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

Okay. We're live. Welcome back, everybody. I'm still Brad Zelnick, Crédit Suisse software analyst. We're here on Day 3 of our 34th (sic) [ 24th ] Annual Tech Conference this year. Something special streamling live right into your office, right into your living room, wherever you might be. This session today, we are extremely delighted to be joined by the folks from ZoomInfo. We have co-founder and CEO, Henry Schuck; Cameron Hyzer, CFO. Gentlemen, welcome for -- thanks so much for being here.

Thank you, Brad.

Awesome. So the format of this conversation is going to be a fireside chat. I'm going to lead us through a bunch of topics that I've been really looking forward to ask the team about. And I'll try to keep my eyes on my e-mail. If you guys -- the investors have any questions, I'll glance over and maybe try to incorporate them into the dialogue.

But with that, let's maybe dive right in. So Henry, perhaps just to start off with, ZoomInfo is a rapidly growing, profitable company, helping to solve a growing problem or satisfy a growing need. But for those less familiar, can you just give us an idea of the value proposition that ZoomInfo delivers?

Sure. Yes. So really at its core, what ZoomInfo does is it helps sellers and marketers, B2B sellers and marketers identify their next best customer, connect with that next best customer, know what to say to that next best customer and then feeds analytics back through around your interaction with that customer. And so whether you're a Fortune 100 technology company or a palette manufacturer from Alabama, if you sell to another business, we have the information, the technology and the insights on companies and the professionals at those companies that can drive your B2B sales and B2B marketing efforts.

Thank you very much for that. And maybe just to another point and to follow up on that -- and I think you may know this, but many, many moons ago, I was actually an enterprise salesperson. I had a territory for a large software company that I worked for. And we had a CRM system. It wasn't Salesforce, but one of the legacy players out there. And as a territory manager, I ran a -- I was an individual contributor at one point. I hated using that system. And at that time, I don't think ZoomInfo even existed. I mean we're going back into yesteryear. But I think there's this misconception out there that salespeople enjoy using tools like Salesforce and Dynamics, which actually benefit sales management more than the actual rep. Where does ZoomInfo fit in?

Yes. So interestingly, in the last 30 years, Brad, that hasn't changed much. And so frontline sellers still don't love being inside of CRM. They do still view it as an activity management tool that management wants them doing things in. And mainly, they just don't get insights out of CRM. And so they go in, it's largely static. There aren't systems and processes built into the CRM to make sure that the information on accounts and prospects and opportunities are being constantly updated. And so they go in, they pull up an account, the information is dated, there's no insights, the management that are listed there are no longer there anymore. There are new champions who come in that you have no insight against. Your competitor might be in the account. CRM is not telling you any of that information. And so the incentive to go in is lost on the salesperson. Now a great -- we're big CRM users. It's a great tool for sales ops, a great tool for revenue ops, a great tool for finance, a great tool for forecasting. But when it comes to that frontline sales rep who comes in every day and wants to figure out a way to hit their number, find their next best customer, it's just not a tool that they're leveraging all that much or that they're enjoying the opportunity to leverage. And part of that is really just because the nature of the business world is constantly changing. People are changing jobs more frequently today than they ever have before. No company looks the same on December 31 as it did on January 1. Companies are growing. They're shrinking. They're making acquisitions. They're getting funding. New executives are coming in. They're moving to new locations. They're adding and dropping technologies in their stack. And none of that information is being reflected in that system of record. And that's -- and the big thing that we're hearing from our customers today is it is a system of record, it's just not a system of insights for our frontline sales reps. And we want to transform CRM from a system of record to a system of insight. And the way you do that, the foundational layer, is that you make sure that all the data on the accounts, all the data on the contacts and the leads are up to date and accurate and that you're taking advantage of all of the events that are happening in the world that lives outside of your website, outside of the information that you have access to or control over. Businesses are doing all sorts of things this year, and you need to be able to reflect those insights and those events into your systems that you're counting on your sales reps using to go to market and identify your new customer. And really that's where we plug in, and I think that's where our partnerships with CRM systems and marketing automation systems are so powerful, because we really do bring those systems to life.

