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

Okay. Hello, everyone. I hope everyone is enjoying the UBS Tech Conference. My name is Taylor McGinnis. I head up the SMIDCAP application SaaS software space here at UBS. And in this session, we have ZoomInfo's CEO and Founder, Henry; and then also CFO, Graham. So Henry and Graham, thank you guys so much for being here today.

Thank you for having us.

Perfect. Well, to the extent anyone has any questions in the audience, I'll just remind you that you can submit questions through the app, and we'll save a few minutes at the end to address any of them. So with that, should we dive in?

Perfect. Henry, maybe one for you to start. So there's been a nice resurgence in ZoomInfo's growth trajectory. You guys have rebounded to 5% year-over-year in the last 2 quarters. NRR has improved to 90%, up from the mid-80s. So maybe you could just talk through the current demand trends that you're seeing and also how ZoomInfo is strategically evolving its business and strengthening for future growth opportunities?

Yes. I think there -- if you kind of go back 2 years ago, 1.5 years ago, I kind of said we were going to do two things in the business that would set us up for more durable long-term growth. First, we were going to move the business up market. Our upmarket customers retain at higher rates, they grow faster, they're stickier business. We have the best product market fit up market. It's also a much more profitable business than our downmarket business. And over the last 2 years, we've moved 10 points of revenue up market into that upmarket segment. So it went from -- or 10 points of our the percentage of the revenue that was attributed to upmarket. In the last year, we moved that 5 points. And so that movement gives us a much more durable customer base and higher net retention rates. That business, the upmarket business grew 6% last quarter that accelerated from 4% the quarter before. And so we think just the customer base is far healthier. And then the next thing we said was we see a really big opportunity with AI in go-to-market, and we were going to go aggressively after that opportunity. In May of '24, we released our first product there our Copilot product. And so we've just started coming around on sort of a full year of renewal on that Copilot product. What we're seeing is customers who use Copilot and leverage the AI functionalities there, renew and retain at mid- to high single digits better than our legacy sales product. So as customers are engaging with our new products, net retention rates are higher. We had rebuilt over that period of time, our product and engineering organizations. And so today, we're releasing more products faster that are better than any products we've ever released to ZoomInfo, and that's going to drive better net retention results. And then, I would say kind of the last thing that we're seeing is customers want to build AI agents internally in their businesses. And all they have internally is first-party data. That first-party data largely comes from their CRM system or their marketing automation systems. And they cannot build good AI on top of first-party data that isn't complete, enriched, cleansed and updated. And what you're seeing in our operations business, which is primarily the top segment of our upmarket business. That business is growing 20% year-over-year. It's now 15% of our ACV, and we think that will have a continued tailwind through '26 and beyond as customers realize that if they want to build AI and anything outside of life support and responding to inbound customer chat support type request, they're going to need a third-party partner that has data that they can use to master their own data and then give them a full view of the world.

Perfect. Yes. Let's unpack each of these emerging opportunities. So starting with copilot, he mentioned you're at the point where these customers are starting to come up for their second renewal. So two questions here. One, where -- what inning are we in terms of the migration from SalesOS to Copilot and how much runway still remains? And then as a second part, I'd love to hear the kind of uplift you guys are seeing when companies make that move. And then also, when they're coming up for the second renewal, you made a comment earlier how renewals are stronger than what you saw under SalesOS. So why is that? What's driving that?

