ZoomInfo Technologies Inc. (GTM) Q2 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to ZoomInfo's Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jerry Sisitsky, Vice President of Investor Relations. Please go ahead, sir. Jeremiah Sisitsky.

Thanks, Michelle. Welcome to ZoomInfo's Financial Results Conference Call for the Second Quarter 2025. With me on the call today are Henry Schuck, Founder and CEO of ZoomInfo. And let me be one of the first to congratulate Graham O'Brien, who is also on this call, who is our newly named Chief Financial Officer. During this call, any forward-looking statements are made pursuant to the safe harbor provisions of U.S. securities laws, expressions of future goals, including business outlook, expectations for future financial performance and similar items, including without limitation, expressions using the terminology may, will, expect, anticipate and believe and expressions which reflect something other than historical facts are intended to identify forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our SEC filings. Actual results may differ materially from any forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. For more information, please refer to the forward-looking statements and the slides posted to our Investor Relations website at ir.zoominfo.com. All metrics on this call are non-GAAP, unless otherwise noted. A reconciliation can be found in the financial results press release or in the slides posted to our IR website. With that, I'll turn the call over to Henry.

Thank you, Jerry, and welcome, everyone. We executed well across our strategic priorities, delivered another quarter of strong financial results accelerated upmarket growth and raised our guidance for the year, which now calls for positive revenue growth in 2025. We're delighting our customers and feel closer to them than ever. We're positioned to play offense with accelerating product innovation, a strengthening competitive position across our solutions and a team that is laser-focused and has an ownership mentality. All these inputs should drive accelerating free cash flow per share growth over the next few years and beyond. During the quarter, go-to-market studio went live and has a growing set of customers. ZoomInfo Copilot continued on its strong growth trajectory, and our suite of operations solutions again grew more than 20% year-over-year, validating that our customers are increasingly recognizing that they must make an infrastructural investment in data if they want to win in an AI world. All 3 solutions are driving stickier workflows and more habituated engagement across our customer base. In Q2, GAAP revenue was $307 million, and adjusted operating income was $105 million, a margin of 34%, both above the high end of guidance. Q2 is a quarter that typically skews more upmarket, and we leveraged that opportunity with an increasing number of our largest customers embracing workflows, automation and data as they expand their usage of our overall platform. We now have 1,884 customers with more than $100,000 in ACV, a sequential increase of 16 customers and a year-over-year increase of 87 customers. ACV growth in the quarter from that cohort was materially higher than last Q2 as our largest customers continue to expand and embed more of our data and agents in their workflows. We added customers to our $1 million cohort, driving sequential and year-over-year growth in total ACV as well as the average ACV per million dollar customer. ACV for the $1 million cohort was up more than 25% year-over-year. Upmarket ACV accelerated from 3% year-over-year growth in Q1 to 4% year-over-year growth in Q2. 72% of our business is now upmarket. Net revenue retention improved to 89% in the quarter, up 4 percentage points in 3 quarters, with upmarket retention the highest it has been in several years. During the quarter, we closed upmarket opportunities with [Avis], OpenExchange, Spectrum, Swift and the Washington Commander. Additionally, a multinational provider of Finance HR and payroll software doubled its spend with us and is now leveraging a wide swath of our Data as a Service product within their data science teams to build foundational data with company from a graphics, technographics, hierarchy data and signals across funding announcements, intent topics and project scopes. The customer expects this investment to have an immediate impact on market reactivity, win rates and hard cost on FTEs across their go-to-market organization. At UKG, we identified and unlocked an opportunity to transform their territory planning, account scoring and first-party data enrichment by improving data integrity across the organization using ZoomInfo lab, Data as a Service and our AI-powered signals. We expanded our relationship with a leading spend management platform to develop a custom Data as a Service solution that amplifies their go-to-market engine and accelerates their initiative to grow their customer base of companies with more than 10 employees. By partnering with their business systems, engineering and business intelligence teams, we analyze company records and contacts against their ideal customer profile, identified white space opportunities and delivered a new universe of data that integrates seamlessly into their existing go-market workflows. These accounts were all already in our 100,000 cohort of customers, and all 3 more than doubled their spend year-over-year. This is a trend that we expect to continue to see within our customer base. Our