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

Okay. Good afternoon, welcome everyone. I am Mark Murphy, software analyst with JPMorgan. And it's great pleasure to be here with Henry Schuck, who is the Founder and CEO of ZoomInfo sitting right next to me; as well as Cameron Hyzer, who is the CFO of ZoomInfo. So first off, welcome to the conference, and we really appreciate you being here with us.

Great. Thank you for having us Mark.

So maybe we could just begin with a kind of a quick 1-minute introduction to ZoomInfo for the benefit of anyone out there who might not be familiar?

Sure. ZoomInfo is software and data that helps go-to-market professionals, sales, marketing, revenue operations, sales operations, professionals identify their next best customers and have the data needed to engage with them. And so the foundation of ZoomInfo is company and contact data across 100 million companies, 300 million business professionals and we've surrounded that with a tremendous amount of signal and insight that tells you when a potential customer is in market for your products and services and then workflow technology to take action on that.

So Henry, I was sitting here with you, I believe it was 2 years ago at the conference. And that was the first time that you mentioned in this economic cycle, and you were early, I think, mentioning it that some of your sales teams have started to say at that point that deals are taking a little longer. And we've -- obviously, we've been in this kind of macro deceleration phase pretty broadly now since then. How far do you think we're in -- how far do you think we have gone through the down cycle? I think we're trying to understand do you see your customers getting to a point where they might be done cutting into the fat, maybe they're cutting into the muscle or the bone now or the other scenario is we're through some of the pain in the tech industry, right? And then you could still have a little bit of nontech contraction moving forward. How do you think this through?

Yes. I think in Q1, we saw a number of signs that told us that we're starting to see improvement in the customer base. And where over the last 2 years, where we've stayed relatively strong is on the new business side. And what we're trying to get our arms around is net retention in the customer base, renewal rate and net retention in the customer base. In Q1, we saw enterprise retention and renewal rates stabilize, then improve. We saw the same thing happen. In mid-market, we saw it stabilize. We saw that continue through April. We felt really good about those trends. Where we still have noise and volatility is in our SMB segment. When you think about the customer base, there are obviously 2 factors that drive net retention in the customer base. One is just your net renewal rate. And then the second is your net retention rate, which is upsell. And over the last year-and-a-half, we've taken a much more customer first, customer-centric view of our customer base. We said, look, we created a bunch of new product. We acquired a bunch of new product over the previous 3 years. We showed up to every customer interaction and said, do you want to add this? Do you want to add this? Do you want to add this? And we found between 2022 and 2023 is that customers were in a very different state of mind. They didn't want to add new things. In fact, we had a customer who bought 600 seats, and they showed up to the call, and they said, we only have 400 sellers. And so these 200 seats, I'm not even using and your reps just keep showing up and asking me if I want to buy any more things. And so we pulled back and we've spent the last year really driving customer trust and customer health and getting our customers into a place where they're really healthy and there's fertile ground for us there. And in the meantime, we spent the last year building our ZoomInfo copilot product, which is the first product we're bringing to market really in the last 2.5 years. We feel really strongly about that product. We think it's going to have a meaningful impact on the upsell side of things and then really drive net retention in the customer base. Our account managers and account executives have been using it for the last quarter. So they're very familiar with it. And the early feedback from our customers is really strong. I think that makes a meaningful impact in that retention for us.

So your customers have been in this non-expansionary head space for a while. You saw some encouraging signs that you mentioned in Q1 and now and you have some excitement about the copilot product that I think we'll definitely -- I definitely want to come back to that in a couple of moments. But Henry, if we zoom out for a moment, we have been pointing out that what has been happening, if you look at front office revenue-generating software landscape, it's been a very broad slowdown, right? It has affected everyone. And we look at the -- if you look at the more transactional systems, they may still be growing 10% to 20%, maybe HubSpot or Freshworks. Some of them are in mid-single digits. I think if we look at Twilio or LinkedIn, they're kind of in that zone. Presumably, I would say some of the private companies may be shrinking because their head count is down. But you have more exposure to the software vertical. The software vertical has been tougher. If you look outside of that, do you view ZoomInfo as kind of gaining, maintaining or ceding share in this current environment where you are today?