And Henry, that's helpful. But along these lines, you also recently announced ZoomInfo Engage to move further into sales enablement. Is this the beginning of ZoomInfo trying to become the de facto system of engagement for go-to-market teams? Or is that not the right way to think about it?

Yes. I mean, look, first, we have no intention of becoming a CRM system, first and foremost. And I think what Engage gives us the opportunity to do is we're hearing from a lot of our clients, they would tell us, "Look, this is really great data. It's really great insights. You have the technologies that connect us into our go-to-market systems. But ultimately, I just want to activate the data and I want to do it instantly." And so one of the places where you see our ability to do that really come into play is if you think of an example that uses our Intent solution and you think about how Engage plugs in alongside that. So our Intent solution essentially gives our customers the ability to see what companies are researching on the B2B web, and specifically, when they're doing extensive amounts of research or unusual amounts of research on a topic that's relevant to them. So if I sell cloud data platforms and I want to know every time the 5,000 largest software companies in the U.S. are spiking on research on cloud data platforms, that's an important data point for me. But then I need to marry that to those 5,000 accounts and then the professionals at those accounts who make the decisions, the buying decisions for my product or service. We're able to bring Intent data, marry it to account data, marry it to the professional data and then activate it through Engage instantly. So as companies are spiking on that research, we're able to take that signal, marry it to your ideal customer profile, capture the professionals who make those decisions, instantly activate through Engage. And so the ability to activate is a thing that's more and more important to our customers. And so we view that as an ability for our customers to have end-to-end workflow throughout our platform.

I've got a question, Cameron, for you. It's something that I'm sure nobody has asked you about. But I wanted to touch on COVID-19. It's a -- you would think, by the way, over these last several days that I get paid by the reference. But it would be remiss of me not to ask. And can you maybe just walk us through some of the puts and takes of the COVID tailwinds and headwinds? And what trends do you see that are more permanent versus the ones that might be more transient?

Sure. So I think like a lot of software companies or a lot of businesses in general, when COVID started back in March and April, we saw a lot of our deals get delayed. We saw a lot of buyers kind of get caught like deer in the headlights in terms of what am I going to do, how do I want to move forward. So I think, particularly at the end of Q1 and early Q2, that was a headwind for us. On the flip side, even before COVID, we had a number of buyers coming to us and looking for how do I digitize my go-to-market motions, how do I help my sellers sell more effectively and more efficiently. And I think that as the pandemic has progressed, many of our buyers have become acclimated to the environment. They kind of view this now as the new normal. And so the headwinds started to fade a little. And the tailwinds, like many people started to say, "Okay, I'm in a whole new world now. I -- many of the motions that I used to use in terms of taking people to ballgames or going to conferences to find prospects, those sort of motions, in many cases, are no longer available." So we are starting to see more of a net tailwind as customers have looked more critically at how they're going to market and how they can improve that. So I'd say as we kind of got further along into Q2 and into Q3, we're starting to see a little bit more of a net tailwind that's overcoming the economic uncertainty that many of our customers are still facing. And I think going forward, we're really excited about the position we're in, because even as companies start to come back to the office, even as they start to ramping up their older motions, I think a lot of companies and many of our customers and other prospects that we're talking to are taking this opportunity to really assess how should they do it going forward. No one is going to go back to the old way if they found better ways to do it. And I think you see that throughout not just sales and marketing teams, but throughout a lot of different groups on, are there -- is there a hybrid way to both digitize, but still use in-person interactions and whatever else to be even more efficient going forward and think through. Most crises, you do see that, that becomes a net tailwind for actually a really long period of time.

Yes. It seems greater productivity can certainly be habit-forming. Maybe, Cameron, while I have your attention, can you just remind investors what the best metric is to measure the health and momentum of your business and why perhaps billings is generally not the best indicator of future demand?