go-to-market motion is now designed to drive increased platform adoption and expansion across our existing upmarket customers. And while not reflected in our Q2 financial results shortly after the close of the quarter, we signed the largest TCV deal in the history of ZoomInfo, reinforcing our upmarket growth potential. This is a nearly 8-figure annual contract across 4 years with an existing upmarket customer that materially extends their use of the ZoomInfo platform. This customer has been using ZoomInfo for over a decade, during which time they have increased annual spend by 40x. What started as a simple contact lookup contract has evolved into a long-term partnership that leverages our data, signals and workflow activation layer with custom DAS deliveries becoming embedded into their critical go-to-market workflows. Customers like this one, underscore how critical we are to organizations as they transform the way they go to market. Today, 72% of our ACV is coming from larger upmarket customers an area where we see higher levels of profitability and accelerating revenue growth. As we successfully execute on our transition upmarket, we continue to invest behind this strategic shift. During our last earnings call, we made clear our intention to build the go-to-market intelligence platform. We continue to see great momentum on that journey throughout Q2 as enterprises move beyond accessing data to demanding AI-powered systems that can think, predict and act on their behalf. Positioning our solutions and platform as the intelligent backbone of their go-to-market operation. First, with Copilot, our AI for frontline seller productivity. In a quarter, the first set of customers who adopted Copilot a year ago came up for their first renewal on the product. Though it's still early, we're observing renewal rates that are materially better than on legacy ZoomInfo sales and are performing better than expected. Since Q4 2024, active users have increased their number of monthly AI actions by more than 40%, showing increasing adoption in daily workflows. We also expect continued traction upmarket as upgraded Copilot features and agents launched later this year. Second, Go-To-Market Studio is our operational counterpart to Copilot, enabling sales leaders and revenue operations teams to architect campaigns and strategies while Copilot executes against those strategies at the front line. They're designed to work together, driving expansion across different personas and new use cases within the same enterprise account. Go-To-Market went into early access in July with the first set of customers from our oversubscribed wait list. We will be GA-ing Go-To-Market Studio ahead of schedule and as it continues to scale across our customer base, we have an unprecedented opportunity to enable go-to-market leaders to actually deliver results with AI and automation. Early customers are using Go-To-Market Studio to generate insights faster than ever with just a fraction of the effort, account scoring and prioritization, automated research and enrichment, turn prediction modeling and competitive intelligence are some of the first features that our early users are embedding into their AI-enabled workflows. We're eliminating data silos, automating manual tasks and delivering real-time buyer intelligence. Ensuring every seller is engaging with the right accounts at the right time with the right message. With Go-To-Market Studio, Copilot and DAS our go-to-market Intelligence platform is creating the unified data foundation for Go-To-Market AI. In Q2, we continue to automate the downmarket experience and where we're able to reduce and, in some cases, reallocate down market resources. In this rapidly changing technology landscape, we will continue to be ahead of the curve in our internal adoption of AI, resourcing smaller but more productive teams. In one instance, we were able to restructure a team for more than 25 employees to 2, leveraging AI to support the automated creation of content and the workflow to connect that content across the business. We deployed some of that excess headcount into upmarket sales roles where we continue to add headcount. We see these changes leading to better customer experiences, while capturing efficiencies in the process and have a number of additional areas around the business where we believe we can reinvent our operating model powered by AI, resulting in better customer experiences, faster decisions, reduced head count by leveraging AI and improved margin performance. In the quarter, we were also able to be aggressive against our share buyback program, retiring 15.9 million shares of common stock at an average price of $9.22. I'm committed to driving durable positive revenue growth, faster AOI growth and even faster free cash flow per share growth via opportunistic and price-sensitive buyback. Before I turn the call over to Graham, we announced today that we are naming him CFO. Graham first joined us as part of the ranking acquisition in 2017 and has had a great track record over its 8-plus years of ZoomInfo. He has done a fantastic job serving as our interim CFO, a period of time when we consistently deliver on expectations, redoubled our focus on profitable growth and continued our shift upmarket. He has been a great partner to me and at the investor community, and I'm confident he is perfect for the job. It has been a highlight of my career to watch him grow into this role. With that, I'll turn the call over to our Chief Financial Officer, Graham O'Brien.

