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

All right. Well, one of these firesides, I'm going to have them, keep the doors open. So we can just look at the ocean. But guys, thanks for joining us today. I'm Ryan MacWilliams SMID-cap software analyst here at the Wells Fargo TMT Conference. With us today is the CFO of ZoomInfo, Graham O'Brien. Thanks for being here.

Thanks, Ryan.

So I don't think we'll be taking questions directly from the room. So if you do have questions, please feel free to ping me at [email protected] or ping me at Bloomberg, we can get those in. Graham, we'd love to kind of just start with maybe folks that are revisiting or newer to the ZoomInfo story. If you could just catch us up on kind of the last couple of quarters and some of the upmarket momentum you've seen, and we can go from there.

Yes. I think over the past year has been a story of stabilization in the business and that Q3 was the start of a story of improvements in the business. Highlights coming out of Q3, where we had a 2-point acceleration in our upmarket business. ACV growth, where we went from growing 4% to 6% in Q3. Our downmarket business saw a 1-point improvement as well. Overall, net revenue retention reached 90% for the first time in several quarters, improving from 89% in the period before. We had our highest revenue quarter ever, $318 million. with 5% year-over-year growth, and we delivered a 37% AOI margin.

Yes, definitely a more solid quarter than investors were anticipating. We love to kind of unpack some of the components behind that. So -- maybe starting on like the upmarket momentum. It seems like that's been more of a focus for ZoomInfo and putting more wood behind the arrow there. So like what were some of the changes that were made that has led to the improvement that you've seen?

Yes. We've been very focused on shifting our revenue base up market over the last really 2 years. So our upmarket business is now 73% of our total ACV. That was up 1 point sequentially in the quarter. It's up 5 points year-over-year. It's actually up 10 points over the last 2 years. Our market business is growing. Like I said earlier, that's actually much more profitable than our downmarket business, so the kind of upside that we got top line in Q3, you could think of coming from improvements in that market net retention, where in period, our upmarket business, our customers had retention activity that was at 100% again for the second quarter in a row. Our operations business, which is almost exclusively upmarket, Think of this as our data foundation it's still growing 20% year-over-year. It's now more than 15% of our total business. This is a product that is obviously, in AI beneficiary, as businesses of all sizes look to kind of start to marry their first-party data with our best-in-class B2B third-party data, so they can deliver effective GTM outcomes using AI.

Excellent. Actually, I want to double-click on that operations suite. So very strong growth in the quarter. For investors maybe who are new to the story, can you just kind of overview that product and how that makes sense in the generative AI world?

Yes. So operations is effectively our data suite for our core data asset, our proprietary data. So what we've -- basically, customers purchase that on a subscription basis. It's not a seat-based model. Think of it as like a data access subscription where they get access to a geo set of data or all 100 million companies that are in that data center, all 500 million business professionals. We also layer signals and intent on top of that data asset. And then customers purchased it for a 1- or 2- or 3-year subscription. We enrich that data for them. We route it. We go on with them and we actually help them marry it with their first-party data to create this kind of live, always-on kind of data asset that then they can build application or agents on top of to have the context to go deliver those GTM outcomes that they're seeking to.

And it seems like, especially for customers and businesses that are newer to AI, go-to-market enrichment or kind of operations suite seems like the first step for them. So what's like the customer reaction been so far? And then has that kind of like the switched on for them like, okay, now we need to do more here?

Yes. I think the demand for AI for GTM is evident up and down our customer stack. Now there's like sophistication curves of whether it's how sophisticated are they from an AI and kind of AI usage on a day-to-day basis, how sophisticated are their data operations. And some big companies are less sophisticated. We have a lot of great opportunity to kind of show them the way as partners in that. And then you actually have some more smaller even AI native companies that are just starting to build go-to-market after kind of an R&D phase. and we're kind of the clear frontrunner to go in and help them build AI for GTM as they start to go to market.

So we were even talking before this about changes in go-to-market that we're seeing and like the complexity is getting a lot more challenging. But do you think like for businesses that are just getting started, it's like, hey, let's make sure our data is correct to start. And then we can start trying to build the fancy agents from there?

