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

All right. Good afternoon, everyone. Very excited to have ZoomInfo joining us. Henry, Cameron, you have -- first off, thanks for just being here in person.

Absolutely.

So the -- well, it's been frankly, incredible first year as a publicly-traded company. Maybe just to level set things for everyone on the room that might not be as familiar with you and your companies, tell us about the journey. Where is the company now? What's ahead in your mind?

Yes. So we went public June 4, 2020. Originally, the company really started by building a really robust data and intelligence layer. And so that's information on companies, on people at those companies on what those companies are researching on the B2B web, their locations and hierarchy information, what projects they're investing in. And so essentially, this really robust intelligence layer that companies were using to go to market to arm their sales teams and their marketing teams with data that allow them to know who to contact, how to contact them and then when to contact them. And that intelligence layer drove the first phase of growth for ZoomInfo. It's the most robust intelligence layer. It's 100 million companies, 150 million business professionals that we -- that are in the platform worldwide. And then we started using that intelligence layer to do 2 things in the newest phase: one, to build workflow around it, so our customers could build this intelligence layer into their go-to-market systems into Salesforce or Marketo or HubSpot or Dynamics or Eloqua; and then second, a workflow engine that allowed them to take signals that were being created off of that intelligence layer to drive a go-to-market motion. So when a company gets funding, do this. When a company has a new CEO, do that. When a company is spiking on an intent topic that's relevant to our business, put them in a marketing automation campaign, put a display out against them, alert the account rep of it. And then most recently, what we realized is the intelligence layer and the data that we have and the intelligence layer can really drive a differentiated approach in the application layer. And so we started to build or acquire applications that when our data is embedded inside of them, become competitively differentiated. And a good example our Engage solution, which is a sales automation solution, that essentially gives sellers the ability to create automated flows of outreach to their prospective customers. So on day 1, send this e-mail. On day 3, remind me to make a phone call to these people. On day 5, send another e-mail. On day 6, remind me to connect with them on LinkedIn. What we've realized is in order to build a really great sales automation functionality, you need data on companies to build the universe. You need data on people to be able to set up those e-mails and make those phone calls. And then maybe most importantly, if you have a long tail of intelligence on those companies and people, you can start giving really interesting analytics about who's opening your e-mails, what type of companies, who the people at those companies are. And so we can go into a set of flows and say, "Hey, look, in this flow of e-mails and phone calls, the people who are responding most often are Vice Presidents of Information Technology at pharmaceutical companies in the Midwest. We have over 100 employees in who use Salesforce and Datadog and have at least 100 employees." And then we can say, "And here are 400 other people who look just like that, so drop them into the same sales flow." You can't do basically any of that unless you have that intelligence and data layer. And so we started looking for other places around the software sales stack where the data would make a -- would create a competitive differentiation that we can build or we can buy and then we can embed the data layer inside of it.

Let's actually double down on sort of moving up the stack in applications like with some of the acquisitions you made, RingLead, Chorus. I know you walked through some of the value add, but I think this is sort of what I call like the hidden asset or the hidden value still inside of ZoomInfo. But what is the strategic rationale of these deals? How is that building out the platform that you just discussed?

Yes. So a couple of different ways. The first -- the way we think about acquisitions is -- before we would consider an acquisition, there are a couple of things we take into consideration. One is can we grow the business faster if we bring it into ZoomInfo, then it could grow on its own in a stand-alone. So can we accelerate growth? Can we do that in a financial accretive way in the short term? Does the asset become strategically differentiated when our data is embedded inside of it to the point where it doesn't matter how much more software you build on the stand-alone asset, you can't catch up to the competitive differentiation because of the data that we're embedding inside of it and then engage as the example to think about there. And then how quickly can we enable our sales teams and how much of our sales teams can we enable to sell the product into our customer base and how much of the customer base can use this product. So Chorus is an interesting one in that respect because Chorus is conversation intelligence. And so at its core, what it does is that records, transcribes and analyzes calls that your sales reps are taking, Zoom calls, Teams calls, phone calls. Transcribe those calls that looks for key moments in those calls, when the customer or prospect is happy, when they're angry, when they're talking about budget, when they're talking about pricing, next steps, competition. And it allows sales managers to go directly into the key moments in a call and be able to coach and up-level their teams. Then it also allows them to build best practices playlists so that their new reps can get onboarded much more quickly. And so while ZoomInfo was always focused at the top of the funnel. It didn't have a focus on the middle of the funnel. So once it generated an opportunity for a sales rep or a company, we weren't then helping them get that next -- that opportunity to close to actually see revenue from what we were doing at the top of the funnel. Chorus gives us the opportunity to impact that middle of the funnel to allow sales managers to effectively coach and onboard their sales reps. So you can go into a playlist and say, "Every time this competitor gets mentioned, here are the 5 best reps answering that objection. Here's how you talk about next steps the best. Here's how you talk about pricing when it comes up. Here's how you bring in other key decision makers into the conversation." And so Chorus gives us that ability. And what's exciting about it is all 25,000 of our customers should be using Chorus. And it's not a technical sale. It's a sale that when a VP or Director or Manager of Sales sees that capability, they understand the value, which is very to the ZoomInfo value proposition and sales cycle. The ZoomInfo sales cycle is about 30 days or sub-30 days. The Chorus sales cycle is a little bit longer than that, but in the same range. And we know we can enable all of our sellers to sell it to our customers in a short period of time. And so we have the solution that strategically differentiates when it's in our platform. We can enable it quickly across our sales reps. That's a business that was growing 100% year-over-year when we made the acquisition in July and has already accelerated past that once we've incorporated into our stack.