Thanks, Henry. I appreciate the kind words. I'm excited about the opportunity, and I am confident that we will continue to accelerate along this promising trajectory as we focus on customer value and expanding that market. My philosophy as CFO is at the ultimate arbiter of the value of the business to its owners is the long-term free cash flow per share it generates, and I will be dedicated to effectively delivering that. I'm committed to earning and keeping investor trust and recognize that we must compete for shareholders and their capital through superlative operating and financial performance. We have a real opportunity to reaccelerate revenue growth while prioritizing profitability and growing free cash flow per share, and I am confident that the path we are on will create meaningful shareholder value. Shifting to the results for the quarter. Q2 GAAP revenue was $307 million, and adjusted operating income was $105 million, a margin of 34%, both above the guidance ranges we provided. Year-to-date, revenue was up 2% and largely due to the down market sales seasonality of Q1, annualized sequential revenue growth was negative 0.8%. We delivered strong results in the quarter, and as a result, we are raising our expectations for the full year. We are ahead of schedule in our shift upmarket, and we are increasingly confident in the trajectory of the company and our path to consistently delivering Rule of 40 results coupled with attractive dilution rates and declining stock-based compensation expenses. We are now guiding to positive revenue growth for the full year 2025. Copilot had another strong quarter and operations continued to grow greater than 20% year-over-year. Upmarket is now 72% of the business and upmarket growth is accelerating, growing 4% year-over-year. The downmarket business is now down to 28% of total ACV and contributes even less of total adjusted operating income. Downmarket declined 11% year-over-year in the quarter, and we remain confident that it will be a smaller and healthier version of itself over the long run. Our overall net revenue retention improved in the quarter to 89% and upmarket retention is at its highest level in years. The growth in our $100,000 and $1 million customer cohorts was better than expected in Q2. Q2 is still a relatively noisy year-over-year comparison period. And as we transition into the second half of the year, the year-over-year comparisons will become much cleaner. As we look to the back half of the year, we anticipate getting more insight that will help us better understand renewal trends for early tranches of Copilot customers as well as customers that transacted to the new business risk model last year. While still very early, the results to date have been promising and give us incremental confidence in our longer-term growth algorithm. As more of the business comes from larger upmarket customers, we see continued opportunities for higher levels of profitability. We are confident in our ability to deliver improving levels of profitability with improving revenue growth with margin expansion materializing over time and not only in a linear manner to help market mix shift. Turning to cash. Operating cash flow was $109 million in Q2 and unlevered free cash flow for the quarter was $100 million, a margin of 33%. In Q2, the company repurchased 15.9 million shares of common stock at an average price of $9.22 for an aggregate $146 million. With the favorable market conditions, we accessed our revolving credit facility to meaningfully accelerate share repurchases during the quarter. Since inception, we have allocated more than $1 billion to share repurchases, retiring approximately 95 million shares while maintaining comfortable leverage ratios. We expect to continue to primarily use the cash flow we generate to retire shares of ZoomInfo as we believe that will generate the best possible long-term return for shareholders. We ended the quarter with $177 million in cash, cash equivalents and investments, and we carried $1.3 billion in gross debt. As a result, our net leverage ratio is 2.5x trailing 12 months adjusted EBITDA and 2.3x trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreement. With respect to liabilities and future performance obligations, unearned revenue at the end of the quarter was $473 million and remaining performance obligations, or RPO, were $1.15 billion of which $842 million are expected to be recognized in the next 12 months. Turning to guidance. For Q3, we expect GAAP revenue in the range of $302 million to $305 million. We expect adjusted operating income in the range of $110 million to $113 million and non-GAAP net income in the range of $0.24 to $0.26 per share. We are raising our guidance for the year, and we now expect to deliver positive revenue growth for 2025. For the full year 2025, we now expect GAAP revenue in the range of $1.215 billion to $1.225 billion, representing positive 0.5% annual growth at the midpoint of guidance. Adjusted operating income in the range of $433 million to $437 million, representing a 36% margin at the midpoint of guidance. We expect non-GAAP net income in the range of $0.99 to $1.01 per share based on 346 million weighted average diluted shares outstanding. And we expect unlevered free cash flow in the range of $422 million to $442 million. Now I will turn it over to the operator to open the call for questions.

[Operator Instructions] And the first question is going to come from Brad Zelnick with Deutsche Bank.

Congrats all around especially to Graham and ZoomInfo on his appointment becoming official. Guys, I wanted to ask about the largest deal in history that you called out, which seems to be really strong validation of everything you've been telling us about the upmarket opportunity, what more is there to say about what actually drove it? And at a time where we hear everybody is becoming more efficient to see this kind of expansion is amazing. And just really quick Graham one for you, especially on your appointment as CFO, I don't want to leave you out. How should we think about the 6% RIF and its impact to next year?

Great. Thanks, Brad. The large deal that we talked about, it's a really nice win. It standardizes ZoomInfo as the enterprise data foundation and sales intelligence platform at one of the world's most sophisticated Go-To-Market organization. That company is retiring a number of legacy tools. We're embedding Copilot into a new CRM and we'll aligning sales and marketing, operations and AI on a single Go-To-Market system that's powered by us. And we're really today at the center of a few key strategic priorities for any forward-thinking company. Every company wants to consolidate data into a single source of truth and then enable real-time activation across their Go-To-Market teams. They want their sellers and their marketers to move with AI-driven insights and workflow and they want to be able to drive better segmentation, better personalization and better forecasting at enterprise scale and they're looking to us to be able to deliver that. So we're really proud of the new solutions that we've brought to market that enable us to be a key strategic partner in these large organizations. And we're excited that this is a great large first step into telling the customer base that we can be that kind of enterprise upmarket partner.