Yes. So I think the beauty of our business is that it is 100% subscription-based business, which means that what we're recognizing as revenue is really the best indicator of what we're servicing for our customers. When I look at quarter-to-quarter, how we're performing, I really think about that in terms of sequential growth in revenue, which kind of fully incorporates all of the different aspects of our customers. You do need to be a little careful with that to make sure that you're adjusting for the number of days in a quarter. Like any business, any subscription business, our revenue recognition is based on days. So going from Q4 to Q1, you lose a couple of days there and you need to adjust for that. But that sequential growth metric is much more kind of consistent and focused on what the actual health of the business is. When you take balance sheet-focused metrics or derived metrics like billings or RPO or whatever else, one of the things that's tougher with our business is that we do have a fairly transactional business. We do have a lot of mid-cycle upgrades with customers that throws off the seasonality of expirations that you'd kind of count on if you wanted to look at billings quarter-over-quarter or bookings quarter-over-quarter. And I think that, that creates a lot more noise. If you look at our past couple of quarters, we've had good solid growth. And in Q2, it was a different billings outcome, because around COVID, we had different billing terms that we offered to customers in order to maintain momentum in the business. In Q3, it totally went the other way for a host of other reasons, despite the fact that those billing terms are still not back to what we saw in 2019. So noise like that, I think, creates more confusion than it does really dividing the signal that you get through those sequential revenue growth as an example.

I appreciate that. And maybe just a quick follow-up. I know what we saw in Q2 and earlier this year, really unique times. But is there any correlation where you would see -- if you extend payment terms -- and again, I think this is very unusual. But where you would maybe then see a greater risk of churn, because perhaps the customer had less at stake. Have you come far enough to see that play out?

Yes. We never changed the durations on our contracts. So we continue to use annual or multi-annual contracts.

Got it. Got it.

We do sort of quarterly payment terms for a greater portion of the contracts. It still wasn't more than half, but a greater portion. And I think even as we've gotten into Q3 and seen those recurring payments come through, we haven't seen that there's greater churn as a result of that. In fact, our churn continues to improve quarter-over-quarter as we've gone forward.

Awesome. Maybe just to turn to TAM and the overall market opportunity, what do you view as your addressable opportunity? And within that, how much is greenfield versus displacement?

So we think we sit in the middle of a $30 billion total addressable market that we're less than 2% penetrated inside of. One of the great things that we built at ZoomInfo is an incredibly efficient go-to-market engine that generates a ton of volume at the front end. We close deals in less than 30 days. That's our average sales cycle. It creates a 10x LTV to CAC. And so we've built this incredible engine that we're going to use to continue to drive new business sales. But then there's also significant opportunity for us inside of the enterprise, where on our last call, one of the stats that we rolled out was there's over $1 billion of seat expansion opportunity just within our existing enterprise clients. And so we see a huge opportunity to continue to expand within the enterprise. Nearly all of it, Brad, is white space for us today. There's very little time where we're seeing -- or very, very infrequently are we seeing competitors that we have to displace within accounts versus it truly just being white space.

And by the way, your go to market -- you mentioned 30 years ago. I'm old, I'm not quite that old for me. I was in a -- last at a sales seat, it was maybe 15, 20 years ago. But in being a student of different software businesses and go to markets, I truly believe that what you've created is very unique and is a true competitive differentiator for you. But along those lines and following up on what you just said, the opportunity within the existing customer base is significant. How do you attack that? What tweaks to your go-to-market or even product can you make to drive more expansion within the existing enterprise base?

Yes. Great questions. And so we spent part of 2020 bringing in the right talent to grow within the enterprise, making some key hires at the individual contributor and leadership levels for -- to be focused on the enterprise. We also took a portion of our resources from the product side to make sure that we were delivering enterprise-ready solutions, making sure that we were building new go-to-market motions in the enterprise. So for example, we released the ability for any enterprise customer who comes into our website to automatically provision into a trial of ZoomInfo, whether they're a provisioned user or not. They provision in for 60 days. We collect feedback from them over that 60 days. We bundle that feedback. And then we're able to take that up to a Chief Revenue Officer or a Senior VP of Sales, be able to say, "Look, hey, we have 100 sales reps who are currently on a trial. This is the feedback that we're receiving from them. Let's talk about seat expansion." And so we're building new motions from a go-to-market perspective to go after that opportunity. We're building the right talent to go after that opportunity. We've resegmented the customer base in a variety of different ways to make sure that our best account managers who are the best at growing accounts are on the accounts that have the highest potential to grow. And our account managers who are great at maintaining accounts are on the accounts that we're fully penetrated across. And so a bunch of different tweaks across that go-to-market motion that we see as driving momentum in that enterprise cohort now have -- in Q3, we had over 720 customers who are spending over $100,000 a year with us. The spend from that cohort grew 60% in the quarter. So we have a lot of momentum, and we're seeing dividends pay off from the investments we've made throughout the year.