That's fantastic. Actually, a jump up question for both of you. When you think about integrating some of these acquisitions, could you give us an update -- well, you just gave us the Chorus example. How has it progressed? And what have been some of the surprises maybe that you both have that along the way?

Yes. I think we spend a -- we've done 11 acquisitions since 2015. And so it's an area that we think we've built a pretty good muscle around. And so we spend a lot of time upfront in diligence, really understanding what the go-to-market motion is going to be, what the integration motion is going to be. Every acquisition is a little bit of a different flavor. Some have built their companies on the best technology. They're going to integrate well. They're built with micro services so they can plug into the core platform quickly. Some are built on legacy technologies that need to be set up for scale and need to be fortified for security and aren't going to integrate as quickly. But we go win to the acquisition knowing what needs to take place post-acquisition for integration from a go-to-market perspective, from a finance perspective and for integration on the product and engineering perspective. And so we're not often surprised when things happen. I think when you're surprised, you end up being surprised on a people -- at a people level. So someone who we thought was really excited about the acquisition wasn't so excited. And so those are the surprises. The actual instrumentation of how you integrate and how you take it to market, you're doing a lot work upfront to make sure you're not surprised.

Yes. Any surprise for you, Cameron?

Yes. I was actually going to throw in the -- I think some of the positive surprises we've seen from the acquisitions have been people that we didn't necessarily have high expectations for or maybe we didn't think they were going to want to stay and then they get super excited about the vision, about what we can do with the company and about really how much better their product or their baby is going to end up being with that data in there. And they end up being really ecstatic contributors to not just the integration but eventually to the whole company overall.

Got it. Let's talk about buy versus build and sort of how you as a management team sort of make those decisions. And so I guess kind of 2 questions in here. How do you sort of balance that? Okay, this I'm going to spend the development of money on versus, hey, there's a company here or a product here that does this, so we're going to make that acquisition. And similarly to your point, there's a lot of different functions you can layer on top of your data. So how do you decide which areas to go down? So kind of a 2-part question there.

Yes. So the buy versus build question is one that we're constantly thinking about. And we have like a pretty good balance today of things that we're building organically and releasing like our recruiter product or our Engage product and things that we're buying in the leasing like RingLead or Chorus. Generally, when we're making that decision, there are a couple of things we think about. Number one, what are the capabilities of our internal team? Do they have the same sort of application development capability that's the type of software we're looking to build or acquire. And then second, does -- even if we build the application, are we behind because of some sort of requirement that the software has. So for example, on conversation intelligence and Chorus, we can build software fairly easily that will record a call and transcribe a call. Those 2 things you can do easily. But in order to identify using AI the key moments in those conversations and then bubble them up for a Sales Manager or Sales VP or a salesperson, you have to have thousands and thousands and thousands of hours of recorded business conversations to run AI and machine learning on to identify the key moments in those calls and then basically apply them to the larger customer base. And so even if we built the software, it would be years before we had thousands and thousands of hours of recorded conversations where we could run our AI and machine learning against in order to catch up to a place where you can actually show a user insightful moments in a call. And so in moments like that and in a software category that we feel really convicted about, we're not going to wait for years to have thousands of hours of those calls. We can fast track our way there. And if we're able to do that in a financially accretive way, accelerate growth in the short term, make it margin-accretive in the short term, then we're going to make those acquisitions.

All right. That makes sense. Now another big question that you been pretty clear about is the move into the enterprise, just bigger deals. How do you imagine your go-to-market strategy changing? Or is there anything in the product offering of the packaging that you can imagine evolving?

