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

Good afternoon, everybody. Thank you for joining us. With me I have the CFO of ZoomInfo, Cameron Hyzer. Cameron, thanks for joining us today. We're looking forward to learning more about ZoomInfo, and it's been one of the exciting growth stories in SaaS. And for those in the audience that may be less familiar though, that it would be great if you could open with a little bit about maybe yourself and what's ZoomInfo, the problem that you guys are solving for your customers?

Sure. So I'm Cameron Hyzer. I've been the CFO of ZoomInfo since 2018. And the problem that we're solving is really helping salespeople and now marketing and sales operations and recruiters basically operate more effectively and efficiently. And the way that we do that is providing high-quality data and insights and wrap tools around that to really help sales folks understand and target specific companies and people within their addressable markets.

Maybe speaking of addressable markets, how do you think about defining your own addressable market? And I have a couple of follow-ups once we get that one.

Yes. So one of the great things is we have a platform that actually provides high-quality data and insights on companies throughout the world. So when we think about our addressable market, we went and identified, in our platform over 700,000 businesses that sell to other businesses, and that's coming across all shapes and sizes as well as industries. So we think about that as our real target audience that we go after from a go-to-market perspective. And yes, I think we're still very lightly penetrated within that. Less than 5% of that total world or companies that are currently customers of ours.

Great. And I know that the company recently hosted an Analyst Day where you gave a multiyear target of $2 billion in terms of reaching it for revenue, and that was a slight revision in terms of the time line for getting there. So what gives the company the confidence, particularly with this macro backdrop in reaching that long-term goal?

Yes. So when we think about what's needed to reach that long-term goal, we really have the products in place right now as well as the opportunity and potential out there. So it's largely around our sales and marketing capacity, our ability to go out, reach new customers, show them the value of the platform and then continue to deliver that for them. So we'll be over $1 billion in run rate revenue here in Q2. And our capacity, even in Q1, we added $100 million or roughly $100 million of additional new revenue. So based on that math, it will take us roughly 10 quarters to get to that $2 billion level just with the current capacity that we have. And naturally, we're going to continue to add sales and marketing capacity as we grow in order to drive an acceleration against that target over the next couple of years.

Great. And one of the questions that we get a lot from investors relates to the problem you said that the company is solving, right, for sales organizations in particular. So I think it would be helpful for the audience to understand how the company gets these -- how your actual contributory networks work? And just maybe how that makes the quality of the information that you have so much better than maybe your competitors?

Sure. So when we think about the data and insights that we're delivering about a company's addressable market, we kind of think about it in 3 categories. There's company data. So that's information about the company, where they're located, maybe a number of firmographics like the revenue and how many employees, and then a much deeper set of information around their technologies and other pieces. The second pillar is contact data. So those are the people that work at those companies, what their titles are, how to reach them, e-mails, phone numbers, as well as the organizational charts around those companies. And then we have intent data, which is companies that are exhibiting kind of buying signals, whether that's searching for things online or maybe hiring a new person that would be related to your particular product or service. The contributory networks are most applicable to the contact data and the contributory networks that we operate, we have one that's a freemium product where we have hundreds of thousands of users that get limited access to the platform in exchange for the e-mail and kind of contact signatures out of their e-mail systems. And then our second contributory network, we have customers that opt in to providing us information out of their CRM systems. They might be looking for updated contacts, although more often than not, it's exhaust information that comes out of their processes. You can think of exhaust as, we're integrated into their marketing automation system, and we're going to receive all of the e-mail bounce records or delivery confirmations on e-mails that they send, which enables us to really triangulate accuracy around, if e-mails start bouncing, that's an obvious signal that, that person may no longer work there, or if there's a confirmation, we can assess that they still work there. And we mix those contributory networks with a large amount of information that we're gathering from publicly available sources, your Internet company page, maybe blogs or press releases that you put out, all of this information, publicly available filings, et cetera, and putting that through an evidence-based algorithm. So we're taking data points from all of these different places and comparing them against each other to then ultimately decide what should be published in the system or what maybe a noise versus the signal that we're trying to get together?

That's helpful. And I think that ZoomInfo is doing something that's actually relatively tough in technology, which is you're taking this robust data set, then building the solutions layer on top of that, right, and moving into the application layer. And so I was wondering if you could maybe talk about the different application solutions that you've been able to build out over the last couple of years and help maybe the audience understand where that maps to in terms of the internal employee that would be using the solution.