Yes. I mean that is mission-critical, but it's really hard to do. Like the first-party data you have siloed across your organization, whether it's CRM or kind of collaboration tools or product telemetry, like it is nothing. It's very difficult to marry it. So not only do we bring in this third-party data asset, we bring in the signals that are coming live from news and research, and then we can actually marry it and unify it with that first-party data to create that context layer that you really can't do anything without like the go-to-market fails without that data asset. And then we've built GTM Workspace go-to-market studios to have these AI applications that sit on top of that data asset so the customers can subscribe to those 2.

So I got to get back to some of the net retention stuff in a second, but I just wanted to double-click on that data advantage because when I launched on ZoomInfo years ago, that was always -- what was interesting to me of like how much better the data set was versus your peers and how like -- it wasn't just like getting the e-mails correct, but like having -- especially in multi-geos like a lot more behind each individual contact. But like -- can you just talk about like why that is such an important starting point if you're looking to build like an AI use case. But then also like how distinct that data advantage is behind like, okay, I just send an agent to try to grab like every e-mail off the Internet, right? Like how that wouldn't even come close to what you guys are.

Yes. So it's effectively a very distinct advantage because of the investment we've made over decades of building ZoomInfo, combined with the scale. So we can able -- we can send our data teams out to go acquire or create data that folks are looking for. We can go -- we have our contributory data network where customers can contribute their own data into our data network and like that scale that we have, $1.2 billion of revenue creates a massive competitive advantage. The idea that you can just go and kind of like scrape the Internet to get this is like unrealistic. The -- most of our data is proprietary. It's not publicly available. So we bring in that kind of scarce data. And then we were able to actually kind of wrink it, clean it, enrich it and then take that and provide the context when you marry it with the first-party data for those customers.

It makes sense, right? Like if you're sitting there and you're like, okay, let's build a go-to-market agent. It's like you get a couple of outputs, then you're like, I don't think we're building this off the right data, like that would be a good place to start. Just on your Copilot product, it seems like you've had some customers that have come up for renewal. Like how does NRR look like on those early customer cohorts at this point?

Yes. So like a little history here. We released ZoomInfo Copilot in Q2 of 2024. And at the time, we basically started featuring that as our new business product as well. So we had a customer migration motion, and then we were selling it predominantly -- or our new business was predominantly Copilot. So if you think about in market at the end of Q2, a lot of new business sold in Q3, over that first year, we've been able to track utilization, frequency of usage, specific kind of actions that customers take, and those were all positive leading indicators that we're optimistic we're going to lead to better renewal outcomes. We talked about this kind of in that interim period of customers having their first year on ZoomInfo. What we saw in Q3 was that we got to actually see the renewal outcomes for those customers. And what we did is we said, okay, we have a cohort of customers that came on Copilot as their first ZoomInfo experience, then we have a cohort of look-alike customers who came in on kind of our legacy Sales OS. And what we saw is that the renewal outcomes on Copilot were mid- to high single digit better than the legacy Sales OS, and that was true up and down the customer stack. So those positive leading indicators that we saw in Q1 and Q2 delivered better renewal outcomes in Q3. And as more and more of our customer revenue base gets on Copilot, we're hopeful that, that kind of trend continues against a larger population.

So as a CFO, that's great for your own visibility in terms of the renewal cohorts. But I guess like from the customers that have renewed, is it just like using Copilot has become a core part of their workflow? So just like how can I give this up?