Yes. So the enterprise is a big opportunity for us. Just in our existing customers and just on the core ZoomInfo platform, we see $1 billion of seat expansion opportunity just inside of those customers. And so lots of opportunity to just execute and block and tackle our way into a much larger opportunity within the enterprise. One of the things that we did in the last year is we resegmented our customer base to really segment high potentiality to grow customers against lower potentiality to grow customers. And then to make sure that we're aligning the high-growth customers with our best account managers and then giving them an account load that's manageable so that they can grow those accounts to much larger places, that's been really successful for us this year. We announced we have now over 1,200 customers in our $100,000 cohort. That's up almost 100% since IPO. And we see continued opportunity within the enterprise to continue to expand. To understand the way that our sales motion works on the new business side, I'd say there's a large software company we sell to. It's still a short sales cycle, and we're maintaining that velocity, which means we may bring in a customer that can be a -- just about all of our $1 million customer started off this way. They come in as a $50,000 customer or a $75,000 customer in one segment of their business. And when they go to the account management side, we expand in that segment of business. But maybe we're in the storage division, then we go to the security division, and then we go to the virtualization division, and we sort of bounce around the company expanding our footprint to grow to $100,000 and then ultimately to grow to $1 million. So it's an strong land and expand motion in the enterprise. And the work we've done in the last couple of years, in the last 2 years bringing in the right talent for those enterprise accounts, resegmenting the base, bringing in new leadership we think puts us in a strong position to continue the momentum there.

Got it. Now let's talk about just strategy and competition. I mean obviously, I don't think a de facto standard in my opinion and to -- just in terms of go-to market intelligence. But regarding competition, is there anything that does keep you up at night, whether it be external, honestly, just internal to make sure that the competition doesn't keep up?

Yes. I think, look, internally, we see a lot -- one of the things that we see happening in the sales and marketing universe is sales and marketing as 2 distinct organizations are collapsing into one. You see that there's a role in software called the sales development rep. It's essentially somebody who is making outbound calls or dealing with inbound leads. That position now reports 50% of the time into the marketing organization and 50% of the time into the sales organization. That kind of tells you where lead generation, demand generation is taking place, it's largely now a mix of both sales and marketing. And we've spent 15 years building solutions that are designed for the sales rep. And so Engage the sales automation tool is essentially marketing automation for the sales reps. The sales rep wanted their own marketing automation technology. That's what Engage is. We have an intent product that tells you when a company is increasing their research on key products and services on the web. And so let's say, a company usually reads 20 articles a week on network security. If this week, they're reading 40 articles a week on network security, we're flagging that in our platform and alerting the people who sell network security-like products. That's usually bought by marketing. We've design it for salespeople. Webs -- we have a website de anonymization capability where we're to use our really robust IP to company graph to tell you what companies are visiting your website just by taking the IP address of those visitors and then translating them into the company. That's usually bought by marketers. We built it for salespeople. We have a robust enrichment capability where we're able to plug into your CRM system, your marketing automation system and enrich all of the data with up-to-date information that we're gathering from our engines and our contributory networks. That's usually bought by marketing. We designed it for salespeople. And so what we learned is we have all of these different functionalities and technologies that are historically or traditionally leveraged by marketers that we just need to package differently, build a specific UI around and speak to the marketing buyer. And about 35% of our sales motions, we see the marketing buyer in those conversations. And so I think we have an incredible opportunity to kind of repackage and reskin those offerings and go deeper within the marketing use case than we have historically. And we have the products that can speak to them. They're just need little like tweaks to get there.

Interesting. Let's double click on the contributory network you just mentioned. I mean how is the incentive of your customers really to contribute back into the Zoom ecosystem changed over time?

It hasn't really changed. I think the big difference for our customers who contribute is we're now feeding that information back to them in a more clear way. So if I'm a customer who asks ZoomInfo to enrich Cameron Hyzer's information and Cameron Hyzer doesn't exist inside of ZoomInfo, we send Cameron Hyzer in. We hold them and when we see multiple other customers send Cameron Hyzer in, we can pull all of that information together, all of the pieces of that information together, validate it and then feed that back out to all the other customers. First is if you don't contribute, Cameron Hyzer comes in, we don't have him, we send them back out. That's it. And in cases where we may hold a chart of that data, you're not charged for that enrichment activity the way that you would be in another case.

Then are there any limitations on what type of data they are contributing there, how is the type of information we use proprietary? Like don't send us in, this is mine.

