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

Good morning, everybody, and thank you so much for joining us on day 4 of the Morgan Stanley Technology Conference. So with us this morning, we have the pleasure of hosting the ZoomInfo team, Henry and Cameron. Good morning, gentlemen. How are you?

Hi, Stan. Good. How are you?

Great. Great. Well, thank you so much for joining. So before we begin, very quickly, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. With that exciting part out of the way, let's dig in to ZoomInfo. So look, guys, thank you so much again for joining us. I'm really happy to have you at our TMT Conference, even though it's virtual, but we'll make the best of it.

So you guys have been public for quite some time. You reported very strong Q4 just now, your third quarter actually as a public company. And I do presume that people are, for the most part, are familiar with it, but maybe just a very quick overview of the products, Henry, that you guys are bringing to market.

Yes. Great. Thanks, Stan. Thanks for having us at the conference. What ZoomInfo does is it helps sellers and marketers and, most recently, recruiters. But on the sales and marketing side, we help companies identify their next best customer through our data and insights platform. And then with technology we've built around the data and insights we provide, we allow them -- we let them prioritize who their next best customer is. We let them see projects and initiatives that are happening at the company that they're potentially -- who can potentially be their next customers, and then we integrate this world of insights and data on their total addressable market directly inside their go-to-market systems, whether that be a CRM system or marketing automation system, a sales automation system or an ATS system.

And by the way, Henry, it's -- I would probably say that, that was the most succinct product description out of any company that I have moderated this year.

I'm going to assume succinct means good, too. So...

I mean [ various ] explanation as to what the product does because if you ask a founder or CEO describe -- describing the product, 20 minutes later, you're trying to get a question and [indiscernible]. So thank you so much for that. So look, 2020 was a bit of a roller coaster year for you guys but also for a lot of other software companies. But looking back, you finished a very strong Q3, Q4. Maybe just kind of tell us what were some of the positives that you saw as you went through 2020 that you really hope to bring into 2021.

Yes. So really, 2020 was a tale of two halves, right? The first half, once sort of the reality of the pandemic set in, for us, caused our enterprise customers to kind of take a step back, hold on to budget and kind of evaluate what the world was going to look like. But really coming out of the second quarter, we saw increasing momentum in our business and really across all of the segments of our business, both on the net retention side where we saw record net retention activity in Q4, on the new business side where we signed a record number of new logos in Q4. But I think most excitingly for us is that we're seeing new initiatives that we've invested in really start to pick up some momentum and traction. And so in Q4, we saw a record number of new additions to our over 100,000 customer cohort. So that enterprise cohort is growing faster than it's ever been, and we've made some real investments in that -- in the enterprise motion from a go-to-market perspective and from a product perspective throughout the year. And then we saw international revenue increased over 70% year-over-year, and that's a motion that we really started focusing on in the back half of the year. And so seeing momentum pick up there has been really exciting to see. And then we continue to see momentum in new products and services that we're building as well as adoption of our core platform. And so what we're seeing is that when we're making investments, especially from a product and go-to-market perspective, we're seeing real return on them in a short period of time.

I mean you -- I think it's very clear that you guys are seeing just tremendous momentum coming out of the year and into 2020 -- 2021, and we'll touch on a few of those. But the one that really stood out to me when we looked at your Q4 results was really new logos, and I think it really tells the story of how the world is evolving. But despite all that, even though a record quarter of new logos, it still feels like there's a lot of companies and a lot of salespeople just don't know that a tool like yours exists, right? How are you going about like this -- the education and the -- kind of getting the word out to help companies who may not know about you to really highlight that, hey, this is -- there's this better way to do selling and you just never knew about it?

