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

I think this is a great place to get started. Welcome back, everyone. Thanks for being here. For those that don't know me, my name is Rishi Jaluria. I cover software here at RBC. I'm delighted to have with me Cameron Hyzer, who's the CFO of ZoomInfo. Cameron, thanks so much for being here.

Yes. Thanks for having me. It's great to be back in person.

Absolutely, it is. Maybe let's start with just high-level overview of ZoomInfo, kind of the foundations of the company and then we can jump into some specifics.

Sure. So as many of you may know, ZoomInfo, we offer a platform for salespeople, marketing folks, the operations people that support those and talent individuals to help them be more efficient and effective in how they do their day-to-day jobs. We do that with a data set about companies, so the companies that they're selling to, the people that are in those companies as well as automation tools to help them effectively just be more efficient as they go through hitting their number.

Awesome. Let's maybe start kind of by recapping this last quarter of earnings. So you did talk about some of the macro headwinds that you are facing in the current environment. Can you expand a little bit on what you're seeing and how you expect that to trend going forward?

Sure. So as we started talking about in Q2, we are seeing macro headwinds that are impacting the business and manifesting itself in terms of longer sales cycles. In September, we did see increased pressure with respect to macro headwinds and more scrutiny from buyers that really impacted the capacity of our sales team, and we don't see that -- and we continue to see that scrutiny in Q4. Yes, I think the best way to think about how that's impacting the business is really to look at the in-period activity or momentum, and we really focus on sequential growth of annualized revenue when we're assessing that in-period activity. In Q3, that was about 6.5%. That was a deceleration from what we've seen earlier in the year and last year, which is indicative of that greater scrutiny and the impact with respect to the capacity that we have. In Q4, we're guiding to a 4% level in terms of that sequential revenue growth. So if I dig deeper into the trends going forward, realistically, we don't see any evidence currently that, that macroeconomic pressure is going to subside or turn around quickly or, yes, in the short term. So yes, when I think about the prudent way to think about the business, I would very much think that it's closer to the guidance level that we gave. And if you -- just mathematically, if you look at doing 4% to 5% sequential growth in each quarter in 2023, yes, that would get you into something that's more like a high teens growth rate.

Yes, yes. No, that makes sense. All right. So you're obviously most well-known for the data itself. But over the past couple of years, there's been this big move up the stack. You've talked about advanced functionality attach. What needs to happen for that to become a majority of the business, right, that most of your revenue is actually coming from use cases outside of the pure data side?

Yes. So we continue to see acceleration of that advanced functionality. In Q3, it was 30% of the overall revenue. And I think that, that's going to be a natural improvement over time. If I think about all of the use cases that we can provide, I've given this example before, but it's a great one to think about, if you have a business that's 50 to 100 seats, our initial, just company and data, sale for that might be something like $50,000. Once you start adding on other pieces of the advanced functionality for Intent, for Chorus, for Engage, for Chat, et cetera, just for those sales folks, that can be in excess of a 6-figure deal. And then once you start thinking about the other pieces that we have around Operations or MarketingOS, either of those can be an additional 6-figure deal and then we can add Talent on top of that. So you're taking a customer that was initially spending $50,000, they could be in excess of $300,000. And so we continue to see customers bringing on more and more advance functionality and improving their efficiency. I think the complexion of that is changing a little where if you went back a year ago most of those sales were greenfield. So we would find someone who wasn't using conversation intelligence or wasn't using Intent or wasn't using an ABM solution like our marketing OS and offer them. We are seeing more momentum in conversations around people consolidating other platforms at this point as well, which, yes, I think that's just part of the procurement environment that we're in that people were looking to not only get a better experience which is certainly what a combined platform can give you, but also cost savings help drive that.

All right. Awesome. Two questions there. I think, number one, when you think about that sales motion, right, to get customers to move up the stack, who -- I guess, number one, who is the target customer that you're going after and saying these are the people with the highest kind of propensity to drive that cross-sell? And what does that actual sales and go-to-market motion look like?