Yes. All we ever look at from a customer or from a freemium network or a contributor is business contact information. And so it's contact information that exists on your business card. And we do that for a number of reasons. The first thing is business contact information, not just in our view, but in all of the regulators' views is the least sensitive type of information that exists. It's the only type of information in any privacy legislation that's specifically carved out as nonsensitive. And so if you look at Canada's privacy law it's called the PIPEDA, it specifically says business contact information is not sensitive information. And so if you're collecting it, it doesn't apply to our privacy law. If you look at the law in Washington, California, Nevada, Oklahoma, Virginia, they all carve out business contact information in different ways. And if you look at the GDPR, the GDPR carves out in a unique way. It's says, if you're collecting information for direct marketing purposes, it's legitimate interests 7, that's a legitimate interest to collect information unlike many of the other types of information, cookie information or browser history information that you might collect. So for us, we only collect that business contact information. And it makes sense, right? If one of you dropped your business card out in the lobby earlier and you just realized that you did that, you wouldn't pop out of your seat and run to the lobby out of fear that your private information was at risk. It's just less sensitive information, and it's governed and regulated differently. And so that's the type of information that gets shared in our freemium network or in our customer contributory network.

Very cool. Are there any new types of data sources here that you have or that you're focusing on, leveraging basically just make insights even better for your customers?

Yes. Intent data is -- we made a big bet on intent data. We're the first company to really provide intent data for B2B sellers and marketers back in 2015. And then when we made the acquisition of Clickagy a year ago, we took a bigger bet there. And what you're seeing is marketers and salespeople want intent data to drive who they're contacting, who they're connecting with. And there all sorts of different intent data. So for example, I think if a company is on your website, that's intent data. Knowing that a company is visiting your pricing page or reviewing your products and capabilities, that's really great intent data, maybe the best intent data. If a company is on a review site and viewing your competitors and they're up for renewal, that's really great intent data. If they're reading an anomalous amount of articles about some product or service that you sell, that's really great intent data. And so I think when you think about the future, 10 years from now, there's no question that people still want to know when their prospects or customers are researching products or solutions that they sell. So 10 years from now they're not going to say, "You know what, I don't really, really need to know when companies are researching my competitors or when companies are researching my products and solutions." And so that's an area where we can continue to make investments behind to make that insight even stronger so our customers are constantly in front of their customers at the right time.

Very cool. Let's talk about international adoption. How do you think about the sort of the levers, the sort of opportunities but also the gating factors to international expansion? And what really accelerates adoption in your mind?

Yes. I think first, we've always had kind of an international business, but weren't just like trying very hard at it. So a lead would come in, it would just round robin to anybody in the company. And so someone might come from the U.K., and we give that to somebody in Washington state on the Pacific Time zone, it's next to impossible to align those schedules, and those leads would just wash through. And in the last 18 months, the big thing that we did was we just thought about it differently. We said, "Look, there's an international opportunity. Let's stay focused on it." And so the first thing we did because it was kind of in the middle of COVID is we took a group of our Boston-based or East Coast time zone-based reps and we said, "Hey, would you like to wake up at 2 a.m. and work the international opportunity for us?" And we had a handful of reps who said, "Yes, that sounds great. There's some childcare things in there. I can be done at 2:00 and be with my kids or my family." And so we got kind of a handful of reps doing that. And then the international expansion and growth rate increased and then increased again and then increased again. And then we made a commitment this year that we want to open an office and have actual reps in international locations. We're starting with English-speaking reps. So we already have a handful sales reps who are based in the U.K. who are taking us to market there. And then we'll focus now on English -- again, English-speaking Europe, Australia and New Zealand. So we won't get into sort of localization and translation of the platform probably in 2022, but see that as a growing opportunity. And then this last year, we spent a lot on really fortifying the data assets internationally. We grew our European contacts and companies over 80% year-to-date in Q3. And we continue to invest behind that data asset. We think we have the best data asset and the best platform for international sellers and marketers and see that as a big white space opportunity for us. And today, it's largely about just go-to-market execution there.

One question I get whenever I talk to investors about the international opportunities, obviously, call it, EU scrutiny on privacy. You talked about GDPR a little bit. But how does that impact users' willingness to actually use solutions like ZoomInfo?