Cool. I've got a couple of questions just to work in here that actually, one came in over e-mail. But just given the value proposition of your offering, Henry, why are many still using legacy data sets? Like how long before these organizations migrate to a solution like ZoomInfo?

Yes. Hopefully sooner rather than later. We have a client -- just as a couple of examples, really interesting. I'll use 2 of them that happened over the last couple of quarters. We have a large financial services client who literally went to market by knocking on doors to find their next customers. And this is -- in a pre-COVID era, that is like an incredibly inefficient model. In a post-COVID era, it's -- in a post-COVID or during COVID, it's not even available to them anymore. And sort of digital transformation was something that you sort of talked about in almost an imaginary way, at some point, we'll get around to digitally transforming. And what we found is really the sales department is the last area within a corporation to really embrace digital transformation. You saw this happen in IT and engineering. You saw it happen in marketing 10 years ago where they digitally transformed, and you saw marketers turn from creative types to data and analytics folks. And what you haven't seen is really sales transform digitally. It's still, like Cameron mentioned, largely pushing flesh in office spaces and taking people out to ballgames. And I think one of the benefits that -- for our business during -- that happened to our business during COVID is people really started seriously thinking about how you digitally transform your business. Not everybody has come to the table with motions to do that, but it is top of mind across companies. And so I think the IPO was a great halo effect for us, because it gave us the brand recognition to go have strategic conversations with senior-level executives about how you digitally transform and how you use ZoomInfo to do that. But you're still in like super early innings around digital transformation, because sales was largely a paper rolodex relationship business. And we see a world where you can leverage your relationship building when you empower it with data and insights that put you in front of opportunities at the right time with the right message.

Yes. I think the days of selling vacuum cleaners door-to-door are over. I think they'd call the police on you right now if you showed up at somebody's doorstep with a vacuum cleaner. There's so much that I want to get through, but I actually got -- there's an e-mailed question that I think you're going to like. And this was, as you better penetrate the enterprise, are you able to see the productivity gains from salespeople at that organization, meaning if it's a public software company that becomes a large ZoomInfo customer, are you buying the stock because you become a leading indicator where you can see a perceptible impact that you're having on that organization?

I'm far too busy to single transact stock purchases.

Even just for case study purposes, right...

Totally.

Right.

Yes. I think one of the things that we've built in with our Salesforce integration is the ability when we enrich or enhance an account or a prospect or bringing insight to bid on an account or prospect, we bring it in with the ZoomInfo label. And then we built in prepackaged reports that our points of contact can go run every quarter, every month to see what opportunities are in the pipeline, what opportunities have closed, when new revenue can be associated back to ZoomInfo. And that's an incredibly compelling lens to look at the ROI that we're providing our clients.

Very cool. So much to cover, limited on time. I want to maybe move to Intent data. How does the ability to provide intent data help drive renewal and expansion? To what extent is Intent data evolving in terms of the entire go-to-market intelligence market? And there's also a press release that I think just came out -- was it this morning or yesterday. I just saw it this morning, to be honest, so I might have missed it if it was yesterday. But you announced...

Yesterday.

It was. Good. So it was Privacy Clusters. Can you talk a little bit about that and help us appreciate Intent data maybe a little bit more comprehensively?