And yes, I can comment on the 6% reduction in force in June. I view this as a proactive measure as we continue to find pockets in the business where we can be more efficient. I would think about this as a step in our progression towards delivering meaningfully better margins in 2026.

And the next question will come from Mark Murphy with JPMorgan.

Graham, I will add my congrats on the news and have very well deserved. I wanted to ask about Q2 in the month of June, which are big upmarket period for you. Can you comment at all on the exit of velocity there just in terms of close rates, but also how you think about pipeline build heading into the second half? And also within it, if you drill into the software vertical, is there any reason to think that that's turning the corner and maybe that, that can become additive to your growth profile going forward rather than impairing it in the second half?

Yes. I think we feel really good about the pipeline we have, heading into the back half of the year. Q2 and Q4 are more upmarket weighted quarters and Q2, in our view, certainly didn't disappoint. We feel good, really good about the upmarket, pipeline in Q4. And we as we mentioned earlier in the call, we are starting to see early signs of better renewal outcomes, upmarket and downmarket as we get into Q3. So that's what makes us feel positive about the back half of the year. And then from the software vertical, Q2 was our fifth sequential quarter in a row where we saw improving net dollar retention in the software vertical. And I can safely say that in Q2 software returned to being a contributor of growth to the business for the first time in a long time.

And the next question will come from Elizabeth Porter with Morgan Stanley.

Great. And I'll add my congratulations, Graham. My question on the recent CIO survey, we actually saw that sales was a top area where the adoption of AI was having an overall improvement in the cost base of the business unit. So I just wanted to delve a little deeper on the conversations you're uncovering as it relates to that greater efficiency. And if that is driven more on the lower head count side, is there any sort of framework or view on how much savings that customers do you think can ultimately be captured by ZoomInfo?

Well, I think when we're talking to our customers, they are obviously leaned in on trying to find opportunities to drive efficiencies in their Go-To-Market organizations leveraging AI, but they actually lack first, the data foundation to be able to do that. Data from Go-To-Market tools and conversations with customers lives in a number of different areas. Some of it is in Snowflake, some of it in CRM, some of it is in your conversation intelligence vendor. And then there's this huge universe of third-party data that exists about your prospective customers or your existing customers that doesn't live in any of your first-party systems. And so when we're talking to our customers, particularly Go-To-Market operators, what they're telling us is, yes, there's a lot we want to do, but we have no centralized way to get the data together. And so we have a lot of creative ideas on the ways that we want to work with AI, but we can execute on those ideas because we have to stand in line in a long IT queue to bring the data together, to pull it together for us to have a view of our customer base. And so what we're doing, what we've done with Go-To-Market Studio is first get that data foundation right. And you're actually seeing that same desire to cleanse and rich and have a strong data foundation show up in our growth numbers for our operations product, which were up 20% year-over-year, where customers are now more than ever leaning into us and saying, "Hey, I have some first-party data, but I also need to marry that to third-party data in order to be able to drive any of the AI initiatives internally on the company." And so we are seeing customers lean in there. They're looking for the right data foundation and then the right partner from a data and insights perspective. And then we're building them workflow so that it's not just that data, but it's embedded inside of their workflow so they can take advantage of that data, take advantage of that insight. And we're seeing really strong results from being able to do that, particularly in the upmarket.

And the next question comes from Kash Rangan with Goldman Sachs.

Congrats to Graham. We could see this coming when you pushed you guys and I told you, Henry that Graham's doing a great job. So nice to see the promotion. One for you, Henry, as you take a step back, look at the past 3 years of this cut wrenching downturn we've all lived through. I guess, as analysts, we learned from our mistakes and things that don't work more than things that work. As you look at your business, what are the things that you have learned from the past 3 years that you will put to work in the future and that arms you better to make better decisions on the business tiered forward that you couldn't know 3 years ago? And also with respect to AI, it feels like the frontier models are truly magical, but everybody has access to the structure models, everybody has that data. And it feels like the software community might have overestimated how much can charge for these AI products and then you start to see some customer pushback, not on the value, not on what it does, but how much they are willing to pay for it. So what is going to be enduring with the Go-To-Market AI solutions long term that you think you can be part of the permanent stack of AI solutions in the future?

