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

Okay. Good morning, everyone. I am Mark Murphy, Software Analyst with JPMorgan. Welcome to the conference. Great to see a packed room here. And it's a real pleasure to be here with Henry Schuck, who is CEO of ZoomInfo; as well as Cameron Hyzer, who is CFO of ZoomInfo. And gentlemen, first off, welcome to the conference, and thank you for being here.

Yes, absolutely. Thank you for having us.

So maybe you could give us a super quick introduction of yourselves and the company just in case we have anyone in the audience who's not fully familiar with ZoomInfo yet.

Sure. So I'm Henry Schuck, I'm the Founder and CEO of ZoomInfo, founded the business in 2007. And my law school dorm put $25,000 on my credit card. My co-founder put $25,000 on his. And we went out to build, at the time, a data asset for sales and marketing professionals to identify their next best customers to know how to connect with them and engage with them. What we realized over the years is that as hard as it is to believe, that does not exist organically inside of companies. It's just you don't open up your CRM and get a world of buyers who are excited and ready to buy your products and services. Over the years, we've continued to invest in that data asset. And then we've built a really robust application layer of go-to-market software on top of that data asset. Today, we're about 2,700-plus employees; about 25,000 customers, customers of all sizes from very large enterprises to small businesses.

So we've been aware of ZoomInfo for a long time. I've been impressed by this company for a long time. And it's really because we know this whole ecosystem of software companies, right, that all these companies that were taking public. We have 50 software companies here. If we pull them aside, they will tell us that ZoomInfo has been a pretty meaningful catalyst to their growth. And it's been very integral, right, to the success of so many of these companies that we noticed some waking up. We noticed some becoming more data-driven. Could you walk us through, from your perspective, why is this change necessary, right? Or kind of why is the industry evolving to require what you do?

Yes. I think for a number of reasons. In the last presentation, there was another public company CEO. And at the end, as they were wrapping up, there were multiple questions about go-to-market efficiency. How do you create more go-to-market efficiency? How are you growing your sales team? How are they becoming more and more efficient? And I think you have that sentiment all the way through, from enterprise to mid-market to SMB, companies want to go to market in the most efficient way possible. And for years, there wasn't a lot of investment in making the sales rep, making the marketing motion more efficient. Lots of dollars went behind developers and engineering and workflow for engineers, and not a lot of dollars went behind what I think is the most important part of an enterprise, the ones who get you dollars for all the stuff the engineers are building. And I think companies are realizing that there are a world of tools and data and insights that they can be using and deploying across their sales teams to go to market more efficiently, to find their customers who are actually in market for their products and services. They can use data to identify their exact target accounts. They can use software to know when competitors are coming up in conversations, when a deal has gone off the rails, when a customer is excited about moving forward when they're not, when there are anomalies in their forecasting process. They can use software to engage with their buyers in an automated way, right when they're in market for their products and services, right when they visit their website. And so there are all of these data assets, insights and then software that sales teams can be using when they start using them, start digitizing the go-to-market motion, they see that efficiency gain. Their teams do more with less. And then that spreads over and over and over again. And the access to this type of software and data for sales teams is new, and companies are really excited to put it in the hands of what was largely a bespoke team that took people to golf outings or baseball games or just did events and wasn't very digitized. They're seeing the efficiency gains by actually investing in that digitization and that software.

Yes. And I think the kind of really exciting thing for us, Mark, is that many of these software companies were early adopters. But these processes are equally applicable to a retail company, a financial services company, manufacturers, transportation and logistics, and that's where we're also now seeing even more growth from those other industries that they all have good market motions and they all want to be efficient.

I want to come back and touch on that in just a moment. But so before I do, Henry, with that explanation that you gave, right, we like to assess that through the lens of all the customers, right, that we're interacting with. And I went back and kind of reflected on this, and I came up with this quote that was interesting to me. And it's pretty representative. This customer said, the depth of the contacts, the data that we can't get actually on LinkedIn, right, the reps use it as a day-to-day research tool and a white-space mapping tool. Without this, it would be very hard to go to market. So we hear that. And yet, I think we talk to investors and they say, well, map it back to the core differentiators, like what is it that is standing out? Is it a technical advantage? Is it the data? Is it the machine learning and AI? Is it this business model advantage? How do you think about what is your differentiator that you don't see elsewhere?