Yes. Let me take some of that, and Graham can fill in. I would say we're early in the first half of that migration. Today, there's about $250 million of our ACV is on -- its Copilot at ACV. We said when we released Copilot that it would be around a 3-year migration for us to move our customers from sale -- legacy SalesOS to Copilot. So we're kind of well on our way there. I feel good about the progress. When you're using Copilot, there's -- the main thing that changes is ZoomInfo historically had like a pull mechanism. You would come in and you would say, "I'm looking for these types of companies. I'd like to see these types of companies that have this kind of intent or have this new -- this type of funding or just higher the CRO or research to my competitors or research product in my space. And you'd have to sort of and visited my website, you'd have to piece together a bunch of little things that you thought would deliver you the best audience to go drive top of the funnel. And that was a pretty cumbersome user experience. And so the first big change that happens with Copilot is it moves from a pull mechanism to a push mechanism. When you sign up for Copilot, we look in your CRM, we look at the opportunities you closed. We looked at the signal that those opportunities were demonstrating in the 60 and 90 days before they became opportunities. And then we go apply that to your total addressable market. So when you sit down as a salesperson or a marker out a company, you see a list of the top prioritized accounts, the reasons why they're prioritized and the people you should be engaging with. And then there's AI embedded throughout. So you can use AI to write an e-mail to the right people. You could use AI to understand an account and your conversations with that account. You could use AI to understand what they're upset about, what they're happy about to prep you for a meeting. And so all of that functionality just makes for a better user experience, higher engagement rates and then that's leading to better retention outcomes.

Yes, I can talk about some of the timeline here. We released Copilot in May of 2024. In the first year really was a story about the migration of the SalesOS customer base on to Copilot. And I think that was a successful migration so far. We're able to get double-digit uplift on a per seat basis during that migration period. I think what we're starting to shift towards now, we'll still continue to migrate customers onto Copilot and onto GTM Workspace. But what's really exciting is the actual renewal outcomes that we're seeing now the customers have been on Copilot for 6 months or a year. Like that's what we built this product, these AI products for us to deliver like positive retention outcomes really deliver value to those customers. And what we saw is that mid- to single-digit uplift for those early cohorts that came up for renewal in Q3. So through Q2 of this year, largely a migration story. Now that we're getting into being-- Copilot being out there for a full year plus seeing that mid- to high single-digit uplift relative to legacy SalesOS customers was really promising. And with the 5-point improvement we've seen to overall net dollar retention over the past year, going from 85% to 90%, we don't get that improvement without Copilot.

Yes. I appreciate all that color. That was really helpful. And the other two big products, that ZoomInfo recently as GTM Studio and GTM Workspace. I recognize these are still very early stage, but maybe you could just give some color on what initial customer feedback has been and any early signs of adoption. And then the second part to that question, it seems like ZoomInfo has this great opportunity to be the consolidator of a lot of point solutions in this broader space. So is that the intended goal here? And how are you thinking about the opportunity split between white space and then also displacement?