Great. Thank you, Kash, I'll try to hit all of these here. Look, I think from a learning perspective, you've heard us talk about this over the last year, but 2 things that really matter are the way we think about our customer base and the makeup of that customer base as well as product innovation. And I think when we were -- if I were wound the clock 3 years, we weren't spending that much time thinking about where the next best customer should come from for us. So we're generating demand, we're closing that demand quickly. But a lot of that demand was coming in the far reaches of the down market. Those customers have the lowest lifetime value, as customers of ZoomInfo, they churn at the highest rates, they grow at the lowest rates. And so when we took a look at the business and thought about what would drive durable growth for us for a decade to come, one of the big realizations was that in the upmarket, we have really sticky customers. We have great product market fit. Those customers are vastly more profitable for us than their downmarket counterparts to grow faster. They have higher net retention. I would tell you the second thing is around product innovation and getting close to our customers. And so what we've been able to do over the last 2 years is really driving innovation first product road map. We've rebuilt our product teams. We've rebuilt our engineering teams. We're closer to the customer and understand what they really want, what they want to invest in, what they care about. And we're building better software than we ever have before, and we leaned way in on leveraging AI to drive efficiencies in that organization and deliver more product, more software at a higher velocity than we ever had before. So our customers are getting better product from us. We're aligned to the right customer segments that drive long-term durable growth. And then the third thing I would tell you is that our data advantage is way bigger than we ever imagined. And so we've invested even more behind our data advantage to make sure that our customers are getting the best third-party data from us. And when you think about your comments around the foundational model, yes, they've eaten up a lot of the publicly available information that exists or all of the publicly available information that exists. But we have a unique data asset that doesn't exist inside of the foundational model that is critical for customers to use to get in front of the right customers at the right time, and it's not available on a foundational model and it's context-specific and our customers are leveraging that to get ahead of their competition and have value beyond what they would get out of the ChatGPT wrapper.

And the next question will come from Koji Ikeda with Bank of America.

And I, too, will add my congrats to Graham on the CFO role, well deserve their Graham. Okay so I wanted to ask a question, maybe this is geared towards Graham, a little bit more forward-looking here. I look at Bloomberg in the Street, Street growth estimates for 2026, and it's roughly close to 3%. And I do appreciate the guide up for the second half of this year, but it does imply an exit growth rate of about negative 1.6% for that fourth quarter. And of course, I do understand there's a lot of nuances in the model here, but as the model begins to normalize in the second half, how do we think about that exit rate mismatch to where the Street's at currently for 2026? Is there anything that we should really be focusing on here?

I'll start with the implied Q4 revenue figure that you're pointing out. And I'll just say, with this raise to guidance, out of this quarter, my philosophy hasn't changed. What's driving the raise is performance of the business, and you could look at the guidance philosophy as consistent at that kind of helps with some context around the implied Q4 number. And then kind of more pointedly on 2026, but we feel great about our progress in 2025 so far, but we still need to deliver Q3 and Q4. We feel great about doing that. But our success in doing so will really impact 2026, more than anything. So we'll start talking about 2026 when we get closer to it.

And the next question will come from Parker Lane with Stifel.

Graham, I think it's been about a year since you installed the business risk model, PLG and self-serve motion on the downmarket piece of the business. I was just wondering if you could comment on how that's improved the margins that segment. And as you march towards stabilization down market, how much of an opportunity is there to drive some additional leverage in that piece in particular?

Yes. We continue to shift resources out of downmarket to drive upmarket growth. The downmarket result in Q2 was in line with our expectations. As a reminder, the upmarket business has significantly higher margins than the downmarket business and our initial guidance model allowed for a pretty significant degradation in down market growth with our updated guidance update this quarter. We're now expecting -- we're looking forward to a stabilization in the rate of the decline of the downmarket business in the back half of the year. We're seeing good renewal outcomes from customers who have gone through the business risk model and we didn't actually optimize that new business risk model until Q3 last year, which is when we also restructured our packaging and pricing down market and segmented our new business account executives. So we have a little further to go to lap all of those operational changes, but we still feel as good as ever about the resource shift and the revenue shift upmarket and the opportunity for improving margins that we'll deliver.

The next question comes from Michael Turrin with Wells Fargo.

Graham, just on the segmentation commentary, did you say upmarket 4% growth in down market, down 11%. I'm just -- we're working on the fly, but hoping you could help bridge how that translates to the 5% growth reported for the quarter. And then as a second part, you touched on it a bit, but with the revenue increase running a bit ahead of the updates to the bottom line, are there certain areas of the business you're planning to invest back into a bit more given the upmarket motion you're seeing?