Well, yes. But I think a couple of things. Just as a framework for the company, the way to think about it is there's this incredibly robust data asset that sits at the foundation, and then there's this robust application layer that allows our customers to take advantage of the insights and the data that's coming off of that core data foundation. That core data foundation is kind of 200 million businesses that we cover worldwide and around 200 million business professionals that we map back into that -- those businesses. That's one piece of that. To have that really robust data asset, and we have the most robust data asset in -- domestically and internationally that we're leveraging across that application layer, you have to have a really robust contributory network. We have 2 really robust contributory networks, one, a freemium network where freemium users of our community edition platform get limited free access to ZoomInfo in exchange for their e-mail contacts; and then a customer contributory network, where a select number of our customers share data from their CRM and marketing automation systems with us that we cleanse, validate and use for signal to publish and cleanse our -- the publishable database. Now one of the big things that we saw for our clients is getting them incredibly accurate insights and data inside of their CRMs. And so just getting CRM raw contact information or freemium network, raw contact information is not very valuable. So there's an incredibly robust ML and evidence-based algorithm that sits in the middle of all of these different sources that comes in and make sense of them, normalizes, cleanses them, matches them and then decides when or if to publish them into our platform. And so we've made a major investment behind that ML, behind the algorithms, behind our data science teams. In the last 2 years, that investment has over 5x the number of companies that we cover. It's more than -- it's almost 2x the number of business professionals we profile. And that's the million, that's 50 million to 250 million companies. It's 125 million to 215 million business professionals. And we did that all while increasing the quality of the data asset. Now it's in -- the company and contact data is important. Those are important pieces of our data asset, but we also cover a tremendous amount of additional key data points that our customers are using to go to market, millions, tens of millions of technology pairs. And so what companies are using what technologies? Tens of millions of hierarchy and location pairs. And so what companies are connected to what parents? Which companies or subsidiaries? How many locations do they have? Where are those locations? And then a number of other interesting data points. We map IP addresses back to companies so that our customers know who's visiting their website. So our customers can do display advertising against key business personas on the display ad networks and the social media networks. Now all of that data is valuable. It all feeds into this application layer so that our customers can build workflow. It's great that I know Wells Fargo visited my website, but now I can work -- create a workflow that says if they visit 5x, capture my buying committee, start display advertising, start an e-mail marketing campaign, notify the sales rep that they've been on the page, that these things have happened, and they're building all of their recipes or sales playbooks with workflow in the application layer on top of that data asset. Now none of that workflow is possible unless you have this robust data asset, but it is that workflow and application layer that gives our customers the ability to do something really valuable with that data. And in Q1, we talked about how 75% of our users are doing something more advanced in our platform than just looking up a contact or just looking up a company. They're building workflow. They're using our engagement automation. They're building really unique audiences of their ideal customers and their ideal customer profile. And so we're really excited about the investment in the application layer that's letting our customers take advantage of.

Okay. So that's the transformation that's been playing out here, which has just been driving spectacular results. When we go back and look at this, so your organic growth rates have accelerated all the way up from the time of IPO, you're up into the high 40s, low 50s recently. And I think the biggest question we're getting from investors, okay, across the entire software landscape is, well, was there a pandemic pull forward or not, especially when you kind of look back to last year. So the way they would say it on ZoomInfo is, well, you had lockdowns. There was zero face-to-face selling. You mentioned dinners and golf. There wasn't any of that. So of course, what you had was companies were kind of digitizing their selling motion basically because they had to. And so now -- and again, this is the cynic's view. The economy is reopening, maybe it will slow down a lot. It didn't happen yet though. So -- but how do you respond to this topic of pull forward?