Yes. So look, I think that in the future, there is going to be a go-to-market AI platform. And when you look across -- you walk into a company, there's HR, there's engineering, there are people who build the product. And then on the other side, there are people who sell -- who sell the product and market and sell the product. For HR, there's a Workday. For IT, there's ServiceNow. For cybersecurity, there's Palo Alto or CrowdStrike for engineering, there's Atlassian, yet half of the businesses go to market and there's no obvious platform for a go-to-market person to do work inside of. CRM is a great system of record. But to do work in the AI era, you can't just rely on first-party data. And so we really believe that the big opportunity in front of us is a go-to-market AI platform where go-to-market practitioners, whether they be marketing or sales account managers or account executives do their work. In order to get that -- to deliver that, the first thing you need is context for the AI agent. You have to have first-party data from your systems of record and married to third-party data that comes together in a really clean way and deliver the contextual engine that AI agents can be -- can build on top of. And so we've been very focused on building that. And then that sort of core layer is what powers Copilot, it's what powers GTM Studio. It's what powers GTM Workspace. The way you should think about those products now, is GTM Studio is where you architect and orchestrate a go-to-market motion. And then workspaces where you execute it, you can also execute it inside of our marketing platform. But let me give you an example. When I get all of that data together in one place, I can start building really unique audiences and then automating outreach to those audiences. So I might say, hey, show me all of the customers that we had a call with in the last 12 months that mentioned a competitor and then get me the renewal date of the competitor that was mentioned in that call and then make sure that they're not customers of ours, so the closed lost opportunity. I build that audience and then what do I want to do with that audience? I want to go execute it somehow. If I'm going to execute it, I want -- and I want to execute it through a sales channel, I want to be able to deliver that with really specific personalized talk track that take into consideration all the engagements we've had with them, the size of the customer, who of their competitors that are clients of ours. And so now I can use AI to write very specific row-by-row messaging. And so every row is very personalized to the engagements we've had with that company through the ZoomInfo information we have on that company. And then once I have that together, I can execute it in Workspace. And so what that means is, I put it in front of an account executive, an account manager, a seller with the talk track with the e-mail for them to go execute against and the contact information of the people to execute with or I can push that into a display ad or a connected TV ad through ZoomInfo marketing. But ideally, I'm doing both. So that marketing and sales are fully aligned and they're delivering -- they're engaging with the same people on the sales side as they are from a marketing perspective. And so what we're hearing from our early go-to-market Studio customers, and this is really early, is, one, I'm able to stack a number of signals that I was never able to do before. I wasn't able to go pool the people who said something specific in a call and marry that to people who have visited my website or were closed lost or mentioned a competitor. I wasn't ever able to do that before. And so now I can build really unique audiences, leverage AI to write really personalized messaging and then I can execute in a way that doesn't take me out of one system into a CSV, into another system, into another CSV. And so it's providing this very seamless execution track for them. And so that vision is absolutely landing with our customers. The products that we're building there, if you think about ZoomInfo historically, one of the big benefits we have in the AI age is that historical ZoomInfo wasn't a heavy SaaS application. It was a pretty thin layer of SaaS over a data asset. And so when we started building for AI, we weren't burdened or anchored, we're sort of a legacy SaaS architecture that we have to work around. There weren't a bunch of deterministic workflows. Everything we're building Copilot, Workspace, Studio. All of those solutions are AI native because we weren't trapped in this. What you would find in just about every other $1 billion SaaS business we weren't burdened with. And so all of the new solutions are AI first, the velocity with which we're releasing those products is incredibly fast, and we don't have to sort of like bend over backwards to build it around legacy architecture.

Yes. It's all super interesting, and I'm really excited to see how a lot of this evolves. So we've talked a lot about the cross-sell and upsell opportunities, but there's still a portion of the business that is dependent on seat expansions and what you're seeing in terms of seat activity amongst sales organizations. So I think it would be great for the audience to get an update on what you guys are seeing there. I know there have been, especially within the tech sector, a notable number of rips that we've heard about in the second half of this year. Is there a risk that we could see another round of rightsizing and optimization? What are you guys hearing from your customers where we stand today and where we're going in 2026?

I think we feel pretty much like the layoff RIF environment has been pretty stable over the last 12 months. And that where -- there are risks happening today is very different than where risks were happening in '23, where in '23, the go-to-market organization was a big part of that. Today, we're seeing less and less go-to-market organizations to be targeted by risk, and it's been pretty stable over the last 12 months. There have been pockets of opportunity. I think as the LLM have taken traffic away from company's websites. When you lose traffic to your website, it means you lose people who fill out a form, which means you lose people who take a demo, which means you lose opportunities and you ultimately lose revenue. And so you've lost control of what was a pretty stable demand environment. And everybody is seeing that are -- and we're included in that category. And what we're seeing from customers now is that they're saying, okay, wait a second, if my demand, the top of funnel demand is going to be this affected by AI and LLM, I need to take control of that again. And so they're hiring outbound SDRs more aggressively today across a number of our customers than they have over the last 3 and 4 years. And so we're seeing them invest in outbound SDRs to make up for the demand gap that they're seeing from the LLMs and the AI and what's happening in AIO.

I'll add a couple of things on top of that, too. We also have a lot of seat opportunity within our current customers, account management seats, account executive seats, seats that we haven't traditionally penetrated as much with GT and Workspace with Copilot. We have a lot of opportunity there that doesn't require any kind of net seat growth in the space. And then we're just -- we're less dependent on net seat growth for growth than we were 3 or 4 years ago. Our fastest-growing product suite, operations is more than 15% of our total ACV. It's growing greater than 20% and accelerating. That's not a seat-based model. So we have kind of a more diverse set of levers for growth as we move forward.

