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

All right. I think we are ready to kick things off. I'm DJ Hynes, I'm Canaccord's Senior Software Analyst. This is the 42nd year Canaccord has put this conference on. We couldn't do it without the support of our corporates. So Chairman, thank you for being here. The clients as well. Thank you, guys. Delighted to have ZoomInfo here, in terms of, we call it, one of our metric Kings in terms of combinations of growth and profits. I mean they're unmatched in our universe. Cameron Hyzer is the CFO. We're going to try and do this as interactively as possible. So if there are questions in the audience, raise your hand, I'll integrate them into the conversation. But I think we can get right into it.

Thanks for having me.

Yes. I'm going to operate under the assumption that most people are familiar with the ZoomInfo business at this point. So maybe we can just start with kind of a quick recap on Q2, what you saw kind of any key topics of conversation coming out of the quarter? And then we can dig into the details.

Yes. So we're obviously continuing to focus on execution. Our calling card as you have mentioned is efficiently continuing to grow and grow really well. So continue to have great growth, over 50% top line growth, then you have great margins. I think one of the exciting things that we continue to see in the businesses is that our -- what we think of as advanced functionality, that functionality that's really not just kind of information about companies or the people that work at those companies, but the ability to automate that capability to orchestrate data, to keep track of the calls that your sales guys are making and driving analytics from those. That continues to generate phenomenal growth for us and real value for our customers. So at this point, it's getting closer to 30% of our overall revenue, and we're allocating that out. We're seeing great growth. So I think that's very exciting. We're starting to see more and more companies kind of take the entire platform as opposed to just pieces. And the big focus of our development effort this year is really on making that a real integrated experience where our customers can get the value without moving between different systems to drive their motions or have to deal with all the integration behind the scenes. So I think that it's going to continue to be a really good driver for a long time for ZoomInfo.

Yes. Macro is obviously top of mind for everybody. I'm sure you're sick of answering that question. But maybe if we kind of parse the drivers of growth into new customer wins, gross retention, and expansion, talk about what you're seeing across each of those 3?

Yes. So new customer wins have always been a real good driver for us. At the end of the day, we're really thinly penetrated against the universe of companies that are selling to other businesses. If you look back last year, it's probably 30 -- mid-30s contributor to our overall growth around 51%. So that continues to be a good driver. Realistically, we have a really fast time to value for our customers. They literally buy it on a Monday, they're up and running by Tuesday or Wednesday. Their sales guys are using it that week and using it to drive value within their motions. So that quick time to value, I think, keeps that engine moving really well and the fact that there are a ton of businesses out there. So we really haven't seen any impact on that to date, but certainly, something that we're watching. When you think about gross retention and net retentions, our gross retention last year it was above 90%. It's been that way for a little while. Again, we don't see a ton of impact on that. But largely driven by the fact that we have a wide mix of customers. I think of it as kind of 1/3, 1/3, 1/3. It's not exactly that between small businesses, medium-sized businesses, and enterprises. But that -- when you think about the weighted average between those different groups, we think of it being above 90% as being best-in-class. And then on the net retention last year, we were at 116%. I think the interesting thing that we saw last year, and we continue to see this year is that the momentum around the functionality upsell is becoming a bigger and bigger portion. Historically, we've really expanded within customers by expanding the reach. So moving from one group or division into other groups or divisions or expanding the amount of data that we were integrating in with their other systems. So that reach component continues to be a good driver, but the functionality upsell has a ton of momentum. And I think eventually, we could see that being the majority of the upsell that we ultimately generate the plans.

Yes. And we have some questions on that. Before we get there, like do you think there's a case to be made that there's any counter-cyclicality for demand or value prop, the thesis, I guess, would be like, "hey, if we're going to hire less, maybe we'll find technologies to help who we have be more productive". Are you seeing any signs of that playing out or is that wishful thinking?

That's certainly a big part of the motion that we are working with our salespeople to enable. If you look back a year ago, when they're out talking to folks, they're basically saying, look, there's all this opportunity out there that you don't see, you need to be able to go and attack that. And we're hoping you'd be more efficient to be able to do that. But I don't think our sales folks ever talked about efficiency in boom times they're all about. Let's get more of what's out there. Yes, now when people are thinking about, okay, I need to either create a path to profitability or I've a family-owned business, I'm worried about how much money I'm spending, efficiency becomes really important. And so getting more out of the people you have is the story that we're telling. It's really the same story. It's just 2 sides of the same coin. So we're able to kind of sell that really well. I think that certainly helps in terms of the sales cycles that we're seeing. And realistically, our sales cycles are super short. So we're constantly kind of testing out those messages, making sure that we're enabling our team on kind of message that's working best and pushing that out across the prospect and customer base.

Yes. Yes. You alluded to some of the advanced functionality upsells in your prior answer. Engage in course are obviously foundational of that effort. So just remind us on kind of like attach rates, new customers versus in the base and then ASP uplift, like how significant are these to your business?