Yes. I think first of all, there's no Webster's dictionary word for undigitization. Once you digitize, you don't undigitize. It's just not something that we ever see. And if you think about -- I just don't think there's any sales or marketing organization that got all of their leads from events and all of their leads from golf outings that wasn't on an urgent path for digitization anyways. And so there was that type of demand pre-COVID, there was that type of demand during COVID, there's that type of demand today. And so the idea that once companies invested in digitizing their go-to-market motions and becoming more efficient in the way that they gather then the next best customer that, that's going to go away now that they can go back to events or that they can take people out to golf outings. It's just I've never seen something like that happen, which there was a business that -- and I'll give you an example. There's a business in the middle of the pandemic that came to us. It was -- they're the second largest provider of signage. So like a Chase sign on the outside of the building or a Wendy's sign. And he got all of his leads from going to 3 events a year. And so in the middle of COVID, obviously, you can't go to events. He came to us, and I was on a call with them. He said, "Look, I knew this wasn't the right way to go to market. I knew that this was an incredibly inefficient way to go to market. I just -- things were fine, and so I didn't want to particularly make a change." He made a change. Events are open again. He's not going to cancel his subscription to ZoomInfo. He's going to augment that because he's growing better and more efficiently with ZoomInfo, and he can now make investments at events that are a lower ROI component of its go-to-market motion, but can still be a part of it.

Okay. So you kind of reject the notion of a pull forward in a sense.

Of the pull forward, yes.

So let's think about now the way the business performed in Q1. It was impressive again. You had this 49% organic growth. It was a 52% free cash flow margin. You beat and raised. That didn't feel like we had a pull forward than a lull. Can I just ask you, when you look back on Q1, was there anything that stood out? Anything that surprised you in particular?

No. I think it was pretty balanced in Q1, which I think you've seen in a number of our quarters where it was pretty balanced execution. You had great growth on international; great growth in the $100,000 cohort. You had great growth on the new business side. So it was a pretty balanced quarter.

You closed an 8-figure deal with Alphabet, the parent company of Google. What do you think we should take away from that?

Yes. I think you should probably take away a couple of things. One, getting a multiyear 8-figure deal done at Google is a major lift. It requires that you have all of your data security practices, your data privacy practices, your procurement practices all in line. It goes through months of sort of negotiation and back and forth between legal counsel and procurement and then all of your stakeholders, too. Getting the size of deal done requires that you're able to pull a number of stakeholders into that decision. I think the thing to think about in the future is that we work with close to 50% of the Fortune 500. We think this is a model for the way that we can do large enterprise deals there.

Okay. What now -- so can I ask you just very directly on the demand environment. How do you perceive it right now today? I mean we're about to head into June. You do business in the U.S. You do some business in Europe. Are there any strands or stresses anywhere? Or does it kind of feel like it's all systems go to you?

Yes. So we're very lightly -- we're hardly penetrated in Eastern Europe. We have about 12% of our business internationally. The rest of it is domestic. And then a couple of things to think about. Number one, we sell only to other businesses. So we're all B2B. So we're pretty insulated from that perspective. Our solution is quick time to value. If you think of a spectrum of like ERP to Microsoft Excel, we're much closer to the deployment and time to value of Microsoft Excel than we are to ERP. And if you look back to sort of the start of the pandemic in 2020, what you saw was companies were continuing to vest in these quick time-to-value solutions, and they were putting aside sort of longer implementation type software efficiency gain investments. Now a lot of people are talking about the macro environment -- the macroeconomic environment. We hear that from our customers. Anecdotally, we've heard from some of our salespeople that deals are taking longer, but they're still closing. And so we still feel really strongly about the demand environment that we're seeing and feel really good about that continuing.

What -- so if I can pull on that thread just a bit, what do you think would happen? So if we go into a recession, now that ZoomInfo is at scale, it's chugging along with this incredible kind of rule of 80, rule of 90 types of numbers, what -- do you think that seat expansions would slow? I mean, if you had to -- I don't want to kind of think about it, maybe force you to think about it too much. But is that something that would happen with the typical sales and marketing team just kind of tap the brakes a little on headcount growth?