Yes, all makes sense. And I'm happy that you flagged that. And Henry, going back to what you were talking about earlier with SEO disruption and the potential for that to actually be a tailwind for ZoomInfo. Are you starting to see that or hear that more frequently in customer conversations? Is it still very early days? I guess where are we in seeing that opportunity play?

Yes. I think it's like pretty anecdotal today, but we are hearing it a number across dozens of customers. And I think that what we'll see as we sort of progress through '26 because I think people are a little bit shell-shocked today is that when they build their demand plans for '26, there will be more and more SDRs and sales-led outbound that are part of that. The other place that we see it, is we see a lot on win back and so customers who left ZoomInfo a year ago or 2 years ago for a lower price -- lower quality alternative are coming back to us and are coming back to us and telling us data quality is actually much more important than we thought it was. And the only way that really bubbles up is, well, two ways. One, if you're trying to build AI around it. And two, because your sellers are saying like, "I can't hit my number. because the data that you're giving me to sort of go out and build top of the funnel is no good." So those two places we're seeing more of it.

Perfect. And Graham, turning over to you to unpack some of the financials. So we've seen a bit of difference in growth between upmarket and downmarket. So upmarket, there's been a notable improvement in ACV growth. Even last quarter, it accelerated 2 points to reach 6% year-over-year. I think when we look into 4Q, you're assuming a steadier performance there. But, one, on the upmarket business, can you talk about the trends that you're seeing there? Are there any initiatives ZoomInfo has in place to further unlock momentum in that business?

Yes. We're really pleased with the improvement in that market growth in Q3. I think that the future growth of the company is largely going to be dependent on the upmarket business. Our margin retention was at or above 100% in period for the past 2 quarters. I think getting upmarket retention to 105% and beyond that, it's like the true key unlock to getting overall growth to mid- to high single digit range. And I think the initiatives are very -- like I think we've restructured our go-to-market teams over the last few years. We've reallocated resources upmarket. I think the future is really just in delivering the products that we've invested behind. GTM Workspace, GTM Studio, Copilot, operations, like these are effectively the strategic focuses that will drive that continuing improvement in the upmarket business.

Yes. And then maybe when we look down market, so ACV growth down market has been declining in the low teens range, and it's been pretty stable. I think when we look into the 4Q guide, I think the assumption is conservatively that, that growth could decline potentially a little bit more. When we think about the moving pieces of that growth rate moving forward, I think now we're a year plus into the new business risk model. What -- what's further pressuring that SMB segment. And then as we look ahead, is there a time frame for when we could start to see some of those declines start to moderate?

Yes. And I think the goal always has at least for 1.5 years is to make the downmarket business a smaller and healthier version of itself. Both of those things are true. I mean it's smaller than it was a year ago, it's 27% of the total mix on the way to 25% and eventually 20% over the next few years. and it's healthier. The net revenue retention down market improved sequentially from Q2 to Q3. That was largely the output of those changes that we made a year ago where we started qualifying the new business that we put into the down market at a more rigorous level. We changed pricing and packaging, all with a focus on optimizing kind of customer experience and eventually retention outcome. So we started to see those in Q3. The downmarket business is inherently more sensitive to macro trends. So we're always going to continue to be cautious about expecting a continued improvement after we did see 1 point improvement from Q2 to Q3. We are seeing some incremental pressure on new business down market, and that's coming from what we talked about earlier with an AI disruption of top of funnel SEO. Our upmarket business is largely insulated from that, but we are seeing what everyone else is seeing down market from that.

Perfect. And then in terms of the path from getting NRR from 90% to 100% plus and going from mid-single-digit growth to high single digit and above. Graham, I know you talked about a couple of unlocks upmarket. Maybe it's a function of down markets starting to work through some of these new business headwinds. But what do you see as being the key to getting NRR back up potentially to those levels? Is that still a goal for ZoomInfo?