Yes, it's mission-critical for them. And we're not stopping this with just kind of Copilot 1.0. We announced GTM Workspace, which you can think of as the evolution or internally, we call it Copilot 2.0. And this is just like even incrementally more promising. So they get more and more functionality. We'll have another migration motion for this at the end of this year and into 2026. And you think about kind of Copilot 1.0, it was really great at looking at your book of business account by account and telling you, here's your next best action. Here's an e-mail to send out to this person. Here's a signal we brought in from an earnings call, you should reach out to this new leader of this company. What GTM Workspace does is it kind of provides a more holistic view of a full book of business. So if I'm an account manager or I'm an SVP of Sales, I can come in and say, across my whole book of business or across my whole team, tell me what is at risk, what do we need to be focusing on today. And then it will actually build you collateral. It will memorialize artifacts and effectively do all that work for you, and it will write it back to CRM. So if you think about an AM or an account manager's kind of day-to-day, there's so much context switching. They're going from CRM to ZoomInfo to collaboration tool to a workbook here or a workbook there to e-mail. What GTM Workspace really does is it keeps them in that one place to do their day-to-day go-to-market and then it writes it back everywhere else. So it's one pane of glass that eliminates the hundreds or thousands of contact switches or significantly decreases those contact switches for go-to-market professionals.

So I have to double click on that. I mean, like you hear so often like most of the salesperson's day is not selling or most of the developer's day is not coding, right? It's kind of doing a lot of things you described. So I guess like under that framework of like how a go-to-market studio can help folks, it's like what do you think that means for what the average salesperson does?

Yes. I think, for example, it says if you -- if I'm going -- if I'm a CRO and I say, hey, to my VP of Sales, go -- what's -- I may do with a different CRO today to cut me for the meeting. If that gets pushed down to the account manager, they go bring some research. They start writing up a dock. It takes a few hours. It can take days, but it usually takes a few hours. And if you think about the cost associated with like that many levels of folks getting involved, you're talking like $20, $50, $100 of labor to go do that. GTM Workspace can effectively do that for you and do a better job of it, and will do it in 1 or 2 minutes. And then you can have an organic conversation versus an open prompt and say, okay, like condense this into one page, tell me the themes that we've kind of uncovered with this prep for this meeting and then say, what would a good outcome or a great outcome look like for this meeting? Give me a list of things that said this was the best possible outcome or this was minimally viable for that meeting. And all of that happens at the click of a button.

Yes. So you almost have like a sales playbook built for you for each meeting exactly instead of doing it yourself. I mean we talked about your data advantage, but under kind of a situation you just described, like you could try to like take an Excel list of e-mails and then use ChatGPT and like to try to build a sales playbook. But like how do you think like what the product that you just described would compare to something like that? Obviously, it's a lot easier to have it in one place. And there's a lot of like a build versus buy debate here, but how would you think about deciding between those 2?

Yes. I'd say like GTM Workspace, which the user is an account manager or an SDR or a sales leader, like that kind of workflow is already -- should be built in and teed up for them, where it's doing that behind the scenes under the hood. If I'm a, let's say, kind of a leader of RevOps or a GTM strategist, go-to-market studio will be where I could do that. So if GTM Workspace is the activation layer, go-to-market studio is really built for that practitioner. It's going to be a power user. It's not going to be a large team of folks using it, where they can have this or a workbook view. They can bring in data that's siloed across the business, so they can bring in product analytics, they can bring in their first-party CRM data, they can bring in ZoomInfo data, married it all in one workbook and essentially row by row enrich it so that they can push out kind of bespoke GTM plays to the front line. So if it's a -- a couple of examples here would be you have an event coming up and you have 100 targets that you want to go effectively get in touch with ahead of that. So you can kind of bring them all in, rank them by propensity to buy, create row-by-row AI-created talking points and then push that out to the right frontline folks to go execute.

I love that answer. And like I get the question a lot of like why can't X or Y do this. But like under this example, it's that like proactivity that's the differentiator, right? Like if you just have a system that you say like you wake up every day and I want this and it gives it to you, but it's like you're not going to have the best insights from people who run a sales enablement business at scale, right? Like you guys have thousands of people that all day think about like how can we make our customers more money and drive new features. So that's also like a difference here is like it's not static is what I'm trying to...

Always on. It's like GTM Workspace should be always on and then GTM Studio allows kind of that more kind of bespoke back kind of strategic leader to create those custom plays and push them out kind of incremental to that always-on workspace motion.