Yes. So we've built out and acquired a number of different functionality sets throughout the last couple of years. One of them is an automation engine that we use for sales automation. It basically enables customers to set up templates and sales flows or processes that they can run different motions through. We call that Engage. That was also deployed for our TalentOS. And we're basically taking sales flows and we rename them to be recruiting flows, so that talent acquisition professionals can essentially create a pipeline of potential candidates, go through different nurture campaigns with them, and ultimately work to progress them through a pipeline to an interview or other outcome. Additionally, we have a MarketingOS, which is really an ABM platform, that's account-based marketing, where we can enable marketers to create audiences of potential leads that they want to interact with, whether that's through social, through e-mail campaigns or through advertising and orchestrate those campaigns over time. Those are all internally built systems that really leverage the data that we've developed and make that data more actionable for the customer. So not only are we providing more capabilities and automation and value to the customer, but it's also making the data more valuable as well because it's more easily activated. We have a couple of other products that we largely acquired. One of them is a conversation intelligence tool that allows our customers to record, transcribe and then analyze the key moments in calls that their salespeople are having with customers -- salespeople and account management folks. This allows us to really take the third-party data and insights that we're able to generate and mix them with first-party insights, bring that voice of the customer into your motions and generate motions or derive additional analysis about what's going on with your customer base and how they're doing and then layer in all the firmographics or other pieces that we have. We also have a chat functionality and a website intelligence functionality where when a customer is coming to your website, we can automate and have artificial intelligence kind of chat with certain of the potential visitors. And certainly, our data makes that much more robust because we can identify coming in what IP address is that particular person coming from and we can map that, in most cases, to a company. So if you have a chat solution -- one analogy that I heard is, if you're operating a Ferrari dealership in London here, if we passed a Rolls-Royce when sort of walking over, you really want to know when the person walking in is a prince from Saudi Arabia versus just a kid off the street, and you want to deploy your best resources against someone who's likely to buy. So given our capabilities, we can identify who are those more likely to buy or higher probability people coming in and deploy strong resources against those versus maybe just an artificial intelligence spot against others. So those are some of the capabilities that we've built and rolled out for our customers over the past couple of years.

That's really helpful. But I take it personally that you mentioned a Ferrari dealership wouldn't want to sell me one. But they're absolutely right. I'm just joking.

You never know.

So that's a really broad product portfolio, and it clearly addresses multiple different potential users inside of an organization. How should we think about the adoption progression? Where does a typical customer start? And what's the adoption progression over time?

Yes. So we like to think of this as a journey of sophistication over time for all of our customers in terms of how they're continuing to use high-quality data and insights to drive more and more of their go-to-market motions. Typically, customers start out with a relatively small group of users in the SalesOS. So they're typically using the company and contact information to begin to think about prioritization on who they talk to, develop additional universes of customers, and then start to drive their motions. As they continue to sophisticate, when I talk to Chris Hays, who's our President and COO, about this, he has this view that, look, we're selling an aspiration, we're selling, helping customers be more effective and efficient. And we obviously utilize our own system in a really robust way. So if we show them everything we do, it's like too hard for them to imagine getting there. So our plan is always to show the customer the next best version of themselves. How they can start to use data and insights to drive motions. And if they're already doing that, then how they can begin to automate some of those motions or how they can begin to use intent, which are signals in terms of buying behavior to kick off an automated motion. And as we continue to walk that customer through that journey of sophistication, they get there essentially more easily and ultimately can get to a sophistication point where they're generating a lot more efficiency and effectiveness from their motions.

Great. So that explains the adoption progression. How do you think about the company's cross-selling strategy? Is it typically on renewal? Is it actively -- the last speaker used the word harvesting, so I'll say harvesting, just to be consistent. How should we think about ZoomInfo's strategy on that?

So we are very much active in terms of how we continue to sell and upsell our customers. There's a lot of capabilities that customers can avail themselves to. So most of our upsells actually happen off cycle, so not on renewal for us. But we view that as really important, just continuing to get out and show the value that our customers can receive and how they can continue to derive value. Realistically, the way we think about the world is, at some point, we'd love our solution to be bought more than sold, but right now, most of our customers, when we show them the functionality and show them what they can do, the response is generally, "Wow! I never knew something like this existed." They immediately get that what the value is and how they can use it, but they were more focused on closing deals and getting their next deal than they were on how they could completely change how sales is done within their company. Once we get them there, then it's pushing them through those baby steps in the journey of sophistication, to get them to a point where they can really derive much more significant value. And for us, that happens along 2 dimensions. One is reach within the company. So oftentimes, the one way that we continue to upsell is by starting out in a smaller group, maybe that's a division or a geographic group, and then taking that proof point of success and showing other people within that company what they can do and how they can be successful as well. And then more recently, with all the functionality that we've developed, we also have the ability to continue to drive more functionality upsell with customers as well.

Great. And I think that this is a good time to maybe dig into the sales go-to-market motion generally, because ZoomInfo is very impressive in their margins that they have, while balancing very rapid growth. And I think a part of that secret sauce is the go-to-market motion. So I think it's worth maybe for you to touch on and explain kind of what's different about your go-to-market motion versus a lot of maybe the peers that operate in and around this space.