Yes, it's still the goal for ZoomInfo. From a numbers perspective, I think it's -- let's get the upmarket business to 80% mix. At the beginning of this year, I thought that might take 5 years. I think we're ahead of schedule. And maybe that's 2 years out, something like that. We're essentially moving towards that faster, and that's a good thing. If we can get the upmarket business to be 80% mix and also have 110% retention, we're at 100%-ish right now, get to 105 get to 110. You don't really need to improve the downmarket business that much, and you're basically at 100% overall net retention. If you do that, you're high single digit, if not a double-digit grower.

Perfect. And Henry, over to you. So we saw the 8-K related to the recent equity grant. So anything that you'd like to flag there or additional perspective to provide?

Sure. I think the -- look, every year, the Board grants the equity and as part of the regular process, this year, I talked to the comp committee and said I'd rather be much more aligned to outcomes and performance, and I want to be aligned to shareholder outcomes and performance. And so the way that the plan is set up, is that there are multiple hurdles that are based on stock price outperforming the Russell 3000 and free cash flow per share. And I can see my way over time to jumping all of those hurdles. So it's a plan that I'm excited about, I think, align with shareholders much closer. And with the new products that we're releasing and the opportunity we see with the go-to-market AI platform, I can see a real pathway to achieving that.

Perfect. And let's go back to OperationsOS. That's been playing an important role for growth. It's consistently been growing 20% plus. So could you just talk about the demand trends that you see there? It sounds like there's potential AI tailwinds attached to that business. So what's the update?

Sure. So I think a couple of things there. One, it was growing 20% year-over-year, and it's accelerating. It's 15% of our total ACV now. I think the big opportunity there is, when we sell operations, what we're doing with the customer is, we're plugging into their Snowflake system, their CRM system, their marketing system, big query, data brick. Or we're delivering a file of data that enriches and cleanses and append their first-party data. That -- today, we sell that almost exclusively in the highest end of our upmarket business, largely because that's where the sophistication is to buy data and plug it into your systems or take a flat file and integrate it with your systems. The big opportunity we see in '26 is being able to use Studio as the -- use GTM Studio as the interface to sell operations to a much broader segment of our customers. Today, if I went to a VP of RevOps at the lowest end of the enterprise business, and I said, "Do you want to buy a flat file of data or plug us into your snowflake to cleanse in append data, they'd be like, I don't buy data." That's not like what I do. I buy software, I plug systems into things. And what Studio gives us the ability to do is actually show up with a software interface that says like, here's your total addressable market. You plug it into Snowflake here, you plug it into CRM here, you can bring that data in, you can merge it, you can match it, you could use AI. And so it opens up a much larger segment of the market for us to sell our fastest-growing product into.

Perfect. And on the like other pricing models outside of just the core SalesOS and Copilot and some of the newer opportunities. In last quarter, you also called out usage and other revenue contributing to the outperformance to top line growth. So, could you just talk about what happened in that business? Is there more durable trends going forward? Do you -- I know it's a very small portion of the business today, but could this be more needle moving going forward? I guess how should we think about that?

Yes. It's still a small part of the business. It contributed about $3 million of revenue a year ago in the quarter, and it's closer to $6 million this year. Thinking about this is like kind of our e-mail verification tool, our marketing ad spend things that aren't subscription revenue. So really, we wanted to kind of introduce language around this to help people bridge the year-over-year revenue growth back to our year-over-year ACV growth. And going forward, we'd expect it to kind of continue at the level it's at.

Perfect. Now we'll -- with the last like a few minutes here, I'll take some from the audience. So the first one is talk about the initiatives you're leading in verticalizing data sets. What's the opportunity here? Is it mostly greenfield and underserved opportunity today?

