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

All right. Hello, everyone. Welcome to the 26th Annual Technology Conference of Credit Suisse host. My name is Phil Winslow, software analyst. We're very excited to have ZoomInfo. Joining us today, Henry Schuck, CEO; and the Cameron, the Legend CFO, joining us. So thank you for your time today.

The -- I guess maybe just -- I think I've asked this question to everybody. It's my very first one. So we'll start off with this energy. Obviously, there's a lot of in the news and that we see sort of macroeconomic headwinds that are out there in due political headwinds just becoming more pronounced. How you think in your conversations with the customers, their priorities have changed? And what product, projects do you view maybe more at risk versus the ones that customers are saying, "Hey, look, I need to invest in ZoomInfo in these areas like right now?"

Yes. I think -- look, I think we started seeing in May, and we talked about it in May, we started seeing people act a little bit like they were acting at the beginning of COVID, where they didn't know what the future was going to look like. And so they just wanted to sit on their hands for a while. That kind of evolved into a reprioritization effort across the company. And so they wanted to make sure that they're spending money on the areas that were most obviously returning dollars to them. And -- and then they started talking for the first time in a long time around consolidation. Can they consolidate multiple vendors in different parts of the business into one platform? And then I think that kind of continued to escalate through Q2 through Q3. And in Q3, one of the things -- one of the bright spots that we started seeing was companies were coming to us and saying, listen, I want to forego my next 10 sales headcount. And instead of hiring those next 10 people, I want to buy ZoomInfo. I want to give it to all of my existing sales reps and I want to get the uplift from all of them having access to the right tools to go to market. We started hearing -- and so in Q3, we sold our largest new business deal of the year, and that was the premise internally around how they got to that decision. So listen, we can take 10 heads off the table and make all of our existing heads more successful. And I think that what we will see in 2023 in go-to-market is more of that, that leaders are going to say, "Well, how do I continue to grow the business and hit our numbers in a universe where I'm head count tract and we've frozen hiring. We're not bringing on the next salesperson." that means I've got to get the most out of the existing heads that I have on the street. And how do I do that? The very most obvious purchase to make to do that is ZoomInfo. It is quick time to value, quick ROI. And if you're trying to generate new business, it's the most obvious tool in the stack to have. And we have to set that narrative for people. Some will come to it on their own. But setting that narrative, I think, is really important because it aligns with this idea of I need to reprioritize to where I get the quickest time to value and the highest ROI.

Yes. Now let's focus on maybe existing customers for a second. Obviously, there are a lot of moving parts with NRR here. You have gross churn, seat count, upsell of additional functionality. Where have you seen the greatest change, I guess, in 2022 versus the progress you made in '21?

It's mainly around upsell of existing seats, credits and products into the installed base. And we think that the reason -- when we know that the reason why we're seeing that is the straight renewal is taking meaningfully longer to get. And so when we talk about deal cycle elongation, we run a really efficient go-to-market motion. So when the deal cycle elongates, it takes 20% or 30% longer to close that same renewal, all of a sudden, those account managers, they don't have the capacity to go upsell the next piece of functionality or the next user seat in their account base because so much more of their time is being spent getting the same renewal that they were able to get last year with just kind of an e-mail. And so today, the renewal might -- you might have a point of contact who last year signed off on the renewal. And this year, that point of contact has to take it to the VP and the SVP of Sales and the SVP of Sales has to take it to the CFO to get approved. And so that's numerous additional conversations and calls and decks that have to be put together to get through that renewal. And then that just steals capacity away from the upsell motion. And when you run a really efficient go-to-market motion, there's just not a lot of slack in the rope to go like continue to get that velocity in other places.

[indiscernible] with somebody who sort of victim some of your own success. 2 months -- sorry, 2 quarter ramp period and a 1-month sales cycle. There's not a lot that you can do there at the end of the quarter because it's almost like too efficient. So but that's a good problem to have if you can say efficiency.

Yes. I mean [indiscernible] Don't change the efficiency side of things.