Sure. I mean the best place to start is in the B2C world, where B2C marketers are way more sophisticated and using Intent to target their audiences. And largely, because they have to. They don't have a sales force to go sell you shoes or a toy for your kids. But if you go research a toy for your kids or shoes, for the next 3 weeks, you're getting ads on toys and shoes and different toys and shoes all across the web. And that's because B2C marketers have largely adopted this concept of Intent. And they don't need to know what company you work for or who you are as a professional to sell you shoes or to sell you kids' toys. But in the B2B world, Intent hasn't been particularly adopted in that way, because they can't take behavioral searching or research that you're doing on the Internet and then associate that back to a company that you would want to spend money to target. And what we're able to do with Intent is we're able to capture when a company is doing research on the B2B web across thousands of different topics. We're able to associate that to that company and then marry it to the professionals of those companies that you want to be targeting. And so we believe that Intent data sits right alongside account data and contact data as a pillar for the data stack as you go to market. And we're seeing, in the last year, 3x -- we have 3x as many customers subscribing to our Intent product today than were subscribing a year ago. That's also sort supported by a Gartner study that says, by the end of 2022, 70% of B2B marketers will be using third-party intent to go to market. We believe very strongly that we have the best Intent solution in the marketplace and that we can take that Intent solution and let our customers activate it against account data and professional contact data so that they can run campaigns in an automated way against that Intent solution. And if you're thinking about it from -- account managers can use this data. You can say, tell me every time a company spikes on research for one of my competitors or is spiking on research on our specific solution, because it means that -- or our specific solution type, because it means they're out there doing research about us. And so it can feed your own account management motions. It can feed your account executive motions, and we think it will be a pillar of the way companies go to -- B2B companies go to market in the future. And the Privacy Clusters. And one of the things that we want -- that we're able to do, because we're only looking at IP-level data, is that we're able to provide this type of solution in a cookieless world. So if cookies go away tomorrow, that does not affect our Intent solution, because we're simply looking at IP addresses and then aggregating that up to the company level. And so we're never exposing any PII in that process. And our Privacy Clusters actually go a step further and allow for tracking -- for targeting of potential buyers in a completely anonymized way. So we're trying to lead the way from a privacy perspective as well.

Very cool. I actually want to follow up on that offline, because it sounds really interesting, but we've only got a couple of minutes left. Maybe Henry, just on international, it's another significant growth opportunity for you to expand into other markets around the world. In your mind, what is the catalyst that accelerates adoption here? Is it changes in your go to market, size of the data set or even number of individuals in your contributory network? Like how do we think about what gets you there?

It's largely go to market. It's largely go to market. And so in the quarter -- in last quarter, we put a specific go-to-market effort on this. We were hopeful to be actually boots-on-the-ground internationally, but the pandemic had different plans for us. So today, we have a team in our East Coast office that works European hours. They take all of the leads that we generate internationally and are working those. We've seen a big uptick in our international growth in the quarter. We grew 60% year-over-year internationally against international -- that international cohort. We continue to invest there. We have a great data asset internationally. We've built the technology and software solutions that we've built for U.S. customers, apply it just as well internationally. And so it's largely a go-to-market focus for us now.

Perfect. Maybe one last one. Outside of the enterprise opportunity, Henry, what excites you the most? Is it international expansion, new use cases, more that you can do on the Intent side?

Yes, it's probably international and new use cases, where we have an opportunity to -- we'll release this month a recruiting solution where we've taken our data asset and built a new software platform around it that's designed -- purpose-built and designed for recruiters. We see that as a really big opportunity to grow our total addressable market and provide a really valuable solution to recruiters and talent acquisition teams. So new use cases and international, we think, are really big opportunities in front of us.

Awesome. Guys, we're out of time. Is there anything that you want to leave us with that maybe I didn't get to that I should have asked?

I don't think so. I think we see a huge opportunity in front of us. We think it's really early innings. And we've put together a really remarkable team for us to go after and get it. So really exciting to be in this seat.

Excellent. Well, with that, both Henry, Cameron, thank you so much for being here. Always great to see you. Hopefully, next time or soon enough, we can get together in person. But thanks again. This was a really helpful session.

Absolutely. Thanks a lot, Brad. Thank you, everybody.