Gaining. Outside of tech and software gaining. And I would say even in tech and software, we're starting to see stabilization there as well. But outside of tech and software is where our business is growing double digits, where we're finding new use cases. Where traditional companies like Cintas or an Aramark or a Carrier where they have large sales forces are just starting to think about how do I drive productivity and efficiency in those teams? How do I use data and intelligence to drive better outcomes for those teams? And then you're seeing an emergence of Chief Data Officers, particularly in the enterprise, where they actually have authority and budget to do things where historically, they've kind of been like an innovation farm. Today, they're gaining more authority, more budget. And when they're thinking about the initiatives that they need to launch, particularly around AI, they're also recognizing a hole in the data, that the data that they have to work on is inaccurate, is not complete, cannot be used for AI-related initiatives, and then they're pulling us through there. We talked about in the quarter our largest increase in our multimillion dollar cohort, customers spending over $1 million with us. We see continued excitement from the customer base in the enterprise.

So a double-digit growth glide path outside of the software vertical, you're gaining share there. What about the trend toward -- a lot of companies have been trying to reduce the list of vendors that they're dealing with. I think the trend toward platform consolidation has been something that's been very noticeable right across all of our work. Are you seeing any more or less interest in that regard? Are there cases where customers are calling you and saying, we need to get off of a bunch of point products and kind of consolidate on to ZoomInfo?

Look, I think where you actually have opportunity here is less in the front office and sales tech, there isn't -- there hasn't been a migration to consolidation today. A lot of -- like if you think about the vendors like Outreach or SalesLoft or Gong or Clari, they all have kind of pieces of the puzzle and every place where they've gone outside of their core, they have like a second rate also RAN platform. And so it's not compelling for companies in this space to consolidate where they get one strong thing and then 8 really weak ones. They'd rather have best-in-class across the software stack. Where we see a real opportunity with this is with data where our customers, they buy North American contact data and company data from us, then they get something else in Europe and then something else in LatAm. They get intent data from another vendor. They get a website to company data from another vendor. They get company and hierarchy data from another vendor. They get funding data from another vendor, that's where there's a big opportunity to consolidate where we have best-in-class data assets across all of those, and we can show up and say, listen, you've got 8 different global vendors for a bunch of different data you could get it in 1 pipe from us. You could get it through DAS, you can get it -- you can have it in the platform for your sellers. There's a much bigger, more real opportunity to consolidate across what has become data sprawl across the mid-market and enterprise, then I think there is to consolidate a bunch of sales point solutions.

So there's more of a consolidation if it is at that back-end kind of data infrastructure layer than at the front end application. Do you think is that going to evolve in the fullness of time? Do you think that's going to kind of move its way up to the app layer?

I think to the extent that -- look, it's an interesting time right now, right, because the like you said, they're private companies, they're shrinking or they're flat. And that means that most of their energy is focused back on their core, not on the expansion areas. And that means they're not going to be consolidators either. And so you have this moment in time where I don't think consolidation is going to materialize in a real way because no one is putting together best-in-class assets outside of the core thing that they do. And when I think about the data consolidation, that is something we've always been focused on, has always been a core tenet of ours. And then what we've seen over the last 3 years is companies don't know what -- the right hand doesn't know what the left hand is doing and they went out and double the vendors in a number of different places, and it's ripe for consolidation in a different way.

As we try to wrap our arms around what inning this kind of rev tech opportunity is. I think sometimes there's a temptation to think about this a little bit in terms of seat penetration. And I don't know, Cameron or Henry if either of you have a feel for where that stands. But there were cases -- I mean, I think at the time of the IPO, there were cases where you could have a huge enterprise field selling team or even looking at the broader -- the entire sales and marketing team. And we would say, well, there were a lot of seats to ZoomInfo, but it's only 3% penetrated or something like that. Is there a way to think about this how many ZoomInfo licenses are sold into your typical customer now? Or maybe another way to look at it is if they have 100 seats of sales force. How many seats of ZoomInfo do you think they've absorbed at this point?