Yes. Sure. Yes, it was 4% upmarket growth Q2 year-over-year and negative 11% downmarket. The 5% revenue growth in Q2, a bit of a noisy comparison there. We had some change in estimates in Q2 last year. So that's kind of the bridging item to get to that plus 5% year-over-year. And then on the margins, like, as we move upmarket, as we reaccelerate revenue, we do not be margin expansion and accelerating revenue growth as conflicting. If we do the math here, the market business has significantly higher margins in our downmarket business by several thousand basis points. That implies that around 80% or more of our adjusted operating income can be attributed to the upmarket business. And that's why we continue to feel so confident in improving margins as we return to growth. That margin expansion won't be perfectly linear to upmarket shift but we do have visibility to that as we exit 2025 and into 2026. Our head count is significantly lower than it was at the beginning of the year. It's essentially at levels where it was several years ago. We also have some fixed costs that came on in 2025 that should be flatten out in 2026, and we should get some operating leverage related to those as well.

And the next question will come from Alex Zukin with Wolfe Research.

Graham, again a huge congrats, I think, from everybody in the community on the promotion. Maybe on NRR, again, you guys have mentioned this a few times, the improvement that you've seen over the past few quarters has been pretty substantial. I guess what gives you the confidence that, that can continue? Is there a way to think about the pacing of that improvement as we get through the rest of the year? And then on profitability, we hear you on the reinvestment makes sense given the accelerating upmarket activity, you talked about operating margin leverage not being in conflict with that. Maybe help, give us a little bit of a flavor of that because the full year raise on [ op ] income a little bit less, obviously, than the rate -- the pass-through on top line. How should we think about that trending over the course of the next year?

Yes. Thanks, Alex. I'll start on the retention side, 89% in Q2, up 2 points sequentially, up 4 points from 3 quarters ago. We're still really focused on getting retention back into the '90s. We have the upmarket business where retention is improving within that segments. The upmarket business is also becoming more and more of a mix of the business. So you almost get kind of that inorganic revenue or retention benefit from that. We also have a lot of opportunities within our current customers from a persona expansion perspective. Copilot, Go-To-Market Studio, that's going to allow us to sell to teams and seats in the existing customer base that we haven't previously sold to before. And with that, mostly upmarket retention opportunities, stabilization downmarket at 2-point retention improvement in Q2. Again, that's before closing the largest TCV deal in our history in Q3. So we feel like we continue to have increasing momentum on this path back to 90% and above 90%. And then on the margins, I think it's -- I wouldn't really call it reinvestment. I think this is mostly timing. The margin benefit from some of the costs that come out from the points of mix shift upmarket that we're getting from a revenue perspective, almost every quarter. It doesn't immediately fall down to adjusted operating income. There are step functions of improvement here. And we view this largely as kind of a timing progression rather than a reinvestment. And with kind of our resourcing plans with some of the costs that should level out as we get into 2026, we see a good opportunity for margin improvement that kind of comes along with that upmarket shift as we reaccelerate revenue growth.

And the next question will come from Raimo Lenschow with Barclays.

Henry on for you on Copilot. Like obviously, in the industry, there's a lot of AI noise. A lot of people kind of are trying to come up with their own AI Agentic, Copilot kind of type offering. What are you seeing in terms of your Copilot offering perception in the market? How does it stack up with the other guys? Can you speak to that a little bit more and Graham congrats from me as well.

Raimo, thank you for the question. Actually, last quarter went through a number of our customers on Copilot and tested this question with them directly, wanting to understand where they saw advantages of Copilot, if they were seeing anything else in the market that rivaled it. And those meetings came out incredibly positive. We are ahead on the innovation curve from a product perspective. We were the first ones to really get out there and go-to-market and offer a Copilot product. We've since significantly expanded that product. And later this year, we're going to be releasing a really big product release around Copilot, we're calling it Copilot 2.0 internally at ZoomInfo, and it will have significantly enhanced functionality, new agents that Go-To-Market organizations can leverage, can use for research and prospecting and account planning and the creation of PDFs for their customers. And so we're really excited about the fact that we got out, we got ahead, and now we have an opportunity to continue to expand the lead that we have with Copilot.

And the next question will come from Jackson Ader with KeyBanc.

My questions are both on that large deal, the largest TCV deal. I guess just number one, how can you characterize maybe the ACV of that deal compared to the prior contract? And then the other follow-up, Henry you kind of hinted that this might be like this deal might be a signal to other potential upmarket customers. And so I'm curious whether you have that particular industries or other companies that have a similar look and feel that you can just kind of line up and then take this reference customer and go knock those down?

Yes. I can cover the first part. The ACV of that deal after the deal was done is just below 8 figures, and that represented significant growth off of the prior ACV, you think of significant growth of millions of dollars.