Yes. I mean that is the big rock that we're moving. And I think in the quarter, we talked about new customers from, really, all sorts of different industries and all sorts of different sizes and from all around the world. We talked about Lamar outdoor advertising, Stanley Black & Decker and Jazz Pharmaceuticals, which is sort of in these industries' outside -- our core kind of software and business services industry. And so we're seeing more and more companies regardless of industry or space come to us and say, hey, we sell to other businesses, and we don't really know what they look like day-to-day. But what I'll tell you is the rock that we're moving from a go-to-market perspective is this idea that -- or is this motion inside companies that's been around for over a century where sales got done by really big Rolodexes, lots of in-person events, dinners out -- steak dinners out and ball games and golfing, and that was the motion by which you built a pipeline in most companies, and that's the motion that's been around for a long, long time. And really, what the challenge in front of us is bringing a digital solution to those go-to-market leaders and telling them, look, we know this is the way you've done sales for a really long time, but the future is using -- is going to market with data. It's going to market with insights on your customers and prospects. It's using a digital footprint of your customers to know when to be in front of them and engage with them in often automated ways. And so we're bringing a new vision for go-to-market to our customers. And so we think, look, that change, although accelerated as a result of the pandemic, still is an evolutionary change that we're really in the early, early innings of. So we see a big white space opportunity in front of us, and we'll keep sort of educating the market that these types of solutions exist.

And what really -- what's really interesting, right, is you have this huge data trove on your platform, and that's really the really big competitive moat. But yet, when you look at your financial statements, 10% of your revenue goes into R&D, which is when you compare it to some of the other software names that we look at, it's a little bit lower, right? What does it allow -- what is it about -- what's the secret sauce behind the way you guys build your products that allows you to be so efficient with R&D and yet still maintain that -- the competitive moat against other vendors?

Sure. So I think there are a couple of factors that really play into our R&D spend, but one of them is that we're delivering a solution that's not just software. We're delivering data and software together that is better than what a software-only solution could drive. And just based on accounting like that, that data part of that, the cleansing and creating high quality and maintaining that data is in our cost of services line item versus R&D. So when we think about our total expenditure or investment into innovation, it's really higher than what just shows up as the R&D line item on our financial statements and includes that cost of service piece as well as we are required to capitalize some software development, which also ends up in cost of service. But above and beyond that, we are very focused on being efficient as a company. And that efficiency comes in a number of places. One of them is that we are very big users of our own platform to drive sales and marketing efficiency, but that plays back the other way as well where our sales and marketing team can help lead the R&D efforts, help craft what's the next best thing that we can be developing, which reduces a lot of the waste that's kind of left on the cutting room floor for a lot of other teams where they're not so highly integrated with, really, their biggest user and best customer. So those factors play into a lower R&D spend. I think we are continuing to grow our R&D team because we are at a point right now where we're excited about the opportunity in front of us and the strength of our moat. And we want to continue to build on that competitive advantage that we have and deliver more and more value to our customers as well.

That certainly makes sense. And Cameron, you brought up a very interesting point, right, because I think a lot of us, software investors, we're kind of used to looking at software. And when you think about, hey, what's the competitive moat for this company, what's the competitive moat for that company, it's like -- it's -- a lot of that competitive moat is like features and functionalities. I mean sometimes you can have ecosystem effect that's happening. But for you guys, it's really interesting because your competitive moat is, yes, you do have the outstanding software platform, but there's this another layer, which is data, right? And interesting about -- interest thing about data assets that we found is the competitive moat differentiation on data has to do with time, right, because gathering data is a time-consuming function. It's not just something where you can just throw a whole ton of resources at it and potentially try to close that gap. It takes time to do that. How are you thinking about -- is that the way you view your competitive moat when it comes to the data portion of your platform?

I think that -- and I'll let Henry jump in, too. But part of it is based on time, like you said, but it's more how we get to high quality, and that's really training our machine learning and AI engines over time with wide variety of data sets in order to drive that differentiation. And ZoomInfo has always been really the leader and focus in high-quality data more so than anything else in that those learnings over the past decade or 2 decades are really what helped drive that competitive differentiation. And yes, that is a big part of it.