Still very, very small, particularly in the enterprise. I would tell you it's like high single-digit penetration of the seats that we could have. And I'll tell you, just if I back out a little bit, and I think about what every, every company wants to do from a go-to-market perspective. What every company wants to do is they want to take their first-party data, data that exists in CRM or marketing automation tools to tell them something about their customer. They're in this stage of opportunity. Maybe they came to this webinar or clicked on this link and e-mail. And they want to marry that with third-party data and insights that live outside of their CRM or marketing automation system, not their first-party data. That for us, that's company data, contact data, but it's more importantly insights and digital breadcrumb that tells you a company is potentially in market for your products and services. And so that's like are they researching your products and solutions or competitors on the B2B web. Do they just hire somebody in their buying committee? Did they say something on an earnings call that would indicate they're struggling with is a problem that your product or solution solves and what every company, when you go to every company, they're thinking about, how do I do this? How do I bring it together? Where do I bring it together? Do I put it in Snowflake or Databricks? Do I put in Google BigQuery? How do I join it? How do I join that party data from ZoomInfo and others to my first-party data? And then how do I get signal once I've joined it? If you just imagine a revenue operations professional or sales operations professional trying to do that at any company and the ticket line they're going to have to get into to get that data into Snowflake, to get a provision, to get it joined, to get another development. It will never happen. Maybe the worst thing is a lot of money will chase trying to make that happen with disappointing results. Because once I've even gotten that signal, I have to deliver it to a sales rep or I have to deliver it to a system to take action on it downstream. And the interfaces to deliver that are incredibly bad. And so these -- even though the vision is right, the execution is next to impossible right now, and it requires a major investment. One developer is going to fully burden who's any good is going to cost your call. $350,000 to $500,000, you're going to need a team of them and a UI person and a product person. And so the investment behind seeing that vision come to life is astronomical and most people will never get, the vast majority of people will never get to it. Our hope is that with 2 things with Copilot what we're really confident of is, one, we deliver that, take your first-party data, marry it to ZoomInfo. And then we have the UX downstream to deliver those to you in Slack, in e-mail and ZoomInfo, and then we built AI that will take those signals and write that communication for you, much better than any of my account executives or account managers can do, and I think they're pretty good. And then it's taking that action for you downstream. So what that means for us, this is a very roundabout way to answer your question Mark, but what that means for us is instead of being tied just to a sales development representative and a couple of account executives, this platform gives us a right to expand ZoomInfo across a much broader range of sellers, account managers, marketing automation, professional sales operation professionals than we've historically been able to.

And I think one of the really interesting things about the copilot platform is we're actually not only able to take your first-party structured information, all the ZoomInfo company and contact data but also signals. But we also have existing connectivity into a lot of our customers and a lot of great tools to take unstructured first-party information. So you think about what's in your e-mail system, what's in your conversations that you're having with customers and bringing it in to enhance the signal even more, put you at a spot where that's unimaginable and even further than what people are already trying to contemplate.

Because the copilot, the LLM can parse through and ingest a kind of signal out of the noise.

And we already do that, right? We're already recording conversations, taking AI, transcribing those and pushing those into copilot. We can do that with e-mails as well. So it's every conversation that you have all of a sudden becomes an important signal, then you're marrying with third-party signal to really understand the full picture of your customers in the market.

So again, industry growth rates, they're so mired down right now, right, in front office application software. But you're seeing this opportunity to expand. You're seeing that kind of at the data infrastructure layer on the back end. It sounds like there's a lot of momentum there. You've got the copilot vision in the future, which I'll come back to in a moment. But -- so what can this translate to for the growth of this market that you're in? I mean if we -- so when we come out of the Meier-down environment. If we try to envision forward , I don't know how long it will take, but where we're in a normal kind of macroeconomic backdrop. Is -- can we have a market that's growing 10%? Can we have a market that's growing 10% to 20% at some point?

Yes. Look, I think in a normalized environment without Copilot, I think you have -- we have a business that's growing 10% to 20%. If the market normalizes and growing 10% to 20%, which I think you can -- it will get back to, we'll have a -- and look, it's not going to get back to it the same way it got there in 2020, 2021 and 2022. The way I got there then was we just said, "Hey, you want to grow, add more head count, add more head count and add more headcount. And so we were the beneficiary and then the victim of that -- or I think victim is the opposite of beneficiary in that context of that moment, right? When they were adding sales heads, they're adding Zoominfo. When they're pulling sales head back their downselling ZoomInfo. I think what we have an opportunity with in the future is to drive productivity across and this is what everybody talks to us about. You asked me this on the earnings call. What everybody is talking about is how do I drive productivity across the sales reps that I have today. That continues to be a focus. Now they're not doing it with like every tool that's been on the market for the last 10 years. They don't believe that you can just go grab another sales engagement tool or another point solution, and that's actually going to drive productivity for them. But when they see something that incorporates AI, that's able to predict their next best customer, what I'm seeing on calls that we're recording and having is a different level of appetite to invest behind that, than there is to invest behind adding another conversation intelligence tool.