So for the sales OS add-ons, if you want to think about that, Intent, Workflows, Chorus, Engage, Chat, it's really the same buyer. That's a person often a senior sales leader or maybe an operations person within the sales team that's tasked with getting the most out of their team. And so providing them with more tools to drive performance is a big part of that. As you move into other parts of the stack, whether that's marketing or operations, those people are often related, and it's a very warm handoff. In many cases, those teams are working harder to get closer together in order to drive a better outcome for the whole company. And that's something that we're able to help drive. So oftentimes, very similar buyer. In terms of the types of customers that we see there, it really depends on what part of the product we're talking about. Certain things are naturally sold to kind of larger customers, you think about marketing OS and the ABM solution. There aren't that many 50-person or 20 people companies that are doing account-based marketing in a really mature way. So it tends to be focused at the higher end of mid-market and enterprise companies. You think about some more basic functionality like Chat and Engage, that's actually something that anyone could get value out of greater automation and getting to their customers. So it kind of varies.

Yes. Yes. Now, the second part of that is -- and we'll talk about competition for the core data side in a second. But what does the competitive set of the stack tend to look like?

It tends to be individual niche providers. So if you go into the conversation intelligence space, Gong is another big provider in that space. If you go to sales automation or Engage product, that tends to be the SalesLofts or Outreaches of the world. If you go to marketing OS, that's going to be a different set. It's going to be your Demandbases or 6senses of the world. So in each of those things, you have an individual niche competitor, but there's really no one that offers the full breadth of platform that we do. And while I think many of those kind of smaller companies have designs to ultimately get to a bigger platform, I think our highly robust and accurate data is something that has to integrate into all of these things and will always be a really unique differentiator that no one else is kind of able to get to that same level. And at the end of the day, if you're buying great data to drive better outcomes, you don't need all those other tools because we have a fully integrated suite to provide it to you.

Yes. That makes sense. Let's then talk about competition on the core data side, right? And I guess, maybe there's 2 buckets. It's LinkedIn on one hand and then there's maybe the other "data providers like Dun & BradStreet and Hoovers and all that. How do you think about the competitive dynamic there?

Yes. So LinkedIn is a great company. We don't necessarily bump into LinkedIn a lot from a competitive perspective because LinkedIn is largely a single channel for sales folks. They can go to LinkedIn, they can get some data out of it. But if they're going to reach out to customers or try to engage with folks, the [ premium ] is locked into using InMails -- and InMails at the end of the day, don't get the highest response rates. I think our assessment is it's probably single-digit type response rates. So our platform allows you to utilize a variety of other kind of ways to get in touch with people, their direct e-mails, their phone numbers, whatever you have. And it allows you to industrialize that data in a much more scalable way. So you can take our operations OS and integrate that data into the other systems that you're using. So if you want to, for instance, within your sales force instance, look at how many employees the company has, what industry they're in, how fast they're growing, what other systems do they use? That's something that we can integrate in to help automate those motions no matter what system you're in and that something that just as a result of how LinkedIn works, you can't take all that information out and make it work. So I think many of our larger customers, they use LinkedIn in conjunction with us, but we are the driver of that industrialization of data and ability to go to other channels outside of InMails. If you think about the other set of competitors, it's interesting because we offer, in my mind, 3 buckets of information. We have company information, which includes the firmographics about those companies, how big are they, where they're located, includes technology information about those companies. Depending on where you put org charts, it includes org charts which is usually built off of our person and contact information. So a lot of really in-depth information that even although -- even people that focus on company information like a Dun & Bradstreet, don't have that same breadth. They have different pieces. And in fact, there are a lot of people that will have some sorts of company information from one source, and they might have technographics from another. They might have industry classifications from a third. So none of those providers actually have that full breadth. And then very few of them move into high-quality contact information, the people, the positions, the ability to contact those people to help them build buying committees and think about where they're going. And then a third level that we've invested in more recently is the Intent data, which people are in market for particular products or solutions. So even within that kind of data provider world, there are niche players that are doing one thing or another, but not providing the same breadth. And frankly, even within their niches, I would submit that we're higher quality data just based on our kind of size and investment and where we come from across each of those places.