Yes, I think that is exactly what we expect to be able to do. There are dozens of customers who look like this customer within our account base who are already doing some business with us, that we really have an opportunity to go in and show them how they can standardize on ZoomInfo from a data insights and AI agent's perspective, as they modernize their Go-To-Market organizations. I think the trend that we're seeing is our customers are leaning in more with us today than maybe they ever have. You can see that in the 3 customers I talked about all of them, doubled their spend with ZoomInfo year-over-year, and we see a lot of opportunity to continue to do that, both in big monumental ways like we did with this customer and also in blocking and tackling and hitting doubles along the way where we can grow a customer from $250,000 to $500,000 or a $500,000 customer to $1 million customer. We have a tremendous customer base in the upmarket, where we're now executing again.

And the next question will come from Taylor McGinnis with UBS.

Congrats Graham. Graham for you, you made comments earlier that market retention has been the highest in years. So what does NRR of the upmarket business look like today? And as we think about the path to get back to the 90s and higher, could you just provide a little bit more color on what the guide assumes and any early thoughts as we think about 2026?

Yes. Thanks, Taylor. I think previously, I had said that upmarket retention was in the mid-90s. We're above that now on a trailing look back the high 90s. And I think if you look at it from an in-period activity perspective, it's above that. So we are executing and delivering significant improvement across 72% of our business with our largest customers. And as it relates to the guidance, the guidance for the upmarket business is that we get to mid-single-digit growth in 2025. We're really focused on getting to the top end of that range, if not above that range. And I think with retention where it is right now upmarket, we would have an opportunity to exceed that assumption. And as you start to think about 2026, I mentioned it earlier, it's too early for us to talk about the specifics there. We've got a really big opportunity in Q3 and Q4 to go continue this momentum and then we'll be able to start talking about 2026.

And the next question comes from Tyler Radke with Citi.

Graham congrats again from me. In terms of the -- a couple of questions just on kind of the emerging parts of the business. So Copilot, encouraging to hear the continued momentum there. I'm curious, as you start to approach some of the Copilot renewals, which I think will be in the back half of this year. Would you expect those contracts to grow faster than the initial point of sale, obviously, customers have been using Copilot in those situations for over a year. So do you think that could be a catalyst to reaccelerate NRR for folks that are using Copilot.? And then secondly, just on the operating hub. I think you said growth, there was above 20%. Did that accelerate versus last quarter? Or was that pretty consistent versus last quarter?

Yes. Thanks for the question. On the Copilot part of it, when we rolled out Copilot in May of last year and in Q2 of last year, the initial transactions, there are either new business transactions or their migrations from existing customers on to Copilot. We were very successful, I think, in getting uplift on those transactions as we migrated the existing customer base on to Copilot. But what we've always said is that the Copilot and our other products are being designed and being built for customer success and to optimize for retention. So how does that customer renew 1 year in, 2 years and 3 years in, everything we're building, the approach we're taking the pricing is meant to optimize for adoption and stickiness. So now we're basically approaching this transition where we're going to start having material cohorts of Copilot customers that have been using Copilot for 6 months or a year start to renew. We got an early view on that in -- at the end of Q2 for some of those initial cohorts. And the early signs were good. We were getting meaningfully better renewal outcomes. Again, that's a small population, but getting meaningfully better renewal outcomes across a product that is a significant part of our business now, certainly could be an incremental tailwind to retention, even more so than or, I guess, in line with the tailwind we got from the initial migration. And then on operations, it's still 20% plus growth in the year-over-year. We had a really strong Q2 and we have not seen signs of deceleration in that number.

And the next question will come from Brian Peterson with Raymond James.

Congrats Graham on the new role. So I wanted to hit on net new. I'm curious how that's gone this year versus your expectations. And Henry, as we think about these upmarket customers, looking at how they're treating data, do you think they'll make more standardized investments, i.e., bigger deal sizes versus what you've seen historically, maybe where they're taking a little bit smaller bites of the apple?

Yes. I'll touch on the net new business, first of all. So I look at this upmarket versus downmarket. Our upmarket customer acquisition from an ACV perspective continues to grow year-over-year. And then down market, we're basically a year into the new business risk model where we were qualifying customers with more rigor. And by doing that, we are even disqualifying [indiscernible] insignificant amount of new business ACV that we would have historically sold. So as we start to fully get through that complete lap in Q3, I think we're going to be in a place where we are back to a steady-state new business acquisition engine downmarket.