Just discrete slack. But the -- but just as a quick follow-on, have you seen any downtick just in the selling environment, whether it be new or existing logos since the Q3 earnings call?

No. I mean we've really seen -- we talked about in the earnings call how in September, the environment, particularly for buyers, environmentality, got incrementally worse, much more scrutiny. I think a lot of people took signs from the Fed or inflation in the markets that recession was more probable than maybe it was they had thought before. And we've seen that consistent environment since September through October and November now.

And Henry, to your point, too, there's this great chart I saw LinkedIn yesterday about renewals as from Gainsight, and it was basically across all their customers, SaaS customers. There was a distinct change in delinquent -- delinquency, how line longer is taking to renew an existing customer, and that was across all their customers. So it was noticeable sort of July on. So everybody search that is actually a great graph that reinforces what Henry is saying here. But Cameron, I got to stay with you for a -- so the 4% to 5% sequential growth, you talked about that a couple of weeks ago and translating potentially to high teens revenue growth next year. Can you walk us through the puts and takes, how you think through that?

Yes. So I think as we think through where we are today and what we could see in the future, certainly, we guided in Q4 to around 4% sequential growth. That obviously -- our guidance philosophy has always been that we examine a wide range of potential outcomes and set our guidance at a level at the low end of those outcomes that we're confident that we can meet or exceed. So that certainly implies a worsening environment than what we're currently in or what we saw in September and October. But I think to be prudent, that range of outcomes that includes 4% at the low end is within the realm of possibilities. And I think that our view is that until we see evidence that the world is really improving that we're going to operate in a way that contemplates a potential downside like that.

Sticking with this idea, just also about sales productivity and just capacity from a ZoomInfo perspective. How do you think about just when you think about '23 and also let's say, hopefully, a year from now, we're coming out of whatever we're currently in or going into. What are the levers there when you think about sort of from an operating leverage perspective, sales productivity capacity, call it, going in and then coming out, what are the levers that you think about?

Yes. I think one that I think about is you want as much quota on the street as you can get. And when we made a number of acquisitions over the last 12 to 18 months, we have the structure of overlay reps, who would be sort of experts on conversation intelligence or sales automation or B2B chat. And then you have the account managers who are responsible for upsell within the account base. So you essentially took some quota off the street and put it against overlays who are then brought into these deals to help sell these other solutions. So one of the things that we did to free up capacity is we took that overlay team and we took those overlay reps, and we put them into the business as account managers. We enabled all of the account managers to sell conversation intelligence and sales automation and they got the additional heads back into the business that way. There have been a number of tactical changes that we've made to ensure that we have more -- we're freeing up capacity within the account base. We released last quarter in e-commerce stores so our customers can buy additional seats and buy additional credits and renew in a no-touch way without talking to an account executive, an account manager, getting a doc sign getting it signed. So we're freeing up capacity. That's a key focus of ours.

Anything else that you would add, Cameron?

Yes. And certainly, when we think about operating going forward and what's happened in terms of the capacity constraints from greater deal scrutiny. I do think that we do plan and are very much continuing to add the quota on the street, as Henry mentioned. And in the short term, the efficiency of that team may be hampered just by the greater deal scrutiny that's going on. But as the world eventually normalizes and cycles go up and down, so we fully expect that the world will normalize over time. We actually expect that efficiency to improve a little. And by investing in that capacity be able to take advantage of an improving environment when it does come.

Got it. All right. Let's focus in on the product for a moment. Henry, one of the things we've talked about, we believe that ZoomInfo is basically has this enviable lead and almost sort of a de facto solution in the B2B go-to-market intelligence space. But one pushback that I get from investors is this feels too good to be true. And so how do you frame, I guess, the competition in the -- just the go-to-market intelligence space? Who or what, let's say, keeps you up at night?