Yes. I mean I think part of this is we're -- it's not like we're fully deployed across our customers. There are very few customers. The Google deal, they figured Google deal makes up like low single-digit thousands of seats. And so there's tons of opportunity to grow seat count there. It's not like the next incremental sales hire is where we're getting the incremental seat growth. And so even if hiring stopped or slowed, that's not a particular impediment to our ability to grow seat count. We're just not deployed end-to-end in that way in the vast, vast majority of our clients. And so I don't imagine it slows down seat count. I think the other piece here is that we've added a tremendous amount of functionality to our platform. And so we have opportunities to grow in a number of ways. We can grow with seat count. We can grow with additional functionality. We can grow with additional data sets. I believe that every company is going to be leveraging intent data. To go to market in the next 3 to 5 years, every company out there, every sales team should be leveraging conversation intelligence to ramp their sales teams, to understand the voice of the customer. And so we're in this very early innings of technologies that I'm certain will be end-to-end delivered to sales teams. And we have those in our bag and in our hand, and they're integrated into our platform. And so I think there's still lots of opportunity to grow in our accounts.

What about -- so this question of -- we're getting this again across all the software companies, with the tech vertical slow, with the software vertical slow, I think, Cameron, you had touched on this a moment ago. Back at the time of the IPO, there was a reasonably high percentage rate of ARR that was coming from software or coming from tech. You've been diversifying. But you see some of these comments, like Uber is talking about trying to get to generate more free cash flow. Do you think some of those companies would slow their spend? Or is your feeling that it's taking off faster in the other verticals?

I think if you look at the decisions that are being made at a lot of these companies, they're going to look and say, "Look, I need to maximize my free cash flow. How do I do that?" The answer is you need to do more with less. You need to invest into efficiency and not be cutting or changing whatever else. So even if you're maybe slowing your headcount growth, you're still looking to increase the number that you need to hit. And the way to do that is to give your team more tools that they can perform better on a per-user basis. And that's exactly what we do. And that's how we drive efficiency at our own company, and that's how our customers can end up driving more efficiency. And ultimately, that quick time to value is super important because if you can invest in something today and turn around and see results on that within the quarter, that's an easy thing for you to keep focusing on.

So -- and I think where that leads is you were in an inflationary environment as well?

Yes.

If you've got this mechanism that's driving the highest ROI for customers, and they're seeing their own kind of cost inputs rise, is there room maybe to be raising prices in this environment? Because I think we're starting to see that coming from other software companies.

Yes. And historically, we've aimed to continue to generate more revenue from our customers, mostly by giving them more functionality or improving the reach within those customers. I think that, that will continue to be our playbook. There's probably some room to lean on pricing, but the majority of what we're going to focus on is continuing to provide additional functionality and additional reach to those customers, provide them more value and garner a greater share of their wallet for us.

We also have a major consolidation opportunity within accounts. If you sit through one of our sales presentations, there's one slide that we call the Frankenstack, which is like companies have brought together a number of different vendors who are not best-in-class to power their go-to-market. And because over the last year, we've organically built and innovated a number of those solutions that would fit in that Frankenstack and then we've made a number of acquisitions that we've integrated into our whole platform, we have an opportunity to let our customers consolidate on the ZoomInfo platform and save money at the same time by doing that consolidation. And we have a team of technical sales solutionists who are able to help them do that. And so even in that environment, we can actually sell more to our customers, help them save money and then give them an integrated platform experience. That's a really exciting opportunity to have in the midst of an inflationary environment.

Okay. And I'm going to come back to that topic in just a moment as well. The next topic I wanted to put in front of you is privacy, which pops up from time to time. I think the issue we run into is that the privacy landscape is pretty confusing. And so people confuse what's happening in B2C with what's happening in business to business. And so maybe this is a good juncture for you to just kind of try to explain how you collect the data, how it's used and what is your position on privacy.