Yes. I think like -- to that Cameron's point, although it's -- for us, it takes time to build up all of the unique sources that we gather to be able to publish the content on our platform, it also takes multiple contributory networks to get there. But the big thing about the type of data that we gather and publish as opposed to, like, many other types of data is that it's hard to identify objective truth. And because of that, the machine learning engine is so important because if you're a customer who contributes to our contributory network, you may have 10 customers all with a different record and a different structure of Henry Schuck inside of their CRM system, one might have Henry Schuck at DiscoverOrg, one might have Henry Schuck at ZoomInfo, another might not have a phone number, one has the wrong phone number, the wrong e-mail address. So it's not a simple process of just gathering that information, but it is the evidence-based algorithm that makes sense about what is accurate and what is not because our customers, they expect incredibly high accuracy across the content that we publish. And so the work that we do around the algorithms that make sense of what is and what is not accurate to pull together all of those sources and then publish an accurate record, there's a tremendous amount of power in that.

Got it. And when you think about the competitive moat that you have, you did touch on, Henry, which is your contributory network, right? And that's a really interesting one because, obviously, there are a lot of public data sources that once again people can go to and just pull down data and massage it and structure it correctly. But your contributory network is really unique because in order to -- if a couple of us got together and say, hey, we're going to take on ZoomInfo, right, we wouldn't be able to have the contributory network of it, right, aspect. We will be able to pull down data sources, but that part would be absent. Can you just give us a quick overview of your -- the contributory network? What does it do? And how does it really amplify this competitive moat that you have around your data assets?

Yes. So we have 2 -- we have actually a couple, but the 2 kind of biggest contributory networks that we leverage as part of literally millions of unique sources that feed this machine learning engine are, one, our customer contributory network. It's where our customers who integrate marketing automation or CRM functionality inside of ZoomInfo. A select number of those customers share information from those systems with us that we're able to clean, validate and feed back to them. And in that process, we get all sorts of signals around that data. Like in the example of Henry Schuck existing 10 different ways across 10 different CRM systems, we're able to pull all of that data together, start validating the different points of data, cross-reference it with our other unique sources and then deliver back to our customers an accurate, normalized record for Henry Schuck that's also complete goes into all of their customers who contributed kind of pieces of the Henry Schuck record. And then we have a freemium community or a contributory network where freemium users get limited free access to ZoomInfo in exchange for the contact in their e-mail systems. And so we get that business contact information from the e-mail contact, all of this feeds into this evidence-based algorithm where we're making sense of the different sources. And we're waiting them differently based on the recency of the source or the uniqueness of the source or the validity of the source and then making decisions on what gets published or what our customers see and interact with.

Got it. And when people look at the different sources where they can go to pull down data, right, I think, especially in the world of the B2B, a lot of people automatically jump to LinkedIn, right? And that's just where our mind goes nowadays. It's really synonymous. But in as much as LinkedIn is a good resource, it's also had some pretty material limitations when it comes to B2B selling and prospecting. How do you guys see the ZoomInfo platform stacking up against something like a LinkedIn?

Yes. Look, I think -- we think LinkedIn is a great channel. It obviously has a great professional social network, but our customers are going to market in a lot of different ways outside of LinkedIn. They're going to market through sales automation campaign. They're going on marketing automation campaign to display ads. They're doing all sorts of work in prioritizing accounts that they want to talk to first or second and using signals around what's happening at a company to decide when to engage with them. And engaging through LinkedIn is a great channel, but there are all of these other channels that companies are using to go to market as well. And so outside of LinkedIn, companies still need data inside their CRM systems, inside their marketing automation systems, in front of their sellers that allow them to engage with their customers and prospects outside of -- on the social -- on the professional social network. And really, that is where -- that is the area that we help our customers connect with their potential customers in is sort of all of the other channels outside of the LinkedIn network.

And a question that we get from time to time from investors is, well, what happens if 1 day, Microsoft wakes up and says, "Hey, let's just open up LinkedIn. Let's build the APIs. Let's open up those APIs so you can just pull data out of LinkedIn, stick it into your marketing automation systems, into your CRMs," what are you thinking about that? Is that at all a reality?

I would imagine that they would be in the process of closing LinkedIn down if they were to make a decision like that. They would be the only professional social network that takes the information that their users populate in, their PII information and then plugs it in to everybody's CRM and marketing automation system. And I think when you listen to any sort of Microsoft earnings report or you hear how LinkedIn talks about the protection of that information for their users, it seems like a very far-fetched reality that they would do.