Yes. So -- look, I think there is no question to your point, Phil, that we have the -- we have a best-in-class data asset around companies and the individuals who work at those companies. It's the broadest, the deepest, the highest accuracy data asset. And over the last 2 years, what we said was, well, how do you leverage that data asset in other places? And so we built an application stack on top. We built or bought an application stack on top of that data asset. So sales automation is a great example. We have a number of customers who use sales automation tools, which are basically sequencing tools for calls and e-mails for sales reps. Well, those tools are basically useless unless you have data flowing through that. And so why wouldn't we own that application layer? And so we do today. and have thousands of customers who use that sales automation solution. We said, okay, we've got this great data asset. We have a bunch of salespeople using it, and we've built a bunch of solutions for salespeople. But a lot of the solutions that we've built are kind of they were historically marketing solutions that we built for salespeople. And so why don't we take those solutions, take that data asset and build a specific marketing platform for marketers, building on top of that data asset. That's our marketing OS platform. And so in the core data asset business, there isn't a lot of competition there. There's very little, and it tends to be at the very low end of the SMB and at the very low -- and we don't see that competition increasing. In fact, we track every mention of a competitor across every call that every one of our sales reps or account managers take. We have a conversation intelligence solution, obviously, that listens to every call, transcribes it and then gives you analytics on top of those calls. And so we're able to see how often is a competitor mentioned. And the group of competitors that we track in the sales intelligence space, those mentions have stayed largely flat over the last 2 years. And so we're not seeing increased competition there. Now as we built the application stack, that meant that now we had new competitors in sales automation and new competitors in conversation intelligence and new competitors in chat and account-based marketing the marketing OS platform. And we're new in those spaces. But we really believe that the integrated aspect of all of those solutions against that data asset is what creates differentiation. And that's where we're going to win. Yes, sales automation is great and having the next incremental future in sales automation is nice. But having your entire data asset integrated updated into one experience, we think far outweighs the next shiny object on a sales automation tool.

Now one of the questions I get is about penetration, call it about sort of call it the core data asset and then the add-ons. How do you think about where we are just from a penetration perspective, call it, now versus pre-pandemic, let's say, in 2019?

Slightly more penetrated, but still like very low single digits penetrated in the go-to-market intelligence space. And then in the [indiscernible] when we IPO-ed this was a $24 billion total addressable market, and that included kind of just data and kind of just data on the U.S. and both today, that's a $100 billion total addressable market because of the additional solutions that we've added, the marketing solutions, the conversation intelligence solutions. So we sit in the middle of a large total addressable market just on the go-to-market intelligence side though, I think still incredibly underpenetrated. I'll tell you, it's very interesting because I've been on the road since the beginning of September, 2 or 3 nights a week meeting with our customers. And what's so -- like confusing, fascinating. I don't know what the right word is, but everybody has a CRM system. Every single company has a CRM system. And for the last decade, they've been pumping data into their CRM system from anywhere. Sales rep wants to put in a company or a contact sales rep puts it in. Marketing does a webinar, it takes all the data dumps it into the CRM. And the CRM for a decade has just become like this really unrolling mass and what's confusing to me is that you have this application layer that is the CRM or you have this database layer that is the CRM and holds all of this data. And then what you really need to have above that at an infrastructural level is a way to keep that data updated and accurate. And it makes no sense that what we did was we just skipped right over that and then we started building applications on top of data that is nobody will tell you is good. You just can't find somebody in a go-to-market organization who's going to tell you the data in my CRM is fantastic, and I'm glad we're relying on it for all of our most important decisions. And so there is this infrastructural element that has to go in. And I think more and more companies are realizing that and as they continue to realize that, that investment in CRM is much less valuable without that infrastructural data layer. I think we benefit from a long tailwind as they make those realizations.

I remember it was actually about a year ago at Snowflakes conference -- video I guess a video, virtual conference where they talked about how ZoomInfo was putting their data on the marketplace and how it was being used to cleanse the bad data that was in the CRM system. I was like, "Hey, look, that's part of my thesis. I like this."

And it goes across all companies, right? Like you guys have the CRM system, Credit Suisse. And how do you make sure that the information in there is updated, companies are changing. Not a single company looks the same on December 31 as it did on January 1, yet there's no mechanism in CRM to reflect that change. People move companies, 30% of people move companies or get promoted every year, nothing in your CRM to reflect those changes. And that's just crazy. It does not make sense. And we are far and away the best solution to solve that problem.