Yes. Got it. And I want to talk about something else that we brought up on the last earnings call, which was kind of expanding deeper into newer verticals, right? So software, obviously, biggest vertical; business services, second biggest vertical. And together that comprise a good portion of the business. But it sounds like there's real designs to go after verticals that you're not as strong in. Can you maybe walk us through what are those verticals? And what work needs to be done from both product and go-to-market perspective to be truly successful there?

Yes. Our platform really is horizontal in terms of what we're able to help salespeople and marketing folks with. It's really identifying all of the companies that they could be selling to and the people at those companies and the Intent. So there's not a lot of work necessary to go deeper into those verticals. I think the history of DiscoverOrg and ZoomInfo, it's really that we started with kind of technical information, information about the CIO Org, which obviously naturally put us more into the software space and, to a lesser extent, the system and integrator space. Additionally, like those sorts of companies are early adopters in terms of taking on technology to drive efficiency within their sales teams. So I think the bigger part of our business being within software is really a function of that being the early adopters, and that's kind of where we started. What we've seen actually for the last 2 or 3 years is that a number of other industries have been growing faster, granted off of a smaller base, just based on the fact that they're less penetrated overall. The fastest ones that we saw in Q3 were transportation logistics, financial services, insurance, below that, but still growing faster than the overall company, retail, manufacturing, health care, basically, any businesses that are selling to other businesses are really utilizing the ZoomInfo platform to help their sales guys and saleswomen sell better and more efficiently.

Yes. Got it. So I've got a bunch more questions, but I do want to open up to the audience if there are any questions for Cameron. Any questions out here? All right, I'll jump right back into it. So one topic that I obviously get asked a lot by investors, no surprises, is about privacy and compliance and governance just given its data, right, about companies and people. How do you think about that? Is that something that could be a long-term risk to the business? Or is it something that you feel like you have a really good handle on? And yes, response to that.

Certainly, privacy and compliance is something that we invest a lot into. And we do it for quite a few reasons. One, we do have information about people. It generally is the least sensitive information you're going to find. It's your -- effectively your business card. It's what's your title, what's your phone number, what's your e-mail address, et cetera. But we're very aware that privacy is an increasingly important topic for a number of people and regulators as well. So we've instituted a number of controls and procedures in order to make sure that we are far ahead of any regulations that are out there. That includes our notice and choice programs. So we proactively reach out to everyone in our database, let them know that they're part of our database, give them the opportunity to amend or change their data or opt out entirely. And that's regardless of the jurisdiction they're in. There are actually very few jurisdictions that would actually require that. But even if you're in a jurisdiction like Colorado, for example, where they put a privacy law in place and they actually fully carved out business information, so your business contact information is not private information according to the state of Colorado. If you're from Colorado and you come and say, "I don't want to be part of your platform," third-party companies out there they will just ignore you or tell you no, we are not one of those. We will take you out and give you the tools to basically control that data. So we do that across the board in every jurisdiction, whether it's required or not and frankly, to a level that's above any of the requirements that are out there. So that's the first thing. We also invest in our team. We hired Simon McDougall, who's -- he was the Deputy Commissioner for the ICO, which is the organization in the U.K. that's responsible for GDPR. So one of the top minds in terms of how the most kind of forward-leaning regulatory bodies are thinking about privacy. He's our Chief Compliance Officer to make sure that we are doing everything that we say we do properly, also consults with large customers to help them with best practices on how they should be thinking about privacy regulations and GDPR as well. And a lot of this ends up becoming a competitive advantage for us, because we're investing so heavily into privacy and compliance that it's a real differentiator between us and any of the kind of smaller competitors that are out there. And if you're a large international company, you have a Chief Privacy Officer. You're really focused on making sure that not only from a regulatory perspective, but also from a reputational perspective that you're above the fray. And we're able to give you tools to help you do that, things like there are a number of big companies that may have -- they may want to institute a different stance on how they deal with data for their sales guys in, say, Germany versus the U.K. versus the U.S., so we can give them the tools to say, look, if you want to set the dials differently and let's say, in Germany, you only want information that's publicly derivable, you can set the dial and only give publicly derivable information to your guys in Germany and give them all the links so that they can explain where it came from. If in the U.K., you say, it's not quite as -- I'm not quite as worried about it, but I only want people that have been notified within the last 2 years. You can set the dials to say we're only going to give you information of people that were notified in the last 2 years. Here's the date when they were notified. Here's all the other pieces. In Nevada, you may say, I'm fine with it being the Wild West. They can get any data they can get. We can open everything up to people in Nevada versus Florida versus wherever else. So that opportunity and the fact that we're able to give people all these tools is a real differentiator versus any other platform that's out there.