And when I hear things like that, like at least in the developer landscape, like investors will say like, okay, if developers get 25% more efficient, do we like need as many developers? And then like each company I talk to, they say like, well, everyone is a developer now. Now we have like we have way more use cases than we can actually get all these projects we wanted to. So -- and it seems like when -- across the companies that we cover, when we look at businesses like how they're handling changes in their go-to-market because of AI or large language models, they're saying, we need to move upmarket and we need to hire more salespeople, right? So I guess like how do you kind of marry like we're seeing a lot of sales efficiency, but like where the salesperson fits in regards to that?

Yes. Look, I think upmarket, there's still going to be a person in the loop on this. I think we are a great kind of place to test this because we are -- we should be the experts in go-to-market. So I don't think you take a person out of the loop here, and then it's kind of business by business, you can elect to just take the productivity upside and invest in more sales headcount behind that because everyone is 20% or 25% more productive with tools like GTM Workspace or you could kind of keep the harvest that per head uplift and you get some margin benefit. But I think we're well positioned to deliver either one.

Yes. And you can capture either some of that labor spend with additional usage of your products, right, or as people are hiring more than -- more seats on either side. I guess this would probably be a good point, just like the health of that sales hiring market. We'll talk about AI natives in a second. But just for like your core customer base, kind of like what's that looked like over the past few quarters? And kind of what have you seen more recently?

Yes. I think there's pockets of growth and there's pockets of generally flat headcount. I do think with some of the inbound disruption that a lot of companies are seeing to their funnel with AI/FEO disruption that there is a shift back towards hiring outbound. Again, we're seeing that largely kind of upmarket customers that might have downmarket customer bases are putting out more reps for outbound SDR, I think that's a good thing for us. So I do think that, that's kind of been the new dynamic over the last couple of quarters is that there's been a lean back into outbound.

Excellent. And just as you think about the components of your improving net retention, Copilot helps and improving retention rates on Copilot customers help, shift upmarket helps. So we've touched on some of the things and maybe a better macro environment for sales personnel hiring as well. But I guess like how would you disaggregate the pieces that have helped you there?

Yes. I think the -- getting further away from the downsell pressure that we went through in 2022 and 2023 from -- mostly in our software vertical, a lot of that was seat compression. Operations is a big reason -- or a big contributor to our retention improvement. The customers that buy our operations suite have very high operations retention. They tend to buy once and then buy a lot more, whether that's more data or more services around that data, getting -- shifting more and more customers off of legacy Sales OS on to Copilot, we talked about earlier, like there's a better -- there's a renewal tailwind from doing that. And just really diversifying kind of the nature of our revenue base. Like we talked about operations that is not seat-based. That's really just kind of a data access model, where we've shifted incrementally towards more kind of ELAs where a lot of our customers say, I use you for one -- for Copilot or I use you for ABM, lot's use you for everything. And we kind of give -- get them on to one ELA on a 2- or 3-year deal that removes some of the seat barriers and other things and kind of give them a lot more opportunity to really leverage ZoomInfo and then consolidate out a few other tools at the same time.

I mean that sounds like an example of a customer relationship that's going very well. But from a CFO standpoint, like is there anything we should keep in mind like as you move upmarket for contracts like that, like from a billings or seasonality standpoint or like just timing, like how you could see fluctuations in your business in a good way in the long term, but just in the near term?

There isn't a significant kind of nuance around that. It does improve total RPO. So if you look at our total bookings growth in Q3, it was significantly higher year-over-year. We had our largest TCV deal in history at the beginning of Q3, so that helped influence it. So we're -- you might see our total RPO grow faster than current RPO as we shift more and more of our customer base onto these multiyear contracts. I think Q3, we talked about the -- we crossed the 50% threshold there, where 50% of our ACV is now on a contract greater than 1 year. And like there's also a capacity unlock that comes with that. So if I'm an enterprise account manager and I have a book of 10 logos, if I have to take one of my largest logos and get them on an ELA for 3 or 4 years, like I still have to support and kind of manage that account, but I get a lot of time unlocked over the next few years to go and grow other accounts.