Sure. So I'll give one example. A little bit more than half of our sales come from our inbound motions. So these are customers that are coming to our website, reaching out for a demo or a conversation. So when you come to our website, reach out for a demo, our internal SLA is that we have someone on the phone with you in 90 seconds. That person -- you probably gave your e-mail address and maybe your name, that person has what your position is, how big your company is, where are you? What other technologies do you use around us, all automatically, and they were algorithmically chosen to be the best SDR to convert your company to a demo. They also have a list of the best AEs, force ranked in terms of the algorithm of all of the information about you on who's most likely to convert you to a closed sale. So all of our deal routing, it's not done based on any sort of named accounts or what geography in, it's all algorithmically driven to basically maximize the best kind of chance of the best probability of closing that deal at the highest ASP that we can generate. And then as you're then moving through the cycle, we're also constantly looking at your usage and your different characteristics in order to determine when is the best time to reach out to you for a particular upsell, or when other people in your organization are exhibiting intent, we'll then route in to talk to our point of contact, make sure that we get a good introduction, make sure that we're getting the recommendation that we should.

I know that, that efficiency has really been great for the company's margins. So maybe another area just for the audience, it would be helpful if you could touch base on the customer base, right? Is it -- are you typically targeting more on the enterprise side? And are there any verticals that you're particularly focused on?

Yes. So the interesting thing about our platform is it's pretty equally applicable to a small business as it is to a midsized business as it is to a large enterprise. So from a revenue perspective, we're basically pretty well balanced between those, and it's not exact, but you can think of it as 1/3, 1/3, 1/3 between those different groups. So as a result of that, we don't necessarily have -- we're kind of more focused on small businesses or more focused on enterprises. We do have a number of enterprise motions that we're continuing to perfect because ultimately, while an enterprise might be a little bit more expensive to acquire, it has a much greater value over the long term because they're stickier, they're much less likely to go out of business, and there's much more expansion opportunity with enterprises. So we do lean into that relatively well. But we're not going to turn away small businesses or medium-sized businesses as well, and they tend to be really good businesses for us. In terms of industries, I think the early adopters for really digitizing go-to-market motions were more in technology areas. So that's certainly where we saw most of the early adopters. And at this point, I think around 40% of our revenue comes from software companies. Most of those are larger software companies, at least on a revenue basis, just because they've continued to grow with us over time. But we see actually much more growth from basically every other industry. So if you think about the world where our software businesses are growing high 30s, low 40s in terms of annual growth, whereas financial services or insurance or business services, you have pharmaceuticals and health care, transportation, logistics, retail, manufacturing, all of those verticals, while coming off a smaller base and less penetrated currently, are growing much faster, 60%, 70%, 80%, sometimes even 90% across those different verticals. So it's really a question of penetration in the adoption curve, where in a software business, you're much more likely to have a late 30s or 40-something-year-old running a sales team, who are really looking for data and kind of came into their professional careers at a time where they were using all sorts of different tools in order to drive decisions and so forth. In, I'll call them older school, industries, maybe those sales leaders are a little older and are taking a little bit longer to kind of come around to using high-quality data and insights for effectively motions that they were taught by the people that they were taught by going back generations to take people out to steak dinners and go to football games in order to gather intelligence or figure out who a buying committee was, or to move a deal along where our capabilities are able to supplement that. So you can really focus on the most important deals and capabilities that allow for better efficiency.

Got you. Part of what you mentioned in that answer was the leaning in well into the larger segment customers. And at the most recent Analyst Day, the company disclosed that you have 1,600 customers that are doing more than $100,000 of ACV. So what's driving that upmarket success? Is that more a result of accelerated adoption? Or is it more a function of more cross-sell of products into the base?

The bigger portion of it continues to be expanding reach within the organization. So that can come in the form of, we sell, we call it, records under management, which is data that is being integrated into the systems that you're using for various different motions. But an increasing portion is additional functionality as well. So I'd like to take the example of a kind of small team, maybe it's part of a larger organization or maybe it's your entire sales team if you have 25 to 50 seats, that's probably a $50,000 type deal for us. And so getting someone to $100,000 or $200,000 or $500,000 obviously means that we're continuing to expand that reach either through additional data or additional seats. But for that team, if we can push them into our elite package, which includes intent and workflows, that might be a $15,000 to $25,000 upsell. And if we sell them Chorus, which is our conversational intelligence platform, that's another $15,000 to $25,000. If they take Engage, that's another $10,000 to $15,000. Just within the SalesOS is we're adding additional functionality that can easily become a 6-figure deal over time just for that smaller size team. And when we add MarketingOS, that can be another 6-figure deal on top of that. When we add OperationsOS, that can be another 6-figure deal on top of that. So there's a ton of expansion capability where we can take even that smaller team, and that could go from $50,000 to well over $300,000 if they're taking all of the functionality that we have on offer.