Yes, yes. Got it. So you talked about Germany and U.K. So I think it's a great segue to talking about international. It seems like you're still very early in that opportunity. What needs to happen to see international become a bigger portion of the business?

Yes. So international continues to grow faster than the overall business. At this point, it's 13% of overall revenue. Certainly, we're continuing to invest in our kind of data internationally. We always collect a lot of data, but how we're processing that data can always use improvements in terms of the AI and machine learning engine and like basically going out and making sure that we have companies in the same way that we'd have them in the U.S. So bringing all of that together is something where we continue to invest in, but I think we recently announced that the international contact information is actually bigger than the U.S. at this point, which kind of makes sense. There are more people internationally than there are in the U.S. But we're going to continue to drive that data. And then we're going to continue to invest in the go-to-market motions internationally. We opened an office, at the beginning of this year, in the U.K., and we'll continue to invest in that. Naturally, particularly in Europe, I think there are some greater headwinds from a macroeconomic and geopolitical perspective that we'll continue to invest. And as those begin to normalize, I think we'll be in a great position to continue to accelerate that growth as well.

Yes. Got it. Got it. I want to talk about some of your recent acquisitions. Let's start with Chorus. I guess, number one, how has that trended relative to your expectations? And you did mention, right, Gong and Outreach as competitors. How do you think about the competitive dynamic versus them?

So, yes, with respect to Chorus, Chorus was a great acquisition for us. We took a company that was doubling at the time we acquired it. We actually accelerated that growth off a much bigger base to triple the revenue there. I think that certainly taking share from anyone else who's in that market. That is a market that is very underpenetrated though, and I think we see a lot of opportunity to continue to grow. And I think the main focus that we're going to have is Chorus, when we bought it was on parity with any of the other kind of things that were out there in terms of functionality. And so that we're continuing to drive that. But the real value is that you can really seamlessly integrate it, and it's part of -- it will be part of the single platform that people are getting. So you can leverage the data that we have in ZoomInfo in order to drive better outcomes. And that might be things like people show up to a call that automatically is populated with who those people are. It may be things like someone mentions in the call that they need to talk to the CFO about this particular purchase that they're going to make. We can capture that moment in the call and automatically kick off a motion to send that CFO and ROI white paper that you've developed or begin some passive ads to those people. So that integration is really exciting and something that no one else is really going to be able to drive. There are companies that are kind of developing, call them like low-level partnerships with less robust data sources. But I think our belief all along and what's driven our success is the high-quality data really drives better outcomes. And that ROI differential is kind of real, and people buy into it.

Yes. That makes sense. And then recently, you announced comparably Dogpatch. Can you walk us a little bit through the rationale for these acquisitions and maybe tie that into the broader build versus buy versus partner debate.