Yes. It's funny, I get an e-mail, I feel like every week or 2 that somebody in the data quality team founded duplicative a count of like -- how long has that been in there? The person hasn't worked at this fund in 2, 3 years. We're just finding it now. So that's always struck me as a user. Now okay, let's talk up this tag because, Henry, to your point, through organic and inorganic innovation. You really got an impressive suite of applications on top of this -- top of this unique data set. I'm just curious how much of you say your new logo wins are, call it, data-led versus application led right now? And how is the product segmentation to your point, sales OS marketing OS, et cetera, impacted the wins?

Yes. So really, the way we think about this is on the new business, new logo side, People are coming to us because they haven't taken the first step in the go-to-market journey. And the first step is very obviously data on my customers, data on my potential customers. And so the vast majority of the initial -- of the new logos start with data. Now where we focus is on attach rate on the additional solutions. And so we've seen attach rate, for example, of our sales automation solution Engage increase on the new business side, even as we've nearly doubled the price of the ASP of Engage, we've seen that attach rate continue to increase. And so we're focused on, hey, they're going to come in to ZoomInfo because they heard ZoomInfo has the best quality data on the market. And then we're going to tell them, well, you've got data, but -- and you've got data for your sales motion, what about enrichment in your CRM. And what about sales automation and what about conversation intelligence? And so it's really about enabling our sales team to be able to get higher attach rates on those solutions on the new logo, but they show up looking for the go-to-market intelligence.

Let's talk about the sort of the competitive environment because to your point, there were lots of sort of individual companies that sort of emerged in the rev ops stack. And if we think about it, a lot of them did start in very specific areas of the stack, going outreach demand base, et cetera. Then some of them started to broaden out in more of a suite, but can you talk us through just the competitive advantages of your ability to not just to leverage, call it, that B2B data that you have, but also have multiple functions of that rev of stack all on one house?

Yes. So I'll give just a couple of examples. A customer who uses our -- so one of the things that we realized is as we thought about how do you leverage that data asset, we said, well, we already have kind of 30% of our customers are marketing customers, who are buying the sales platform. How do we build something that's more purpose-built for the marketers? And so we built this marketing OS platform that actually lets you -- it's one of the -- one of the very few places that you can come in and build a B2B audience and then target them on a display ad network. And so if I want to say, find all the chief marketing officers at healthcare companies in the United States and then start display ads, social media ads and a marketing program in front of them, we are one of the only places that you can do that level of targeting and then put that out onto the display ad network. Well, one of the ways that we leverage the user base on the sales OS side is we say, okay, if I'm a sales OS user, how do I communicate back to my marketing counterpart on marketing OS? Well, if I'm doing prospecting of these 10 accounts, now in sales OS, I can hit a button and then that goes over into the marketing OS -- goes over into marketing OS, and it starts to display ad campaigns against those people or a social media campaign against those people. So now I'm leveraging that account and user base to align sales and marketing together. And so sales OS and marketing OS are coming together. The Engage solution, the sales automation solution, it's great to be able to sequence your e-mails and send e-mails and sequence phone calls, but you can't do it without data on your customers or the prospects that you want to reach out to. And once you have that data, the thing that you want to know is what's working and what's not working. So now we can tell you, hey, your message is to VPs of IT in the healthcare space, are landing much better through this type of e-mail and conversation than this one. And by the way, here are the next 500 Vice President of IT at healthcare companies in the United States. Drop them into that sequence. And we're the only company in the sales automation space, obviously, because we have that data asset that can deliver that type of analytic. And you can see that sort of around commerce. You have the same benefits in conversation intelligence and B2B chat that we're able to bring to bear because we can integrate that data asset through.