Absolutely. So just on kind of like the shifts in how customers are consuming sales enablement tools and ZoomInfo more broadly. It sounds like there's more of a usage component that could be possible going forward. I guess, I mean, I have a couple of other questions here, but like just initially, like on its face, how do customers think about like we want to play a per seat or like a set per month basis versus like an individual like usage portion?

Yes. I think there is a consumption or usage component that's going to become increasingly more common in the market. We've been -- so with GTM Workspace, with GTM Studio, for the first time, we'll be testing prepackaging these what we call AI action credits where we're performing AI actions for these customers. We're passing the cost through to those customers. And we've been kind of testing this internally with our own teams to be like, one, what is the cost of these actual actions? And two, what does the usage look like? So as we design this for the earliest customers that are moving on to these products, we really wanted kind of 2 guiding principles. One was simplicity and what's best for the customer to get them on the product; and two, don't artificially constrain customer usage. We want to go learn over the next 3 or 4 months what this usage curve could look like. And with that comes some AI costs. So potentially, we get some gross margin suppression. I think we feel pretty confident that we can offset that with efficiency across G&A and R&D and sales and marketing. But we're really excited about kind of this curve potential for the consumption side of our products that we hadn't really had before.

And under that dynamic, like customers feel more comfortable like starting with like a set plan amount and then you go over that, you could start pay more.

Yes. It's actually -- it's really fascinating. Like some of them want you to set them a hard limit. Some of them want to set their own hard limit. Some of them want a limit that is pooled or rep by rep. So I think we've done a lot of research on this and try to figure out what is the best thing to get customers on it without them having a fear that they're going to go over the limit and get post build or that they're going to go -- one rep is going to run through all the credits in a given month. So I do think that we found kind of an optimal place to start, but we're going to learn a lot over the next couple of quarters. And I'm really excited to come back in Q1 and Q2 next year and have an update on what these AI action credit trends look like.

And this is so early. So it's almost like an unfair question, but you talked about higher early renewal rates on Copilot, right? Like as your customers start using more consumption, like do you feel like this changes the renewal conversation of like we can see how much activity you had and like you would have went over on this month and you have more bursting around Christmas or whatever. So why don't we just -- more negotiated with more metrics behind the renewal process. Does that make sense?

Yes. And it starts like 2 or 3 years ago when we built these -- when we started thinking about Copilot or we were investing behind operations, we wanted to build products that were aimed at delighting the customer and optimizing for retention, not just that initial sale, but we want them to be -- we want to optimize for that first and second year experience when they're showing up for renewal. So part of that was to actually see if we can show them what we think the ROI would be ahead of the transaction. But yes, exactly to your point, if we walk into a renewal conversation, hopefully, 3 or 6 months ahead of a renewal, and we have high utilization across Copilot seats or workspace seats, we've got incredibly high consumption in go-to-market studio, like then basically our biggest champions are already in the company advocating for that renewal and advocating for expansion. So I think to the extent that we see like really promising trends here, it makes the renewal conversations much more fruitful.

Absolutely. And just because I have the CFO here, like that's like kind of like the icing and the good part of the AI story. You definitely want to see that utilization to have customer uptick on those products. Like you did mention like gross margins do have some impact as a result of like AI token usage. But I guess like how do you think about like more revenue and more consumption on the top line side and then the gross margin side from those new use cases?

Yes. I rank the revenue higher. So I really am excited to see what those trends look like. Like we'll have guardrails, but I'm not going to approach this from a -- this is a little bit more dilutive maybe to a gross margin perspective than other products, and we should be cautious like this is a -- let's get this in front of our customers. We're really excited about it. And the gross profit, it's all upside. Gross margin, we feel really good about the efficiency we have across the business, and we already have really high overall margins. If we've got a great product, we should get it out there.

Yes, absolutely. That makes sense. And just on like what you've done internally with AI, like we're asking everybody today, like is there anything that you have one of the best sales forces I've ever seen. I always talk about like I sign up for free trials for all these companies. And when I first started covering ZoomInfo, they called me on a Saturday as soon as I signed up for a product. But I'd love to start there. Just maybe on your own sales side, any AI efficiencies that you've seen and then maybe for the broader business as well.