Great. Maybe sticking on the Analyst Day theme, but in a different direction. The company spent a good bit of time discussing privacy, right? And I think that it's something that's just in focus generally as we think about different brands and with all of the data consumption that's out there. Could you maybe address like what the company was trying to address at the Analyst Day as it relates to privacy and why that matters to the company and your shareholder base?

Yes. So I think particularly for shareholders that are new to the story, we do collect and maintain some personal information on individuals. That's generally the information that's on your business card. So it's your name, your title, your phone number, your e-mail address, et cetera. And so I think we want to help people understand, first, that we are very privacy focused. We have a notice and choice program that we've rolled out around the world. Arguably, that's only required in Europe, but we've rolled it out for all the people that are profiled within our system. In any event, frankly, I don't think any of other of our competitors even have notice and choice within Europe; they avail themselves to some other kind of more lax interpretation of the GDPR. So we're super focused on privacy, but it is still the least sensitive information that you probably have on a person. Most regulations with respect to privacy carve out business information, particularly when it's used for business purposes. So we wanted to help people understand that better. And realistically, for us, like privacy actually becomes a really great competitive advantage, because if you're -- SAP, as an example, when you take a really conservative view of what the GDPR says, you're going to spend a lot of time with any company that is providing information and integrating that into your systems to make sure that you meet all of those stricter standards that a big German software company might avail themselves to. So for our customers, it becomes a real competitive advantage where you're not going to trust some 100 person start-up in San Francisco to ensure that you're meeting all of those privacy requirements. And we have a number of kind of tools and capabilities that we've built into the system in order to help our customers better utilize the kind of privacy capabilities. We also recently brought on Simon McDougall, who was the Deputy Chairman or whatever of the ICO here in London. So one of the foremost kind of experts on GDPR and how it's enforced and the rationale behind it, who runs our compliance -- he's our Chief Compliance Officer, so runs all of our compliance processes, makes sure that we are on the right side of the line in all cases, and then also works with customers to help them think about their privacy stance and how they can leverage kind of data and insights in the best practices way to make sure that they're comfortable with how they're approaching data within their systems as well.

Great. We only have a couple of minutes left, but I did want to touch on, it's almost crazy to say, but ZoomInfo is operating at basically the rule of 80. You guys are both growing very rapidly and tremendously profitable. So what allows the company to grow at that pace and maintain that type of margin profile? Just maybe help us better understand that.

Yes. I mean I think about it and really kind of divide the cost structure into 2 pieces. For most software companies, and really, we're no exception, most of your expense or at least the priority of your expense is spent on sales and marketing. So first and foremost, we're hyper-focused on efficiency with respect to our sales and marketing spend. We leverage our system to the help to make sure that we are prioritizing resources in the best way, against the best customers. We're also focused on building that team in a scalable way. So we've built a number of processes where we're hiring junior folks into the sales and marketing team, often at a limited level of responsibility, so that they're immediately productive for us, but then offer them the training and resources to elevate them into more senior positions over time. So we can bring in an SDR, someone who's probably right out of school, or maybe after their first job out of college, and within 9 to 12 months of being productive, we can move them into an AE position, and then over time, move them into more senior AE positions as well. And so those resources tend to be a little bit cheaper than someone will find on the outside, but they're also many times our best resources. So they tend to perform much better at a lower cost. So by layering that with the kind of platform as well as just a culture where we're constantly looking for, what's the best thing that we can do to improve lift or improve conversion by 1% or 2%, and constantly focusing on setting up the business in a way where we can measure that, impact that and then iterate around that improvement. So that culture of just constant improvement is kind of that third leg after the system, how we built the team and moving up. And so that enables us to spend on an adjusted basis, kind of mid- to high 20s on sales and marketing and grow revenue organically in the high 40s, low 50s at this point. So really excited about that part. And then that culture just pervades to every other part of the organization, whether that's cost of service and what we're investing in from a hosting infrastructure. We're constantly looking for how can we build the system better to leverage those resources. From an engineering perspective, we're always looking for focusing on what's most important to customers. One of the nice things is we are the biggest users and kind of leaders in terms of efficient go-to-market structure. So we have far fewer of the decisions that are left on the cutting room for that many engineering teams make or product teams make, still happens, but we're looking at what is the next thing that we need, and that's the next thing we're building in the system. And certainly, across G&A and other places, looking to kind of generate significant operating leverage over time in order to drive what we think of as respectable margins.

Great. Well, we're out of time. So Cameron, we'll leave it there. Thank you so much for joining us. It's great to learn more about ZoomInfo, and we appreciate your time today.

Yes. Thank you very much for having us.