Yes. And that certainly makes sense. And it's -- look, it's something that investors do throw around in times, and it's -- I think it's important to address it. Another thing that does come up from time to time in conversations is regulation, right? There's clearly -- and I'm just looking at the Q&A portal, and that's one of the first questions that popped up on the portal. There's definitely a lot of data that you guys have on people and their professional lives. What if there's regulation that starts to really hit at the B2B side of the data? Do you think that's impossible that regulators start to somehow shift their focus away from our -- from the consumer and more on the B2B side?

Yes. So I think -- number one, I think that's unlikely, but let me kind of tell you why I think that and kind of the things that we've done to make sure we're far ahead of any regulation that's considered or on the books. So first, we collect business contact information that's used for business-to-business purposes. And when you think about the types of information that are collected on consumers, that is the least sensitive type of information collected. It's the information that's found on your business card, if you made public on many websites. And it's not just me that thinks that, that information is the least sensitive information. If you look at the privacy laws in Canada or Singapore or some of the specific state statutes, many of them -- in Canada -- Canada, Singapore specifically say business contact information is not governed by this privacy law because it's the least sensitive type of information. And when it's used for B2B purposes, it doesn't fall into the data privacy statute. And you see that model sort of carried along different states. There's a B2B exemption in the CCPA. There's a B2B exemption in the Singapore law. And if you look at the GDPR, there's a specific legitimate interest in collecting information when it's used for direct marketing purposes. And so what we see is regulators recognize how important business-to-business contact information is for the business-to-business economy, and they stay away from that -- from a regulatory perspective. Now that hasn't stopped the work that we've done to be really privacy first. And so we've actually gone out and, in the last year, delivered over 117 million different notices to anybody we've collected information on in our platform. And so we've gone out, let them know that ZoomInfo has collected this business contact information on them. We've built an automated privacy center where they can go in, review the information we've collected on them, update that information or remove that information. If you look at our competitors in the space, none of them are doing this, and they've taken the position that these regulations don't require any sort of notice program. But we're doing that anyways because we, number one, we think it's the right thing to do; and number two, it also gives us an offensive mechanism when we're selling into the enterprise or we're selling into private -- very privately conscious companies, who more and more companies are becoming privately conscious. And we are clearly the leaders in our space when it comes to being data privacy first. And then what I would tell you is when I think about like the arc of sort of privacy regulation in the state or abroad, I think about the most sensitive type of information that's collected on consumers. And then when you think about the most sensitive type of information, that's the credit bureau information. So it's your -- they have everything, right, your social security number, the color of your car, every time you were late on a credit card payment. And so this is the most sensitive type of information that's brought to bear at the most impactful moments in your life, when you're getting a mortgage, when you're applying for credit or getting a cell phone. And that -- when you think about the way that type of data is regulated, it's very much similar to the protections put into place by the CCPA. The credit bureaus are required to give you a copy of the information that they've collected on you once a year. You have to have a form to object to that information or ask for it to be corrected if it's incorrect. And then the credit bureaus have a certain amount of time where they have to update that information. And that is the regulatory construct for the most sensitive information delivered at the most impactful moment of consumers' lives. And so it's hard to imagine a regulatory framework that manages business contact information in a more restrictive way than your credit bureau information.

That certainly is a comprehensive explanation. And for what it's worth, it very much matches all the work that we've done and the due diligence that we've done around the privacy and what we hear from your partners and customers. Maybe switching gears slightly. We've spent a lot of time talking about the value that ZoomInfo adds on the sales side, on the prospecting side, but you've recently started to expand into new areas like marketing, specifically, and recruiting, right? When you expand outside of the core B2B sales into these adjacent markets, is there anything that you need to do differently around the product? Is there a lot of development that needs to happen? Or is it a little bit more like a lighter touch, and you just need to kind of point the [ B set ] in the right direction?