Yes. So in terms of the attach rate, it's interesting that Engage when we first rolled it out, attached more with new customers. And Chorus as we brought it on really attached more with existing customers. We've really tried to cross-pollinate the ideas on why that's happening. So we're seeing that improve a little between the 2. Realistically also Engage, we've been able to really add to that functionality set over time. So that addition has kind of brought it more to parity or maybe in some cases, better than some of the point solutions that are out there. So we're seeing better attach when we're going out into the enterprise on those sort of deals as well. But in terms of the uplift, it's pretty exciting. I think of it as if you're a company that maybe has 25 to 50 sales guys that you're putting on to SalesOS, with our advanced functionality, that can be kind of a $50,000 type deal. If you're going to add Chorus, maybe it's a $15,000 to $25,000 uplift. If you're going to add Engage, it's probably a $10,000 to $15,000 uplift. If you're going to move up to our Elite package, which includes workflows and intent data, that's probably another $15,000 to $25,000 uplift. So we can take that customer that was a $50,000 customer across whatever team that is, and they can be generating over $100,000 with us. And then when we look at some of the other functionality that we've developed, an OperationsOS customer, which includes the RingLead functionality and EverString functionality and some of the things we've built internally in terms of APIs, that can be another $100,000 on top of the $100,000 that we might be earning from SalesOS and all the components within that. The MarketingOS that we just rolled out, that can be another $100,000 deal. The TalentOS, that's probably another $10,000, $15,000, $20,000 depending on how fast you're growing and hiring and so forth. So we can take that customer that's generating $50,000 and through these different add-ons, none of which might be like massive, but we can get them to be a $300,000-plus customer and really be adding value to the point where they're not trying to stitch different things together. So the actual cost of ownership that might be lower than going out and getting that from different places.

Yes. Yes. I mean, so you're talking about doubling at a minimum, potentially tripling with the full scope of stuff that's adopted and it's still 30% of ARR, is that what you said upfront?

It's not even quite 30% of ARR at this point. Yes. So I can see the advanced functionality over time becoming the majority and maybe even the vast majority of revenue that we ultimately generate.

Yes. Let's talk about competition with those. You alluded to kind of closing the gap or passing some of the point solution providers. But there are dedicated guys, I think you have Engage, you have Outreach and SalesLoft, and you have Gong versus Chorus. What's the advantage that ZoomInfo has versus the point solution providers? Like why do you beat them?

Yes. I think it's really twofold. One is really just the integration of data and our ability to really make it a native experience where you can be using SalesOS and automatically start a sales flow or you can be using SalesOS and automatically see the conversations and analytics around customers, all within one window. That I think, ultimately becomes a real differentiator where you're not trying to integrate in multiple solutions. You're not trying to teach your guys to run a workflow or a sales play on 4 different screens and worrying about what drops between them. And then the other thing is we are going to be able and are able to really create functionality within the different applications that's just not available without the data. An example might be if you're in a conversation, you're analyzing that conversation and you're talking to someone who says, "Okay, I got to go talk to my CFO". We can actually take that automatic insight, filter it out and without requiring the sales guy to do anything, have a sales play where we're going to send something over to whatever Engage and automatically send that CFO because we know who it is. We have all the information on them. We can automatically send them an ROA white paper. So even before the guy shows up, you've already gotten a little bit of your message in front of those people. There's a ton of other like great little features that we've either planned or already implemented into the system to kind of make that data integration even better than you could just make by creating more features on your own.

Yes, that's a good answer. So you guys have been pretty acquisitive. Are we in digestion mode? Is there more you want to do? How are you thinking about it?

And certainly, a big part of our R&D focus for this year is on really bringing that integrated experience together into even further, I don't know that I call it digesting, but making our sales team more enabled across the various different pieces of functionality. But realistically, we'll continue to look for opportunistic M&A kind of targets that they really just need to meet our criteria, though. And a big part of our criteria is they need to either make our data better or get better with data. They need to be something that our sales team can easily sell, and we can leverage -- we consider to be one of the best go-to-market teams that you're going to be able to find to go out and either sell it to new customers or to our great existing customer base. And certainly, it needs to be accretive both top line and from a profitability perspective or from an income contribution perspective in the kind of short to medium term. So part of being really good at M&A is not just being good at the integration part, but it's about making sure that you're consistent in finding the right targets that have that potential to generate real value. So we're going to be disciplined about it and make sure that we're kind of finding the right things, being thoughtful about how we integrate them, and then continue to drive value from them.

Yes. So good investors always kind of poke holes in their own thesis. And one of the questions that I get a lot as folks trying to poke holes in the ZoomInfo story is around exposure to venture-backed tech start-ups, and we're seeing layoffs across portions of the industry. You guys have done some work to quantify this, so remind us of that. And then just more broadly, like are you seeing headcount reductions or seat count reductions in any segments of your customer base and how are you managing it?

Yes. So we did go back. We look at all our customers that raised venture funding within the last 3 years. So those that are unprofitable and give to do that. Overall, regardless of industry, it's less than 10% of our kind of overall revenue. Obviously, most of those are in the kind of software world, but an even smaller portion. I don't know that we've seen a kind of significant like impact as a result of layouts or whatever else. It's kind of always an underlying level of noise. It's probably a little bit more than it used to be purely because it's happening a little bit more. Our historical motion around that has been to go to people, obviously, if they want to reduce seats, and there's nothing else we can do, then we'll see that reduction. But realistically, we're really focused on -- we go to them, and we say, "look, we really want to keep your business, we're going to keep you at a level. We have other things that we can provide that will help you generate more value for your company. It will help your fewer people actually be more productive." And so certainly, more recently as we have more functionality to actually put into that bucket that's a bigger and bigger part of the play where it could be that there's a consolidation effort, it could be that there's more data, it could be there's operations stuff, all of those things contribute to maintaining or even elevating ACV, even in those companies that may be reducing staff, there's still value that we're able to add to them. The interesting thing is, particularly in that world, the venture-backed world, they tended to be the really early adopters of a lot of technology. So it wouldn't be weird to go into a venture-backed company and see 5, 6, 8, whatever it is different sales technology vendors in their sales stack, excluding Salesforce. So that opportunity to actually consolidate in, save them money, give them a better experience is real, and I think something that we're leaning into.