I watch a lot of your videos on LinkedIn. When you're demoing the product, by the way, and I think one of them that jumped out at me too is, to your point, sequencing mails. And it was like, hey, by this point in the sales cycle, you should have reached out the legal -- it's like, well, who the hell, should I read out to in legal? And it's like, okay, boom, it's in there or hey, by the way, you think you're at the final stage of the deal, but the CFO just left. And then but wouldn't have got alerted in another sequencing app if it didn't have the data.

Or your deals historically required VP to be in the call, and there's no VP around this deal and you're forecasting to close it at the end of the month. And here are the VPs who usually talk to at this account. And so you can start making smarter decisions that way.

Yes. Because if you think about it the other way, you're going across multiple if you're trying to use individual products, okay, I got to go -- I still have to go back to ZoomInfo, define these people, but then I have to go back into the other app that I was in maybe the other one too, put it all in versus why not just [indiscernible]

All the data -- there's no sales motion that doesn't require data on customers and prospects. And we can get in front of those sales motions and have those embedded, have that data embedded, it's really valuable.

So how do you think -- a lot of the competitors I just mentioned are private and obviously, there's been no secret out there, a lot of these private companies are having to reduce headcount. In fact, some of them has been announced. We started off this conversation just saying how sort of efficient ZoomInfo was. Encouraged from both your shoes are CEO and CFO, how do you think about sort of using sort of your business model advantage almost as kind of as a weapon right now versus the other ones that are maybe a little more cash drive that are also in this fragmented rev up stack?

Yes. So I certainly believe that there are going to be opportunities coming where we're able to continue to invest into the business, continue to build sales capacity, continue to invest into R&D that some of these smaller competitors that have a much bigger plate in front of them if they're trying to catch up to the full breadth of everything that we do, really can't do. And so I think this is an opportunity for us to play offense. And honestly, we have over 30,000 customers, many of whom are underpenetrated with respect to using the data, but even more underpenetrated with respect to the advanced functionality that we offer. And we can go out, continue to build sales capacity to attack that potential out there and to really drive more and more differentiation between us and many of those smaller competitors.

One of the things as people realize the economic climate was changing, that they started talking about was vendor consolidation. Hey, I don't want 12 vendors across my go-to-market stack. I want one. And I want to bring that all together in one platform and get the scale and efficiency of having one platform across all of these different areas. Now what actually -- what they actually did about that was not that much. What you actually see them starting to do now is actually take that seriously and find opportunities to consolidate. So last quarter, Ryder Systems, USI, Taylor Corporation, Frontier Communications, all consolidated vendors off of sales automation, conversation intelligence, company data, hierarchy data and ABM platforms on to ZoomInfo. And so I think we still have a really great story and opportunity around vendor consolidation across the go-to-market tech stack. And I think as these companies kind of struggle to figure out this environment, we have this opportunity to come in and consolidate them out of the space.

Yes. That makes sense. Now one question I do get about longer term as you do move up the stack is that as we were talking, call it, the intelligence side is such a very straightforward go-to-market. Obviously, the magic number that we can calculate is super high. It's beyond best-in-class. The -- but as you move up the application area, the question I get is like, are the sales cycles longer? And some of it is evangelical, like this is something you've never done before. And so how do you think about that sort of impacting call it, just sales productivity or kind of near and maybe longer term even?

Yes. Look, I think we're pretty specific about what we build and what we buy. And so when we show up even like conversation intelligence, which is arguably still evangelical. It's still even -- we're still evangelizing it. When we show up and tell you like, hey, why don't you like to hear everything that's happening when you talk to customers? Wouldn't that change the way you do sales enablement, the way you think about products that you're building, the way you think about territories, the way you think about opportunities? The person on the other end is not like maybe they're like, yes, that feels like a really important thing that we're not doing. And so when we're rolling out new products, when we're doing acquisitions, one of the key things that we're thinking about always is how can our go-to-market team bring this to market and really complicated solutions that we can't enable all of our sellers to bring to market are a lot less interesting to us. Unless they unlock some very important segment. So we made an acquisition of a data orchestration company called RingLead about a year ago. That acquisition has significantly accelerated. We've significantly accelerated its growth and its profitability. Since that acquisition. And as we did that, that's a complicated technical product, but it unlocks the enterprise for us. And so when we make product decisions or M&A decisions, we're always thinking about what is the go-to-market ramification of that decision and doesn't make sense.