Yes. So comparably provides a number of tools for us. Part of it is just getting deeper in with the talent acquisition orgs and HR orgs. So the kind of real benefit of Comparably is to basically enhance your prospect marketing for employees. And so it's really kind of creating that first step of getting a good face in front of people as you're reaching out to them from a passive search perspective, which is what our TalentOS really enables people to do. If you think about talent acquisition, it's a lot like a sales cycle. It's -- I think, more and more talent acquisition organizations are starting to run things more like a sales cycle. You have a pipeline of candidates. You need to qualify them. You need to reach out, set up meetings and get them to the point where they're effectively a real opportunity. And, yes that is a core part of what the SalesOS effectively does. So when we were building out the TalentOS, it was reskinning a lot of that functionality. And by bringing on something that could help the brand part of that improve allow you to get -- just branded collateral that you can append to these e-mails that you're sending to people or if you're hiring someone in the engineering org, like links to comments that were made or ratings from the engineering org, in particular, versus the sales org are things that really help people along in that cycle. So Comparably has been really good in terms of helping to fill out more of the TalentOS. And as we think about build versus buy, I think the SalesOS platform, particularly with Chorus and Engage and the Chat functionality, there are a lot of other things that we feel would be like really enhanced by bringing that data and integration together. There are probably things around the edges that we'll continue to look at. But that's a really robust platform. But when we think about MarketingOS and OperationsOS, and Talent, there are other opportunities where we can bring on other pieces of functionality to really enhance the customer experience. And that is something that we continue to think is, is this something that we're almost there or that we kind of can take other pieces of the platform to make it better? Or is it something that's a little bit more net new where we could use outside perspective and people who are already in the market in order to drive that enhanced customer experience.

Yes, yes. Got it. So maybe drilling a little bit into the business model. If we think about your NRR, particularly at the enterprise level, how much of that is driven by seat expansion versus cross-sell versus kind of bulk data credits or overages?

Yes. So I tend to break it out between, call it, seats and data, which is kind of what we're more traditionally selling and then advanced functionality. And if I look at 2021, roughly 80% of the upsell is coming from seats, and data is probably a 20-ish type kind of uplift to NRR. Obviously, you're starting from a less than 100% base because you have some churn that hits that. And so when you think about that level of upsell, it's mostly from going out and finding other pockets within the organization. A kind of the simple example might be you're selling to the guy in the Southeast for some manufacturing company, and they have, whatever, 10 or 20 seats. That's your initial land deal. You want to go and find the team in the Mid-Atlantic that's doing the same thing or the Northeast or the West or whatever. So like you see a lot of opportunities where we can take that initial sale that land and then migrate out into other parts of the organization. So that's the biggest part of that seats and data expansion that we see. Obviously, there's some natural tailwind historically on sales teams were kind of growing. That may become a bit of a headwind in the short term if there's a contraction in the number of salespeople out there. But overall, the real opportunity, and I think in so many large enterprises, we're still very thinly penetrated into that other parts of the organization.

Yes. Got it. So I want to maybe with the 90 seconds we have left, how do we think about the opportunity to become a consolidator coming out of this recession?

Yes. So I think our platform as it is today, I think, gives us the opportunity to sell a lot of customers and basically take share. Certainly, our acquisition history is one that we've been very successful with, and that we're opportunistically looking for other opportunities. But we do have a really high bar in terms of how we think about acquisitions, and this has been true throughout time. One, it needs to be additive to the customer. We think of it about it being additive to customers, it either makes our data better, it gets better with data, one of those things. And so that's really important. We're not necessarily out looking to buy things that just do what we do, like that doesn't help us. Two, it needs to be something that fits in well with our go-to-market motion. We have a really efficient go-to-market motion and a large team that's able to go out and sell. We want to make sure that we're leveraging that new functionality or whatever it is in our team and with our large customer base. We have over 30,000 customers. And then three, it's really important that it's accretive in the short to medium term. And for us, accretive means that it needs to make money. And it doesn't have to make money when we buy it, but it does have to make money when -- in the next year or 2. And we've got to be convinced that we're paying at a level that is either commensurate or lower than our multiple.

Awesome. I think it's a great place to jump off. Cameron, thank you so much, and thank you, everyone, for being here.

Thank you all.