And then on the data deals, Brien, I think there are probably 2 things to think about here. I think one is what we're seeing from our customers is that they're -- the rhythm to buy data to power their internal systems, to power their AI initiatives to cleanse and enrich their CRM systems is much different than I've ever seen it before. What we're seeing from our customers is a recognition of the requirement to buy data to marry with their often -- almost always out of date, inaccurate, incomplete data that they have internally that they're trying to use to drive an AI initiative. And so we're seeing bigger deals and more customers prepared to transact around leveraging data to cleanse, enrich and enhance their own internal first-party data in order to drive AI efficiencies in their business. That is the new motion. We spent 20 years telling customers how important it was to make sure that the data and their CRM systems and their data warehouses were accurate and up-to-date and enriched and had signals associated with it. And that felt like a second or third order problem for many years. This is a first-order problem in enterprises today, far different than it's been in years past and that is leading to larger deals. The second thing that I would point you to is, in the strategic enterprise, the highest end of the upmarket, they are sophisticated enough and know how to buy data. They buy data, they plug it into a workflow that goes into their CRM or their data warehouse, they're sophisticated operators when it comes to leveraging data, they have data science teams and data engineering teams. And they can buy raw data and plug it into their systems and their workflows. The minute you move out of the highest end of the strategic enterprise, you get into companies that have far less sophistication. They're not used to buying data, they don't buy data files, they don't have data engineering teams or data science teams to help them with anything. And so we would show up and not have a great solution that articulates the value of that data inside of their enterprises. With Go-To-Market Studio, that gives us the software layer over what has historically been data as a service files or integrations into data warehouses or CRM systems through APIs, we now have a software interface that gives us the opportunity to go articulate the solution to revenue operations and sales operations and Go-To-Market leaders all across the upmarket, not just in the super strategic enterprise segment of our business. And so we're really excited about that opportunity to bring that solution, which is, again, our fastest-growing solution in our portfolio to a much broader set of customers with Go-To-Market Studio.

And the next question will come from Pat Walravens with Citizens.

This is Austin Cole on for Pat. Henry, question for you. At this point, anyone who is visiting San Francisco is going to see billboards for AI, SDRs, and there's a bunch of small players in that space popping up. So I'm just wondering, is that something that's coming up in any of your conversations with customers? Do you kind of buy into that vision, why not? And how does maybe an AI SDR stack up against Copilot from a product perspective?

A lot of billboards, not a lot of productivity or revenue being generated for companies that have invested behind AI SDRs. I think a lot of pilots that don't turn into longer-term contracts. What we're hearing from our customers is, again, that this is -- what they've seen across AI SDRs are a flash in the pan. There are a number of regulatory hurdles to using an AI SDR to go outbound that makes it in many cases, not a good use of technology. I think there are probably opportunities from an inbound perspective when someone fills out an inbound form to be able to correspond with that person using an AI SDR, but I think the promise of the AI SDR has been largely overblown. I think the other thing that we're seeing from our Copilot solution is that it's not just SDRs who are leveraging that. We're seeing account executives, account managers, customer success managers who are leveraging Copilot to understand their customers better to plan for meeting more thoroughly to know what insights to bring to their customers to know which customers to focus on because of signals that we're layering in and delivering to them. And so while SDRs are and will continue to be a meaningful part of our user base, we are seeing real expansion opportunity outside of that persona as well.

And the next question will come from Surinder Thind with Jefferies.

Henry just -- as we look at some of the wins that you've had, especially the bigger ones, it seems like there's a theme of consolidation there where you're displacing some competitors. Given the current environment, it seems like there's enough data points for clients to make bigger decisions at this point. There's enough comfort with the technology and the track record of products. Can you talk a little bit about that theme? And if consolidation is where we think the next year or 2 is going to be in terms of growth and then maybe we get that -- the growth in headcount within sales after that period of how we should maybe think about those dynamics?

Yes. I think the first thing I would tell you is we are seeing increased opportunities for consolidation across the Go-To-Market tech stack. I would tell you 2 years ago, we were not in a position to take advantage or be a beneficiary of that consolidation push. But today, our product innovation has put us in a position to be a beneficiary there. And so we're seeing customers now consolidate on ZoomInfo. Their sales teams are on it, they want their marketing teams on it, they want to the RevOps teams on ZoomInfo as well. And so we have a real opportunity and have seen it across our customer base. We are winning on consolidation across the Go-To-Market organization. Look, I don't know if that's going to be the biggest driver of growth in the next 12 months, I think there are big drivers of growth in DAS and Go-To-Market Studio and continuing expansion of Copilot, but I do think it will be a contributor to growth as we go forward.

And that is the last question that we have for today. And I would now like to turn the call over to Henry for any closing remarks.

Great. Thank you, everybody, for joining us on this journey. We're confident about the balance of the year as we continue to move the business upmarket, and we're releasing some really exciting new solutions to our customer base over the back half of the year and look forward to briefing you on them. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.