Yes, great. I'd love to. Yes, I'm a lawyer. I'm not practicing, but I am -- I still have my attorney's license. And so I pay a lot of attention to the regulation. And I think because of that, we actually help our customers navigate a pretty complex regulatory environment as it relates to this. But let's just start by the data. When we talk about data privacy or regulation, we're really talking about just contact data, right? We're not talking about -- no one's talking about company from a graphic data or technographic data or the IP addresses that power our website solution or hierarchy data, location data. None of that are Scoop's data, projects and initiatives data. So contact data is one piece of like a really big mosaic of data that we bring to bear for our customers. Now on that contact data, we collect only B2B contact information, information that would be found on your business card or your resume, that's it. We don't collect any other information on individuals. That's an important point, because every piece of privacy legislation that has passed. And in the United States, you've seen data privacy bills drafted in a number of states. You've seen them passed in California, Connecticut, Utah, Colorado, Virginia, every single one of those carves out business use cases, B2B use cases as not part of the data privacy law, every single one. That is the construct for how data privacy legislation is being written. It's being written as consumers. Consumers are subject to this. But when information is collected in the business context or in the employment context, that is no longer a consumer. That's the same construct that you see in Canada's PIPEDA. It's the same construct you see in Singapore. In the GDPR, the GDPR lays out 7 legitimate interests. The sixth legitimate interest for data collection is direct marketing use cases. And so every data privacy law on the books treats data that's collected for B2B and business use cases and B2B data very differently than consumer information. I think that's a big confusion. You pointed out on that. Now okay, great. So we collect business contact information. It is that Canada's PIPEDA calls business contact information the least sensitive type of information and completely carves it out of the legislation. So same construct. Now what we do when we collect that information is we go out and we give proactive notice to everybody whose information we've collected. That's not required by any of these pieces of legislation. And none of our competitors are doing that. We're leading the industry on this. So we go out. We give everybody a notice of the information we've collected. We give them access to an automated privacy center where they can review or update or remove their information from our platform. They can do that anytime they want. And so we're way ahead from a privacy perspective. This last year, we hired Simon McDougall, who is the Deputy Enforcement Officer and -- for the U.K. and Ireland in the ICO's office, who was term-limited out. And he enforced GDPR across the U.K. and Ireland. He now is our Chief Compliance Officer at ZoomInfo and is continuing to innovate those practices that we run. And I think the last thing that I think about a lot here from a regulatory perspective is let's -- if you think about the most sensitive type of information that gets collected on consumers, that's not in the business context. Then -- and what private companies collect that information? It's certainly the credit bureaus. They collect the most sensitive information on us. They have a long tale of information. They know what color my car was, where I own a house, every time I was late to a credit card payment, my student loan payments. And then that information comes to bear at the most impactful moments in people's lives when they're applying for credit, getting a house, getting a credit card, getting a cell phone. And in the '90s, Congress went, whoa, this is pretty sensitive information. It's really impactful for consumers. Let's regulate it. And they regulated by writing the FCRA, the FCRA. And what the FCRA requires credit bureaus to do are a number of things, the most -- the biggest ones are, one, give the consumer access to their credit reports for free every year; two, create a form where a consumer can object to the information that was collected on them; and then three, respond to those objections of wrong information within, I think it's 30 or 60 days. On the most sensitive information, that's the regulatory construct. So it's hard to -- and we already do all that. We give the consumers access to the information we've collected. They can, in an automated way, update it or remove it from our platform. We already do the same requirements that are laid upon the most sensitive information for what is in each piece of legislation carved out as the least sensitive type of information. So when you think of the arc of regulation, you can get like really comfortable that it's hard to imagine a world where the least sensitive information is somehow regulated more severely than the most sensitive information.

Okay. And can you comment on the California lawsuit that's part of this because it's...

Not as part of this, Mark. This is not a data privacy lawsuit.

Well, that's where I was going. Then maybe you can explain for people that are unsure. What is that lawsuit?

Yes. So the California lawsuit is a right to publicity lawsuit. So what these laws were designed to protect was basically like Michael Jordan, you can't take Michael Jordan's likeness and apply it to a Wheaties box without Michael Jordan having control over that likeness. It's a right to publicity lawsuit. It was designed to protect people in that construct. Some clever plaintiff's attorneys decided to take those laws designed to protect celebrities from having their likeness misappropriated and then apply it to our directory pages. These are pages that we have online where if you Google Cameron Hyzer, his ZoomInfo page comes up. This does not apply at all to the way we collect information. It does not apply at all to the way that we publish information. It applies strictly to the use of those directory pages as an endorsement of that individual endorsing ZoomInfo as an advertisement. We think we have really strong arguments on our side here. We think it's -- these -- that this lawsuit lacks merit. Now the one thing to think about is what do we get from those directory pages. And in California, we get a little bit less than 1% of our marketing qualified leads from those directory pages. So if you took them all down, you would have less -- a little bit less than 1% of our leads would be affected. Now we've already made changes to those pages and alterations that we think avoid that from happening in the future, and we feel like the argument in general lacks merit.