We have a pretty horizontal data asset. It could serve customers from a forklift manufacturer in Georgia to a top 10 company in the world. But what we've realized is -- and what our customers are realizing is that data can really create alpha in the way that they prioritize and engage with account. And so they'll come to us with like really unique ideas. I need a -- what I really -- I love ZoomInfo, but what I really love is a list of every contractor in the United States with the number of cars in their fleet. Whether they're a roofing contractor or an electrical contractor, how many people work from, how do I get a hold of the owner. Those are like really interesting use cases. And what we realize is we can go out, collect that data, bring it together, marry it to ZoomInfo so that it's not just like data attributes, but it's actually married to data that allows you to take action against it, and our customers would get a lot of value out of it. So the first one was this contracting data asset where we now have the world's most comprehensive data asset of contractors married to how many cars are in their fleet, how many employees work at the company, the information on who to contact their e-mail addresses and technographic background on them. And so customers will tell us, not only do I want to know the number of contractors, but I only want to target ones that have over $1 million in revenue. Well, that's not just like an available data point. But what you could do is you could take these other data points that ZoomInfo has long collected to be proxies for that. Do they have over three vehicles in their fleet. Do they have a certain number of employees that we profiled. Are they hosted on AWS and not GoDaddy? And we can bring that all together to help them build the models that they need to go to market in a more prioritized way. And so we released that. We released a restaurant data set that covers every restaurant in the United States and married that to the owner of the restaurant, the manager of the restaurants. So there's outreach available for inside sales teams. And we'll continue to go down the list our customers are pulling us into these different use cases. We had a customer recently a fast-growing payments company that said, we realized that selling the franchisors is a really unique opportunity for us, and we have a lot of success there. But there's no universe where I can find out who the franchisor of every Wendy's or KFC is in any number of states. And that would be incredibly valuable data to us. Well, it's valuable to them. It's valuable to a whole bunch of other people, too. And so we were able to go out, collect all of that data, deliver it in GTM Studio and then go out to hundreds of other customers who want that same data asset, deliver it in a way that allows them to take advantage not only of that new unique data point, but also all of the ZoomInfo data around it. And we think that's going to continue as people realize that these unique data points give them real alpha in the way that they go to market.

Perfect. And we touched on this a bit earlier, but maybe you can provide a little bit more detail here. So it's on the new workflow products like GTM Workspace and GTM Studio. So What are you observing in terms of customer usage there, use cases, personas in the rev, et cetera?

Yes. So personas on Studio are going to be rev ops sales ops, marketing ops professionals who are building really unique audiences, leveraging our data their own data from an ecosystem that now has, I think, close to 100 integrations that can come into Studio as well. So if you're a similar web customer and you want to bring web traffic data in, you could bring web traffic data in from similar web and a long tail of other providers there. So they're building audiences there. And then in Workspace, our AEs and AMs as are using it to build a prep for a meeting, build a deck for a meeting, send a follow-up, right e-mails, prioritize which accounts they should be engaging, build an account plan, building a buyer engagement map. It's AI that sits across the most cleansed and rich data that exists for GTM and then you can use that AI to do any number of GTM tasks.

Perfect. And Graham, I'll end on one for you, but the classic, how are you thinking about balancing revenue growth and profitability improvement as we look into next year? I think that there's been some impact to gross margin from AI and those solutions scaling. I would imagine there's potential offsets on the OpEx line, but maybe you could just talk through the puts and takes there.

Yes. We do not view accelerating revenue growth and improved profitability at odds with each other. With some of these kind of exciting AI-powered products, there will be an AI action credit kind of consumption revenue line spend that we haven't had in the past. So that brings revenue upside, but it also -- there's real costs associated with these AI actions that essentially could push gross margins down a point or 2 in 2026. Again, that kind of comes with revenue upside. But we feel really confident in where our operating expenses are from a run rate perspective. Our cost base is significantly lower right now than it was entering the year. So sales and marketing gets more efficient as we move upmarket. G&A, we've really been able to leverage AI to get more efficient. And I would expect that those could essentially go down as a percentage of revenue in 2026. And overall, what that kind of leads you to is that we continue to be really confident in the opportunity to accelerate free cash flow per share growth in 2026 and beyond.

Perfect. Awesome. We'll end it there. Thank you, everyone, for joining, and let's get them a round of applause.

Thank you, Taylor.