Yes. Look, I think we are our first and best customer of Copilot of GTM Workspace, go-to-market studio. I think we've been able to kind of rightsize our downmarket investment while reallocating some of that upmarket. A lot of that has come by leveraging our own products. And then even outside of sales and marketing, whether it's what you would expect kind of in R&D world in finance, there's been a lot of specific kind of AI use cases that we've built from a revenue accounting risk perspective. We use Copilot to do collections and accounts receivables, like a really valuable use case. So we've been leveraging our own products across our teams at ZoomInfo.

And utilizing like agentic coding tools and -- so like do you think like across the industry, you could just see like a pickup in product development velocity as a result?

Yes. I mean we're seeing it internally. Like I think we've gone -- I think our team is -- R&D team is probably smaller than it was a few years ago and just more talent. And a lot of that is just informed by moving faster, you're able to leverage AI for a lot of kind of the noncritical work that used to go into a product road map. And our velocity is -- has to be faster than it's been than probably ever.

Excellent. And then as we kind of close out the end here, if anyone does have any questions, please e-mail me at ryan.macwilliams@wellsfargo and get those in. But we have to ask CFO on capital allocation and free cash flow per share growth. So let me just kind of hear like any updated thoughts on either those 2?

Yes. Look, we generate a lot of free cash flow. We've been very aggressive buying back our own share, which we view as a really attractive price for buybacks right now. We've retired 80 million shares of ZoomInfo since we initiated the program a few years ago. In 2026, we're really excited about accelerating our free cash flow per share growth. So when I think about the levers to free cash flow per share, I've got top line growth, I've got expanding margins and I've got buybacks. I think we're going to be aggressive across all of those, and we're going to hopefully get to a spot where we're kind of doing all 3 and compounding that effect. So remain confident that we can grow, accelerate the top line, expand margins, continue to be really aggressive buying back shares at these prices and you get kind of that outsized impact on free cash flow per share.

Excellent. And then just to kind of wrap things up here on my side. your conversations post the quarter with investors, what are those -- like they touched on anything that was interesting or you haven't thought of before? Or is there an area of focus that it seems like a pain point or just like investors are -- you're getting more questions than not now?

Yes. I think conversations after we released earnings on the call were really positive. I think folks were pleasantly surprised by the upmarket acceleration. I think that was generally above and beyond expectations. It was good to see some improvement in down market. A lot of what our investors are kind of digging in on is like GTM Workspace, what the next evolution of Copilot looks like, the excitement around operations, like that's still growing 20% and it's accelerating and it's 15% of the business, what could the future of that business look like in 2 to 5 years. So it's generally positive exciting conversations.

I mean you have to think that like the role of the salesperson changes so much over the next 2 years, right? Like the amount that you would like have to prebuild and pre-research before you had a prospect meeting, right, or what you can even do within the prospect meeting in itself has changed a lot. So like for me, like I always say like we've seen in coding where people utilize something like code like 50 to 60 times a day to build something for them or create something for them. So it would make sense that like the salesperson, like given the interface that they're used to, right, we will have that like a level of creation as well where they are doing things on their behalf in tandem. So at least like for my life, I would love to just have like the e-mails that come in for me prewritten or like an attack plan each day. So it makes sense that like kind of like the day-to-day will be shifting going forward.

Every AI action in GTM, we should be in the loop on and delivering value.

Yes. And I think that's like the distinction. Like if you view AI as like a replacement, then I think you'll be disappointed with where the features are at today. But if you view it as an assistant or like a great teammate to be a part of what you're doing in sales or whatever use case, then it's like, oh, this is amazing, right? Like I didn't have to go through my notes for 2 hours and then build a plan. So guys, thanks so much for joining the ZoomInfo fireside here with me and Graham. If you have any questions, feel free to get them over and get them to Jerry and the team. So thanks so much.

Appreciate it.