Okay. Thank you for sharing all of that on that topic. We have about 5 minutes left. So I want to check and see if we have any questions from the audience. Just go ahead and raise your hand, and we will get a microphone to you. Going once. Going twice. Okay. Let's move on and spend a moment talking about -- you've had this platform that's been evolving very rapidly. You've got the -- as you said, you've kind of have the app layer, which is running above the data assets. And you've been mentioning a persona-based approach that we've been noticing. You formed several categories. You've got the SalesOS, the MarketingOS, the OperationsOS, the TalentOS. Can you help us try to connect the dots here for -- and just keeping in mind, it's a bit of a generalist audience out here, so that they can understand the approach and why you're structuring it that way.

Yes. So we sell the 4 unique personas, salespeople, marketing people, talent acquisition and recruiting professionals, and then operations professionals, go-to-market operations or revenue operations or sales operations professionals. So we've restructured our sales team with specialists who can sell and speak the language of all those individuals. SalesOS is our flagship product. MarketingOS built on the same data foundation, but gives marketers the ability to build audiences and then activate those audiences through the display ad networks, through social media networks, through e-mail marketing and marketing automation, by notifying sales reps so they can come in, build really unique audiences, upload, add creative, set bids and then go out and sort of target business-to-business personas on the display ad network. It's what every B2B marketer wants to do is that they want to be able to say, "I want to target ads at Chief Marketing Officers at Fortune 1000 companies, and I'm willing to spend a lot to be in front of those eyeballs." And so we built MarketingOS to give them the ability to do that. TalentOS is our recruiting solution. We are in the most competitive hiring environment in history. And we think that, that lasts for a long time. TalentOS gives recruiters access to a sourcing database and then technologies to -- in an automated way, engage with candidates. And then OperationsOS is our Data-as-a-Service platform, which is married to a number of data cleanse and enrichment tools. So customers can keep their CRM, marketing automation systems or enterprise data warehouses constantly updated with up-to-date information on their customers, on their prospects and on their buyers.

Okay. So in the couple of minutes that are remaining, I want to try to go into what's happening with your enterprise vector as you're trying to move upmarket because we've had -- even with industry contacts that have an incredible amount of appreciation for ZoomInfo, I think that the -- sometimes they'll have a little constructive criticism. And they'll say, "Well, it's a velocity selling motion at this company, and it's a hell of a velocity selling motion." But it's designed to land customers. And they would kind of point out that for the size of the company, you hadn't that often kind of done the 8-figure of contracts. Obviously, you just did one with Google. But we think that, that's been done intentionally. And we think that it's kind of starting to change. What do you have to do? Because I think, Henry, you said there was a lot that goes into that, trying to close a customer like Google, to sell to them, to service to them a multinational firm, what are they going to need, security, governance, compliance, data residency, SLAs? What is it that you have to try to build out to ensure success here?

Yes. So first, from an infrastructure perspective, from a data security, governance, SLAs, data privacy, we have all that. I think that you see that in the Google deal. You see that -- and I talked about Shopify and Hitachi in the earnings call, too, Those were both $1 million-plus ACV deals. And so we're doing larger deals. We tend to not mess with the velocity at the front end. We want to bring customers in quickly, land them and then expand them on the account management side. And so that is right. That is a motion that we run. And so we may be -- we're often okay with taking down $100,000 customer at an account that we believe we can grow to $1 million or $2 million or larger because we want to get them in the door, get them getting value out of ZoomInfo and then expand from there in an expansion motion. That is the motion that we're run. We think it's pretty successful. And I think you can see that our 100,000 enterprise customer cohort grew 65% year-over-year in the last quarter. That's had continued sustained growth there, which we're pretty proud of. But I think when we think about the enterprise and strategic opportunity, I think it's really about making sure we have the right people in those seats, that their account base is segmented properly, so they have the bandwidth to really grow a handful of accounts, and that they have the ability to tell a much larger platform story that we're enabling them to do.

Perfect timing. We just had the red light turn on. So thank you so much for being here and the irony that you had to fly a long way to get here to Boston, Henry. We're glad you made it. Thank you so much to both Henry and Cameron.

Thank you.

Thanks, Mark.