Yes. It depends. But if we think about marketing, today, something like 30% of our deals and our relationships start with the marketing side of the house. And if you think about the technology and platform and products that we've built, a lot of it speaks to -- directly to a marketer, whether that's intent data to prioritize accounts for campaigns, whether it's connectors into display ad networks, whether it's enrichment of data inside of CRM and marketing automation systems, identification of website visitors, shortened forms on your website, and all of those -- all of these things that we've built along the way are designed for marketers, but they're just not tied together in a comprehensive way for a marketer to really understand what we're selling and why it relates to them directly. And so one of the things from a product perspective that we're doing as we get further and further into the marketing side of house is really tying all of those aspects together. And so we have a really clear story for the marketer, and they can see all of the different ways we can impact their day-to-day. On the recruiting side of the house, that is a different go-to-market motion. I think you'll see us leverage our relationships within large enterprises. Today, we work with over 50% of the Fortune 500, 30% of the Fortune 1000. You'll see us leverage our relationship on the sales and marketing side to move over to the talent acquisition and recruiting side. And we purpose-built -- we've built a purpose-built platform for recruiters. So we've rebuilt the platform with key features that recruiters want, integrations into ATS systems, automated engagement with candidates. And so we're building technology specifically for recruiters on that.

Got it. Well, we're -- can't believe time is flying by so quickly, but we -- I think we have time for a couple more questions. I wanted to get Cameron involved. Cameron, digging into your financials over the last 2 quarters, obviously, investors -- software investors and growth-focused investors really pay attention to is the momentum you're seeing in billings, the momentum you're seeing in CRPO bookings. And when you look at those metrics, right, for the last 2 quarters, billings, CRPO bookings, they're both growing with this like high 50s or a 6-handle type of growth trajectory. Your revenue is growing in the -- with a 4-handle, and then you just provided guidance for '21, mid-30s. Help us reconcile this really hyper growth trajectory that we're seeing in billings and CRPO versus the mid-30s guide for 2021 revenue growth. It certainly feels like there's a lot of conservatism that's built into that revenue guidance versus the momentum you're seeing right now. Is that how you're thinking about it?

Well, we're certainly excited about everything that's going on in the business, both the secular trend and demand as well as our execution against that. And certainly, whether you're looking at billings or bookings, which, by the way, have a lot of noise, not necessarily my favorite metrics, but -- or just sequential revenue growth, which is a bit cleaner, we have performed very well. And I think the current environment and our execution against that certainly puts us on a track to continue. As we've done in the past, we want to make sure that we're putting out guidance that we can both meet and exceed under a very wide range of potential outcomes. So our guidance methodology is very similar to what we've had in the first couple of quarters of being a public company, and I think we're certainly excited about the trajectory that we're on that would put us on a path to exceed those.

Perfect. That makes a lot of sense. Maybe the last one for me, for Henry, international, right? International is something that we've talked about even pre-IPO. I remember we were spending a lot of time on it, is it's a big avenue of growth for you guys and -- well, it feels like -- despite the 70% growth that you guys just talked about in Q4, it does feel like 2020 could have been significantly bigger year for your international segment if it wasn't for COVID. So with that, it's kind of like the preamble, do you feel like there's -- the -- despite the strength of what you saw in 2020, it could have been more. And when you look at 2021, like all of the excitement that we had about international is now pushed into 2021. And so 2021, you can have just a really big year on the international side of the house.

Yes. I think a little bit less to do with COVID, but -- and more to do with just a go-to-market focus on international. Really wasn't until the back half of 2020 that we really reorganized the go-to-market team to focus on the international leads that we were already generating and to generate more pipeline internationally. And so what you saw largely was -- what you saw was largely the second half of the year that we were driving growth internationally. And what we saw internationally was we have an incredibly compelling solution there. There's very little competition when we're selling internationally. We're evangelizing a vision of go-to-market that our international customers haven't heard of or thought of or have technology to drive, yet they're dealing with the same issues that our U.S.-based counterparts are dealing with. They want to sell in the U.S., too. So our U.S. data asset creates a major competitive differentiator for us as well. And so we think we have a lot of momentum on the international side and do expect 2021 to be a big year there.

Perfect. Well, I think this is a great place for us to stop. Henry, Cameron, gentlemen, thank you so much for your time today. Always an awesome discussion.

Thank you, Stan. Thank you for having us.

Thanks, guys. Talk to you soon.