Got it. Cool. Now there's another question, Cameron, I get a lot is that historically, ZoomInfo has been viewed as highly leverage the software industry, business services industries. I wonder if you can just remind us just sort of what is your exposure there? And then obviously, there's been a lot of news about a significant slowdown in hiring, if not actually some headcount reductions in these segments. How are you -- what are you impact are you seeing from these trends to just on your business?

Yes. So with respect to software, we're now under 40%. Business services is mid-20s. Over the past few years, we have seen more growth from the less penetrated industries that we offer solutions to, whether that's transportation and logistics or financial services, healthcare, retail, manufacturing, all of those growing faster than what we see and what we're really the early adopters of using high-quality data to help drive their go-to-market motions, which was primarily software. So I think we do continue to see that, realistically in the current environment where there's more scrutiny, that's not solely a software thing. I think every company is thinking about a potential recession and putting more scrutiny on their spend. So we've seen -- the -- we've seen that across the board, even if it is a little more heavy in the software industry.

All right. Henry, I'm going to squeeze 2 questions in here in time. But I always want to talk about data privacy with you because this is a topic that I get a lot. Can you just provide us an update on sort of just the data privacy landscape today? And sort of how you think about sort of the outlook going forward have been any key developments are you keeping an eye on U.S., international, et cetera?

Yes, not a lot has changed. Really not a lot has changed since the last time we were here last year. Maybe one of the things that changed is in January, we hired Simon McDougall, Simon McDougall was the ICO Commissioner who is responsible for GDPR enforcement in the U.K. and Ireland. And he is now our Chief Compliance Officer. He started in January. He's been a great addition to kind of help us continue to mature the way we think about data privacy, make sure that all of our processes are best in class and then really understand where the [indiscernible] is going and make sure that we're far ahead of data privacy regulations. Remember, we only collect business contact information, information that would be found on your resume or your business card. That information, we go out and proactively give notice to everybody whose information we've collected. We have an automated privacy center where you can go in, view that information, update it, remove it from our platform. We have a best-in-class fulfillment team to make sure all of that is getting processed and removed when someone requests that. None of -- other than none of the notification side of this, us proactively going out and giving notice is required for any jurisdiction. And in fact, the big thing you've seen is as states across the U.S. and as countries continue to pass data privacy laws, they are carving out business-to-business contact information as nonsensitive information that's not subject to the laws, that's uniform across all of these different data privacy statutes.

All right. Okay. Last question. So you've been take public, call it, 2.5 years now. Let's say we're setting up on the stage in 2 years, and I hope both of you all come back in 2 years. The -- well, next year, too. You guys just give next, you're going to come back to you. But what we're sitting up here and saying, what are you going to look back and say, "Hey, look, this trend or this technology or this product from ZoomInfo was more transformative to our customers than maybe people gave a credit for back in 2022." So Henry [indiscernible] Cameron.

Yes. I think what I would tell you is or what I'd hope to be telling you is that the enterprise has realized that this is an infrastructural investment that they have to make into the sales process, into their data into their CRM. And then I would tell you that every company has realized that ZoomInfo that sales intelligence and go-to-market intelligence is a must-have for any sales team across the sales team.

Cameron?

Yes. And I certainly agree with that, but I would also add that the advanced functionality that we continue to push out there is very lightly penetrated right now, and there's the opportunity for that to become the majority of our revenue, whether that's in marketing OS, which has been a great platform or fastest kind of initial release of a product that we've seen or in terms of the operations OS and the data orchestration capabilities that Henry talked about before, that becoming the infrastructural piece of every CRM deployment or upgrade. I don't know if that's totally going to happen in 2 years, but I'd certainly hope that we're well along that path in that time frame.

Awesome. All right. I can spend another half hour up here with you all, but the time is up, unfortunately, but I appreciate you all coming down as always. Thanks.