it in a much more laborious, painful way than a car gets you from point A to point B. And so I still think like we are a software that is sold and is not particularly bought. And you see that in our land-and-expand motion where we go into companies in a small way and we grow our footprint across those companies. I think the benefit that we have is that we're quick time to value in the sales team. You can buy on a Monday, get deployed on a Wednesday and be seeing value on a Friday. And so I think like we'll continue to land these clients and then grow them over time as they're able to see the ROI that we're able to generate across different departments and different teams. But we're seeing customers of all different sizes, some of the most -- some of the companies that you would imagine would be the most sophisticated companies in their -- in all of their efforts, you see them not digitizing their sales teams. There's a company that we brought on in the quarter who is a publicly traded company, the annual report literally says that going to market and excellent execution on sales is one of their key pillars, and they weren't using us to digitize their sales effort. And so there's still a huge market available to us.

Got it. Got it. Well, maybe we can get Cameron involved in the conversation as well. One of the things that I found to be really interesting coming out of Q3 earnings and that you guys mentioned was, if you just look across your installed base, you have almost $1 billion to go after within your existing customers' installed bases. How did you guys arrive at that number? Is it -- what are the drivers to truly be able to monetize that? Is it a function of just selling to new departments within those customers, new use cases? Or is it just literally expansion within the existing sales teams there?

So it is -- we took a conservative approach into how we were modeling that out, and literally went into our platform, determined, as Morgan Stanley might be an example, how many salespeople are there within Morgan Stanley? How many seats do we have today? What's the expansion opportunity that we can go out and execute against? And when we think about that, that's the $1 billion of opportunity that we've identified. Above and beyond that, there's additional use cases, there's the potential to go to marketing [ realization ] there in the future, potentially [indiscernible]. But we were much more focused on just, if we go wall to wall with our enterprise clients, we have some where we are wall to wall today, but the vast majority are small groups within those clients that we can continue to penetrate. And at some level, that's the blessing and the curse of our model. Our system and platform can be useful to a single person or a small group within an organization. It's not like a Salesforce or an SAP or something that you have to deploy across the organization in order to really get the benefit. It's useful to each individual person and, obviously, that usefulness expands exponentially as you roll it out to the entire organization and get those efficiencies across a broad group. But the good thing about the land and expand, as we can go in, we can sell a small deal, we can sell it quickly. We can start to generate value for the customer and then use that as a proof point to sell it to other parts of the organization going forward.

Got it. That makes a lot of sense. And Cameron, maybe staying with you, right, when you think about -- when you're doing your long-range planning into 2021 and beyond, do you guys actively try to figure out and say, okay, well, when is the vaccine going to be available? When are we going to be able to put salespeople on flights? When are we going to be able to participate in in-person conferences? Or is it just, hey, we're going to continue to execute what we're executing now and anything else that happens, that will be kind of incremental positives?

Yes. We put very little thought into vaccine or flights or anything else. If you look at our business in 2019, we grew at a similar rate that we're growing today. A lot of that's based on sales capacity and marketing capacity and our ability to [indiscernible] clients, almost more so than external people saying, having a light turn on that they need this, or certainly, we delivered value to people that are going to conferences. We have intelligence within our system to tell you who went to your conferences last year, how you should engage with them, what products they have and so forth. That's a use case that has been true before and will continue to be true once in-person selling comes back. That ability to actually get intelligence, it's not limited to your being at home. It's equally as important when you're out selling to people in the field, and realistically, it's all about efficiency and effectiveness, which just is more efficient and effective, and that's why the ROI is so high even prior to COVID.