Yes, it's interesting. First, one of the things we've done from a privacy perspective who nobody in our space has done, and we've been doing this now for 4-plus years, is we go out and we give everybody whose information we've collected, a notice that we've collected their information. And so we tell them we've collected it, what types of information we've collected and then we give them access to an automated privacy center that they can go to, they can review their information, they can update it or they can have it removed from our platform. We're proactively doing that. There's no -- outside of, arguably, that the EU, there's no place that requires that level of notice. We're doing it anyways. And that puts us way ahead from a privacy perspective. And then we took it a step further in our platform, we've built a number of privacy and compliance controls. Master suppression is one. So a customer can bring us their list from Salesforce or Marketo of people who've opted out of communications with them and we'll hide them from the platform. They could one click turn off countries in our platform. They could one click turn on -- or turn off people who are on the do not call list from our platform in the U.S., in the U.K. and other countries across Europe. And so we built really robust controls from a privacy perspective within the platform because what you find when you go have these conversations with privacy practitioners and data privacy officers is that there is a wide variety risk appetite around this. There are some that are super aggressive or conservative and say, look, we're not going to use any data anywhere, not even in the United States. And then there are some that are less conservative there. But what you've seen since the GDPR rolled out is that companies are getting smarter about ways that they can actually leverage this type of data in all of the countries that they operate in. And they recognize that they're at a competitive disadvantage if they're not using this type of data to go to market. And so they may start. For example, one of the clauses of the GDPR requires that the information you keep on an individual has kept updated and accurate. Well you don't have any systems to keep that information updated or accurate. You just put it in your CRM, and it just decays. And so one way we have into those accounts is to say, hey, look, plug us into your CRM, use our APIs to abide by the GDPR and keep that information up to date and accurate. And once they get comfortable there and they've had conversations with our privacy team and our Senior Director of Privacy, they're moving more opening up in certain regions. And that's really the trend that we're seeing.

Interesting. And just another example of data, like I was actually listening to snow day -- by Snowflake, and they gave you that exact example of data quality and updating it where, they've highlighted, ZoomInfo is one of the highlights of their marketplace. But it was all around data quality and keeping the data up to date for GDPR.

Yes. And it's super interesting, like Snowflake is a great partnership that we have because company doing all sorts of analytics inside of Snowflake. And so they're moving all of this business data there, but they have no mechanism to make sure that, that information is updated. They have no mechanism to fill out holes in that data. So is this company a software company or a manufacturing company? Is it based in the U.S. or is it based on the U.K.? How many employees does it have? Is it growing? Is it shrinking? Is it getting funding? Who's the CEO? All of that information it doesn't magically appear inside of your systems. And so now our asset lives inside a Snowflake and live inside of Salesforce and Marketo. And so where you're doing that analytics, we can bring our data to bear so that you always have the most accurate information at your fingertips.

All right. Can I ask a margin question from a man over here. So one of the questions I get is that, okay, this company is growing super fast, but it also has some of the highest margins that we've seen. The question I get is basically, hey, is this sustainable, especially given the vision that Henry just laid out of moving up the stack? Are you going to have to spend more in on R&D, how do you think through the trade-offs there?

Yes. Well, when we think about margins, we really think of it as a reflection of efficiency. And we're super focused on -- I've always been super focused on making sure that our go-to-market motions are efficient, but also the rest of our company, whether it's R&D or cost of service or on the G&A side. We're thinking about how can we do things better every day and become more efficient. And realistically, particularly when you look at other software companies, it's more about go-to-market in sales and marketing than it is about anything else. And that's where we're -- our efficiency really shines. We're using our own platform. We're bringing in young kids, training them up, making them useful, taking the cream of that crop and pushing them into higher level roles where they tend to be some of our best performers. And that efficiency at the end of the day really helps drive our scalability. So we're actually able to grow our teams, sales and marketing and R&D and other teams faster than, I think, your average software company could because of the efficiency and then continuing to build that capacity in order to drive sustained growth over the long term.

Yes. I mean just one point, I mean we have set of KPIs, and I was going down the list of the magic number, and there's one that stands out. It's a big outlier it's like the upside of ZoomInfo. So there's a lot of efficiency there. I was like, I didn't feel we need to recoup that. It's like about, it's real. So I know we're out of time. But I'm going to ask one more question anyway because this comes space has been great. Obviously, you've got a lot of things going for you, great data assets, expanding data assets, expanding internationally, going up the stack for applications. And sort of what keeps you up at night?

Yes. Look, I think the thing about the position we're in, especially post IPO is there's no reason we should not be able to accomplish anything that we want to. We have a big balance sheet. We have a high-profile company. We should be able to recruit anybody that we want. We should be able to build anything that we want to build. And so the thing that keeps you up at night is, if it doesn't work out, it's just my fault. It's just all of our fault. There's no like it's a big TAM, they're great offerings. It's not great, you have me to blame and you have Cameron to blame and the rest of our executive team to blame. And that's it. There's no excuse for not executing.

Exactly. I like it. Let's end on that note. Thank you guys. It was great conversation.

Thank you.